Maturity Schedule (see inside front cover)

Transcription

1 NEW ISSUE FULL BOOK-ENTRY RATING: Moody s: Aa1 In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. See TAX MATTERS herein. $49,990, General Obligation Refunding Bonds, Series A (2024 Crossover) CARLSBAD UNIFIED SCHOOL DISTRICT (San Diego County, California) $10,100, General Obligation Refunding Bonds, Series B Dated: Date of Delivery Due: August 1 or May 1, as shown on inside cover 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. Capitalized terms used on this cover page but not otherwise defined shall have the meanings assigned herein. The Carlsbad Unified School District (San Diego County, California) 2017 General Obligation Refunding Bonds, Series A (2024 Crossover) (the Series A Refunding Bonds ) are being issued by the Carlsbad Unified School District (the District ) to (i) advance refund, on a crossover basis, a portion of the District s outstanding Election of 2006 General Obligation Bonds, 2009 Series B, and (ii) pay the costs of issuance of the Series A Refunding Bonds. The Carlsbad Unified School District (San Diego County, California) 2017 General Obligation Refunding Bonds, Series B (the Series B Refunding Bonds, and together with the Series A Refunding Bonds, the Bonds ) are being issued by the District to (i) advance refund a portion of the District s outstanding Election of 2006 General Obligation Bonds, 2011 Series C, and (ii) pay the costs of issuance of the Series B Refunding Bonds. Prior to May 1, 2024 (the Crossover Date ), the Series A Refunding Bonds shall be secured by and payable solely from proceeds of the Series A Refunding Bonds deposited into an escrow subaccount established therefor. From and after the Crossover Date, the Series A Refunding Bonds shall, without any further action on the part of the District or the Owners or Beneficial Owners of the Series A Refunding Bonds, constitute general obligations of the District payable solely from ad valorem property taxes. From and after the Crossover Date, the Board of Supervisors of San Diego County (the County Board ) shall be empowered and obligated to levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation thereby (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series A Refunding Bonds when due. The Series B Refunding Bonds are general obligations of the District payable solely from ad valorem property taxes. The County Board is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation thereby (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for The Depository Trust Company, New York, New York (collectively referred to herein as DTC ). Purchasers of the Bonds (the Beneficial Owners ) will not receive physical certificates representing their interests in the Bonds, but will instead receive credit balances on the books of their respective nominees. The Bonds will be dated as of their date of delivery and will be issued as current interest bonds, such that interest thereon will accrue from such date of delivery and be payable semiannually on (i) May 1 and November 1 of each year, commencing May 1, 2018, with respect to the Series A Refunding Bonds, and (ii) February 1 and August 1 of each year, commencing February 1, 2018, with respect to the Series B Refunding Bonds. The Bonds are issuable as fully registered bonds in denominations of $5,000 principal amount or any integral multiple thereof. Payments of principal of and interest on the Bonds will be made by the Treasurer-Tax Collector of San Diego County, the designated paying agent, bond registrar and transfer agent (in such capacity, the Paying Agent ), to DTC for subsequent disbursement to DTC Participants (defined herein) who will remit such payments to the Beneficial Owners of the Bonds. The Series A Refunding Bonds are subject to optional redemption prior to maturity as further described herein. The Series B Refunding Bonds are not subject to optional redemption prior to maturity as further described herein. Maturity Schedule (see inside front cover) The Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval of legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel and Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Norton Rose Fulbright US LLP, Los Angeles, California. The Bonds, in book-entry form, will be available for delivery through the facilities of DTC in New York, New York on or about December 6, Citigroup Dated: November 8, 2017

2 MATURITY SCHEDULES Base CUSIP (1) : $49,990,000 CARLSBAD UNIFIED SCHOOL DISTRICT (San Diego County, California) 2017 General Obligation Refunding Bonds, Series A (2024 Crossover) Maturity (May 1) Principal Amount Interest Rate CUSIP Suffix (1) Yield 2025 $75, % 1.570% EP , EQ , ER ,640, (2) ES ,110, (2) ET ,620, (2) EU ,090, (2) EV ,580, (2) EW ,095, (2) EX ,625, (2) EY0 $10,100,000 CARLSBAD UNIFIED SCHOOL DISTRICT (San Diego County, California) 2017 General Obligation Refunding Bonds, Series B Maturity (August 1) Principal Amount Interest Rate CUSIP Suffix (1) Yield 2018 $230, % 0.970% EZ , FA ,265, FB ,900, FC ,610, FD ,410, FE3 (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Capital IQ, on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Services. None of the Underwriter, the Financial Advisor or the District are responsible for the selection or correctness of the CUSIP numbers set forth herein. (2) Yield to call at par on May 1, 2027.

3 This Official Statement does not constitute an offering of any security other than the original offering of the Bonds of the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)2 and 3(a)12, respectively. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Certain of the information set forth herein has been obtained from sources outside of the District which are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. When used in this Official Statement and in any continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced in this Official Statement, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The District maintains a website. However, the information presented on the District s website is not incorporated into this Official Statement by any reference, and should not be relied upon in making investment decisions with respect to the Bonds.

4 CARLSBAD UNIFIED SCHOOL DISTRICT Board of Trustees Elisa Williamson, President Ray Pearson, Vice President Kathy Rallings, Clerk Claudine Jones, Member Veronica Williams, Member District Administration Benjamin Churchill Ed.D., Superintendent Christopher Wright, Assistant Superintendent of Business Services Shelly Kruse, Director of Fiscal Services PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation San Francisco, California Financial Advisor Piper Jaffray & Co. El Segundo, California Paying Agent Treasurer-Tax Collector of San Diego County San Diego, California Escrow Agent U.S. Bank National Association Los Angeles, California Escrow Verification Causey Demgen & Moore P.C. Denver, Colorado

5 TABLE OF CONTENTS Page INTRODUCTION... 1 THE DISTRICT... 1 PURPOSE OF THE BONDS... 2 AUTHORITY FOR ISSUANCE OF THE BONDS... 2 SOURCES OF PAYMENT FOR THE BONDS... 2 DESCRIPTION OF THE BONDS... 2 TAX MATTERS... 3 OFFERING AND DELIVERY OF THE BONDS... 3 BOND OWNER S RISKS... 3 CONTINUING DISCLOSURE... 4 PROFESSIONALS INVOLVED IN THE OFFERING... 4 FORWARD LOOKING STATEMENTS... 4 OTHER INFORMATION... 4 THE BONDS... 5 AUTHORITY FOR ISSUANCE... 5 SECURITY AND SOURCES OF PAYMENT... 5 STATUTORY LIEN ON AD VALOREM PROPERTY TAXES... 6 GENERAL PROVISIONS... 7 ANNUAL DEBT SERVICE... 8 APPLICATION AND INVESTMENT OF BOND PROCEEDS... 9 REDEMPTION BOOK-ENTRY ONLY SYSTEM DISCONTINUATION OF BOOK-ENTRY ONLY SYSTEM; REGISTRATION, PAYMENT AND TRANSFER OF BONDS DEFEASANCE ESTIMATED SOURCES AND USES OF FUNDS DISTRICT TAX BASE AD VALOREM PROPERTY TAXATION ASSESSED VALUATIONS SECURED TAX CHARGES AND DELINQUENCIES ALTERNATIVE METHOD OF TAX APPORTIONMENT TEETER PLAN TAX RATES PRINCIPAL TAXPAYERS STATEMENT OF DIRECT AND OVERLAPPING DEBT CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS ARTICLE XIIIA OF THE CALIFORNIA CONSTITUTION LEGISLATION IMPLEMENTING ARTICLE XIIIA UNITARY PROPERTY ARTICLE XIIIB OF THE CALIFORNIA CONSTITUTION PROPOSITION ARTICLE XIIIC AND ARTICLE XIIID OF THE CALIFORNIA CONSTITUTION PROPOSITIONS 98 AND PROPOSITION PROPOSITION 1A AND PROPOSITION JARVIS VS. CONNELL PROPOSITION 30 AND PROPOSITION PROPOSITION PROPOSITION FUTURE INITIATIVES i

6 TABLE OF CONTENTS (cont'd) Page DISTRICT FINANCIAL INFORMATION STATE FUNDING OF EDUCATION OTHER REVENUE SOURCES DISSOLUTION OF REDEVELOPMENT AGENCIES ACCOUNTING PRACTICES COMPARATIVE FINANCIAL STATEMENTS BUDGET PROCESS STATE BUDGET MEASURES CARLSBAD UNIFIED SCHOOL DISTRICT INTRODUCTION ADMINISTRATION HISTORICAL ENROLLMENT LABOR RELATIONS DISTRICT RETIREMENT SYSTEMS OTHER POST-EMPLOYMENT BENEFITS RISK MANAGEMENT JOINT POWERS AGREEMENTS DISTRICT DEBT STRUCTURE TAX MATTERS LIMITATION ON REMEDIES; BANKRUPTCY LEGAL MATTERS LEGALITY FOR INVESTMENT IN CALIFORNIA EXPANDED REPORTING REQUIREMENTS CONTINUING DISCLOSURE NO LITIGATION FINANCIAL STATEMENTS ESCROW VERIFICATION LEGAL OPINION MISCELLANEOUS RATING UNDERWRITING ADDITIONAL INFORMATION APPENDIX A: FORMS OF OPINIONS OF BOND COUNSEL... A-1 APPENDIX B: AUDITED FINANCIAL STATEMENTS OF THE DISTRICT... B-1 APPENDIX C: FORM OF CONTINUING DISCLOSURE CERTIFICATE... C-1 APPENDIX D: ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF CARLSBAD AND SAN DIEGO COUNTY... D-1 APPENDIX E: SAN DIEGO COUNTY TREASURY POOL... E-1 ii

7 CARLSBAD UNIFIED SCHOOL DISTRICT (San Diego County, California) $49,990, General Obligation Refunding Bonds, Series A (2024 Crossover) $10,100, General Obligation Refunding Bonds, Series B INTRODUCTION This Official Statement, which includes the cover page, inside cover page and appendices hereto, provides information in connection with the sale of the (i) Carlsbad Unified School District (San Diego County, California) 2017 General Obligation Refunding Bonds, Series A (2024 Crossover) (the Series A Refunding Bonds ), and (ii) 2017 General Obligation Refunding Bonds, Series B (the Series B Refunding Bonds and together with the Series A Refunding Bonds, the Bonds ). This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. The District The Carlsbad Unified School District (the District ) was established as a unified school district in The District is located in the northwestern portion of San Diego County (the County ) and encompasses approximately 30.2 square miles. The District provides kindergarten through twelfth grade education services, maintaining nine elementary schools, three middle schools, two high schools, one alternative school and one independent study school. The District s average daily attendance for fiscal year is budgeted to be 10, and the total fiscal year assessed value of property within the District is $22,162,569,878. The District is governed by a five-member Board of Trustees (the Board ), each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. The management and policies of the District are administered by a Superintendent appointed by the Board who is responsible for day-to-day District operations, as well as the supervision of the District s other personnel. Dr. Benjamin Churchill is currently the District Superintendent. See DISTRICT TAX BASE for information regarding the District s assessed valuation, and DISTRICT FINANCIAL INFORMATION and CARLSBAD UNIFIED SCHOOL DISTRICT herein for information regarding the District generally. The District s audited financial statements for the fiscal year ended June 30, 2016 are attached hereto as APPENDIX B and should be read in their entirety. 1

8 Purpose of the Bonds The Series A Refunding Bonds are being issued to (i) advance refund, on a crossover basis, a portion of the District s outstanding Election of 2006 General Obligation Bonds, 2009 Series B (the 2009 Series B Bonds ), and (ii) pay the costs of issuing the Series A Refunding Bonds. The Series B Refunding Bonds are being issued to (i) advance refund a portion the District s outstanding Election of 2006 General Obligation Bonds, 2011 Series C (the 2011 Series C Bonds ), and (ii) pay the costs of issuing the Series B Refunding Bonds. The 2009 Series B Bonds and the 2011 Series C Bonds to be refunded with the proceeds of the Bonds are referred to herein as the Refunded Bonds. See also THE BONDS Application and Investment of Bond Proceeds and ESTIMATED SOURCES AND USES OF FUNDS herein. Authority for Issuance of the Bonds The Bonds are issued pursuant to certain provisions of the Government Code and pursuant to a resolution adopted by the Board on October 18, 2017 (the Resolution ). See THE BONDS Authority for Issuance herein. Sources of Payment for the Bonds Series A Refunding Bonds. Prior to May 1, 2024 (the Crossover Date ), the Series A Refunding Bonds shall be secured by and payable solely from proceeds of the Series A Refunding Bonds deposited into an escrow subaccount established therefor. From and after the Crossover Date, the Series A Refunding Bonds shall, without any further action on the part of the District or the Owners or Beneficial Owners of the Series A Refunding Bonds, constitute general obligations of the District payable solely from ad valorem property taxes. From and after the Crossover Date, the Board of Supervisors of San Diego County (the County Board ) shall be empowered and obligated to levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation thereby (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series A Refunding Bonds when due. Series B Refunding Bonds. The Series B Refunding Bonds are general obligations of the District payable solely from ad valorem property taxes. The County Board is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation thereby (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due. herein. See also THE BONDS Security and Sources of Payment and DISTRICT TAX BASE Description of the Bonds Form and Registration. The Bonds will be issued in fully registered form only, without coupons. The Bonds will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), who will act as securities depository for the Bonds. See THE BONDS General Provisions and Book-Entry Only System herein. Purchasers of the Bonds (the Beneficial Owners ) will not receive physical certificates representing their interests in the Bonds purchased, but will instead receive credit balances on the books of their respective nominees. In the event that the book-entry only system described below is no longer used with respect to the Bonds, 2

9 the Bonds will be registered in accordance with the Resolution described herein. See THE BONDS Discontinuation of Book-Entry Only System; Registration, Payment and Transfer of Bonds herein. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Owners, Bondowners or Holders of the Bonds (other than under the caption TAX MATTERS and in APPENDIX A) will mean Cede & Co. and will not mean the Beneficial Owners of the Bonds. Denominations. Individual purchases of interests in the Bonds will be available to purchasers of the Bonds in the denominations of $5,000 principal amount, or any integral multiples thereof. Redemption. The Series A Refunding Bonds are subject to optional redemption prior to maturity as further described herein. The Series B Refunding Bonds are not subject to optional redemption prior to maturity as further described herein. See THE BONDS Redemption herein. Payments. The Bonds will be dated as of their date of initial delivery (the Date of Delivery ) and will be issued as current interest bonds, such that interest thereon will accrue from the Date of Delivery and be payable (i) May 1 and November 1 of each year, commencing May 1, 2018 with respect to the Series A Refunding Bonds, and (ii) February 1 and August 1 of each year, commencing February 1, 2018 with respect to the Series B Refunding Bonds (each, a Bond Payment Date ). Principal of the Bonds is payable on May 1 with respect to the Series A Refunding Bonds, and August 1 with respect to the Series B Bonds, in the amounts and years as set forth on the inside cover page hereof. Payments of the principal of and interest on the Series B Refunding Bonds, as well as the on the Series A Refunding Bonds from and after the Crossover Date, will be made by the Treasurer-Tax Collector of San Diego County, acting as the designated paying agent, registrar and transfer agent (the Paying Agent ), to DTC for subsequent disbursement through DTC Participants (defined herein) to the Beneficial Owners of the Bonds. Prior to the Crossover Date, payments of interest on the Series A Refunding Bonds will be made by the Escrow Agent (defined herein). Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel, based on existing statutes, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, 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 calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. See TAX MATTERS herein. Offering and Delivery of the Bonds The Bonds are offered when, as and if issued, subject to approval as to their legality by Bond Counsel. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York, on or about December 6, Bond Owner s Risks The Bonds are general obligations of the District payable from ad valorem property taxes which may be levied on all taxable property in the District, without limitation as to rate or amount (except with 3

10 respect to certain personal property which is taxable at limited rates). For more complete information regarding the taxation of property within the District, see DISTRICT TAX BASE herein. Continuing Disclosure Pursuant to that certain Continuing Disclosure Certificate relating to the Bonds, the District will covenant for the benefit of the Owners and Beneficial Owners of the Bonds to make available certain financial information and operating data relating to the District and to provide notices of the occurrence of certain listed events, in compliance with Securities and Exchange ( S.E.C. ) Rule 15c2-12(b)(5) (the Rule ). The specific nature of the information to be made available and of the notices of listed events is summarized below under LEGAL MATTERS Continuing Disclosure and APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE herein. Professionals Involved in the Offering Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is acting as Bond Counsel and Disclosure Counsel to the District with respect to the Bonds. Piper Jaffray & Co., El Segundo, California is acting as Financial Advisor to the District with respect to the Bonds. U.S. Bank National Association will act as Escrow Agent (defined herein) for the Refunded Bonds. Causey Demgen & Moore P.C., Denver, Colorado will act as Verification Agent for the Refunded Bonds. Certain matters will be passed on for the Underwriter (defined herein) by Norton Rose Fulbright US LLP, Los Angeles, California. The fees being paid to the Underwriter, Bond Counsel and the Financial Advisor are contingent upon the issuance and delivery of the Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Bonds. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, intend, expect, estimate, project, budget or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information regarding the District herein. THE ACHIEVEMENTS OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the Bonds are available from the Carlsbad Unified School District, 6225 El Camino Real, Carlsbad, California 92009, Attention: 4

11 Assistant Superintendent of Business Services. The District may impose a charge for copying, mailing and handling. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the District. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties by reference to each such documents, statutes and constitutional provisions. The information set forth herein, other than that provided by the District, has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Resolution. Authority for Issuance THE BONDS The Bonds are issued pursuant to the provisions of Government Code Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 (the Act ), and pursuant to the Resolution. Security and Sources of Payment Series A Refunding Bonds. Prior to May 1, 2024 (the Crossover Date ), the Series A Refunding Bonds shall be secured by and payable solely from proceeds of the Series A Refunding Bonds deposited into an escrow subaccount established therefor. From and after the Crossover Date, the Series A Refunding Bonds shall, without any further action on the part of the District or the Owners or Beneficial Owners of the Series A Refunding Bonds, constitute general obligations of the District payable solely from ad valorem property taxes. From and after the Crossover Date, the County Board shall be empowered and obligated to levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation thereby (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series A Refunding Bonds when due. 5

12 Series B Refunding Bonds. The Series B Refunding Bonds are general obligations of the District payable solely from ad valorem property taxes. The County Board is empowered and obligated to annually levy such ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation thereby (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due. General. Ad valorem property taxes will be levied as described above annually in addition to all other taxes during the period that the Bonds are outstanding in an amount sufficient to pay the principal of and interest thereon when due, as described above. The levy may include an allowance for an annual reserve, established for the purpose of avoiding fluctuating tax levies. While the County has historically levied ad valorem property taxes to establish such a reserve for other bonds of the District, the County is not obligated to establish or maintain such a reserve, and the District can make no representations that the County will do so in future years. Such taxes, when collected, will be placed by the County in the respective Debt Service Funds (defined herein), established in the Resolution, which are required to be segregated and maintained by the County and which are designated for the payment of the respective series of Bonds to which such fund relates, and interest thereon when due, and for no other purpose. Pursuant to the Resolution, the District has pledged funds on deposit in each Debt Service Fund to the payment of the respective issue of Bonds to which such fund relates. Although the County is obligated to levy ad valorem property taxes for the payment of the Bonds as described above, and will maintain the Debt Service Funds, the Bonds are not a debt of the County. The moneys in each Debt Service Fund, to the extent necessary to pay the principal of and interest on the related series of Bonds, as the same becomes due and payable, will be transferred by the County to the Paying Agent. The Paying Agent will in turn remit the funds to DTC for remittance of such principal and interest to its Participants (as defined herein) for subsequent disbursement to the respective Beneficial Owners of such Bonds. The amount of the annual ad valorem property taxes levied by the County to repay the Bonds as described above will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds in any year. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the District may cause the annual tax rates to fluctuate. Economic and other factors beyond the District s control, such as general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the State of California (the State ) and local agencies and property used for qualified education, hospital, charitable or religious purposes), or the complete or partial destruction of the taxable property caused by a natural or manmade disaster, such as earthquake, flood, drought or toxic contamination, could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the respective annual tax rates. For further information regarding the District s assessed valuation, tax rates, overlapping debt, and other matters concerning taxation, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution and DISTRICT TAX BASE herein. Statutory Lien on Ad Valorem Property Taxes Senate Bill 222 (Stats 2015, Chapter 78) ( SB 222 ) amended Education Code Section and added Government Code Section Pursuant to Section 53515, general obligation bonds payable as to principal and interest from the proceeds of ad valorem property taxes will be secured by a statutory lien on all revenues received pursuant to the levy and collection of such ad valorem property taxes. The lien will automatically attach, without further action or authorization by the governing board of the local agency, and will be valid and binding from the time such bonds are executed and delivered. The revenues 6

13 received pursuant to the levy and collection of the ad valorem property tax will be immediately subject to the lien, and such lien will be enforceable against the local agency, its successor, transferees and creditors, and all other parties asserting rights therein, irrespective of whether such parties have notice of the lien and without the need for physical delivery, recordation, filing or further act. SB 222 went into effect on January 1, As such, the Bonds are secured by a statutory lien on all revenues received from the levy of ad valorem property taxes for the payment thereof, as described above. General Provisions The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Beneficial Owners will not receive certificates representing their interest in the Bonds, but will instead receive credit balances on the in the books of their respective Nominees. The Bonds will be dated as of the Date of Delivery. The Bonds will be issued as current interest bonds, such that interest thereon will accrue from the Date of Delivery and will be payable semiannually on each Bond Payment Date, commencing May 1, 2018 with respect to Series A Refunding Bonds and February 1, 2018 with respect to the Series B Refunding Bonds. Interest on the Bonds will be computed on the basis of a 360-day year of 12, 30-day months. Each Bond shall bear interest from the respective Bond Payment Date next preceding the date of authentication thereof unless it is authenticated as of a day during the period from the 16th day of the month next preceding any Bond Payment Date to that Bond Payment Date, inclusive, in which event it shall bear interest from such Bond Payment Date, or unless it is authenticated on or before April 15, 2018 with respect to the Series A Refunding Bonds and January 15, 2018 with respect to the Series B Refunding Bonds, in which event it shall bear interest from the Date of Delivery. The Bonds are issuable in denominations of $5,000 principal amount or any integral multiple thereof. The Series A Refunding Bonds mature on May 1 and the Series B Refunding Bonds mature on August 1, in the years and amounts set forth on the inside cover page hereof. Payment of interest on any Bond on any Bond Payment Date will be made to the person appearing on the registration books of the Paying Agent as the registered Owner thereof as of the 15 th day of the month immediately preceding such Bond Payment Date (the Record Date ), such interest to be paid by wire transfer to the bank and account number on file with the Paying Agent as of the Record Date. The principal of and redemption premiums, if any, payable on the Bonds shall be payable upon maturity upon surrender at the principal office of the Paying Agent. The principal of, and interest, and redemption premiums, if any, on the Bonds shall be payable in lawful money of the United States of America. The Paying Agent is authorized to pay the Bonds when duly presented for payment at maturity, and to cancel all Bonds upon payment thereof. So long as the Bonds are held in the book-entry system of DTC, all payments of principal of and interest on the Bonds will be made by the Paying Agent to Cede & Co. (as a nominee of DTC), as the registered Owner of the Bonds. [REMAINDER OF PAGE LEFT BLANK] 7

14 Annual Debt Service The following table displays the annual debt service requirements of the District for Bonds, together with the combined debt service requirements of the District s currently outstanding prior bond issuances (assuming no further optional redemptions). Series A Refunding Bonds (1) Series B Refunding Bonds Year Ending (August 1) Prior Outstanding Bonds (2) Annual Principal Payment Annual Interest Payment (3)(4) Annual Principal Payment Annual Interest Payment (5) Total Annual Debt Service 2018 $13,580, $853, $230, $300, $14,963, ,251, ,119, , ,825, ,816, ,119, , ,390, ,043, ,119, , ,618, ,899, ,119, , , ,159, ,756, ,119, ,265, , ,568, ,924, ,119, ,900, , ,320, ,105, $75, ,119, ,610, , ,211, ,780, , ,115, ,410, , ,551, ,011, , ,111, ,202, ,025, ,640, ,107, ,773, ,999, ,110, ,825, ,934, ,025, ,620, ,520, ,166, ,105, ,090, ,255, ,451, ,233, ,580, , ,785, ,944, ,095, , ,707, ,192, ,625, , ,162, ,409, ,409, (1) (2) (3) (4) (5) Debt service on the Series A Refunding Bonds is based on the year ending on May 1. Gross (Before Subsidy) Debt Service assumed on the 2011 Series D Qualified School Construction Bonds. Includes debt service on the 2009 Series B Bonds to be refunded with the Series A Refunding Bonds. Excludes debt service on the 2011 Series C Bonds to be refunded with the proceeds of the Series B Refunding Bonds. Interest payments on the Series A Refunding Bonds will be made semiannually on May 1 and November 1 of each year, commencing May 1, Interest on the Series A Refunding Bonds, prior to the Crossover Date, is payable from amounts on deposit in the Escrow Subaccount (defined herein) therefor. From and after the Crossover Date, such interest shall be payable from ad valorem property taxes levied and collected by the County on taxable property within the boundaries of the District. Interest payments on the Bonds will be made semiannually on February 1 and August 1 of each year, commencing February 1, See also CARLSBAD UNIFIED SCHOOL DISTRICT District Debt Structure General Obligation Bonds herein for a full debt service schedule of all the District s bonded debt. [REMAINDER OF PAGE LEFT BLANK] 8

15 Application and Investment of Bond Proceeds The following tables show information on the specific maturities of the Refunded Bonds. REFUNDED BONDS Carlsbad Unified School District (San Diego County, California) Election of 2006 General Obligation Bonds, 2009 Series B Maturity (May 1) CUSIP Denomination Amount Interest Rate Redemption Date Redemption Price (% of Par Amount) CP1 $28,548, % May 1, % Maturity (August 1) REFUNDED BONDS Carlsbad Unified School District (San Diego County, California) Election of 2006 General Obligation Bonds, 2011 Series C Redemption Price (% of Par Amount) CUSIP Principal Amount Interest Rate Redemption Date CZ9 $830, % August 1, % DA3 1,425, August 1, DB1 2,085, August 1, DC9 2,810, August 1, DD7 3,625, August 1, The net proceeds from the sale of the Bonds will be paid to the Escrow Agent, to the credit of the Carlsbad Unified School District 2017 General Obligation Refunding Bonds Escrow Fund (the Escrow Fund ). Within the Escrow Fund, the Escrow Agent shall establish subaccounts (each an Escrow Subaccount ) relating to each of the Series A Refunding Bonds (the Series A Refunding Bonds Escrow Subaccount ) and the Series B Refunding Bonds (the Series B Refunding Bonds Escrow Subaccount ). Funds on deposit in the Series A Refunding Bonds Escrow Subaccount are not available to pay the Series B Refunding Bonds or the 2011 Series C Bonds. Funds on deposit in the Series B Refunding Bonds Escrow Subaccount are not available to pay the Series A Refunding Bonds or the 2009 Series B Bonds. Pursuant to an escrow agreement (the Escrow Agreement ) by and between the District and the Escrow Agent, amounts deposited in the Escrow Subaccounts will be used to purchase certain noncallable direct and general obligations of the United States of America, or obligations unconditionally guaranteed as to payment by the United States of America (collectively, the Federal Securities ), the principal of and interest on which will be sufficient, together with any monies deposited in the Escrow Subaccounts and held as cash, to enable the Escrow Agent to pay (i) the principal and redemption premium (if any) due on the Refunded Bonds on the first optional redemption dates therefor, (ii) interest on the 2011 Series C Bonds due on and prior to their optional redemption date, and (iii) the interest on the Series A Refunding Bonds before the Crossover Date. Prior to the Crossover Date, the 2009 Series B Bonds will remain general obligations of the District payable from ad valorem taxes levied on property within the District. 9

16 The following table shows the initial investments of proceeds in the Series A Refunding Bonds Escrow Subaccount: SERIES A REFUNDING BONDS ESCROW SUBACCOUNT Federal Securities Type of Security Par Amount Maturity Date Coupon Rate Price T-Note $282, /30/ % % Refco-I 491, /15/ T-Note 492, /30/ T-Note 496, /31/ T-Note 499, /30/ T-Note 503, /31/ T-Note 506, /30/ T-Note 512, /31/ T-Note 517, /30/ T-Note 522, /31/ Refco-I 527, /15/ AID 530, /18/ T-Note 51,838, /30/ The sufficiency of the amounts on deposit in each Escrow Subaccount, together with realizable interest and earnings thereon, to pay the interest due on the Series A Refunding Bonds prior to the Crossover Date, as well as to refund the Refunded Bonds as described above, will be verified by the Verification Agent. As a result of the deposit and application of funds of the Series B Refunding Bonds as provided in the Escrow Agreement, and assuming the accuracy of the Underwriter s and Verification Agent s computations, the 2011 Series C Bonds will be defeased and the obligation of the County to levy ad valorem property taxes for payment of such bonds will terminate. Prior to the Crossover Date, the 2009 Series B Bonds will remain general obligations of the District payable solely from ad valorem property taxes, and will not be considered defeased. See also LEGAL MATTERS Escrow Verification herein. Debt Service Funds. The ad valorem property taxes levied by the County for the payment of the Bonds, when collected, are required to be held separate and apart by the County in the debt service funds relating to each series of Bonds created by the Resolution (each, a Debt Service Fund ), and used only for payment of principal of and interest on respective series of Bonds such which such Debt Service Fund relates. Any interest earnings on moneys held in each Debt Service Fund will be retained therein. If, after all of the respective series of Bonds to which such Debt Service Fund relates have been redeemed or paid and otherwise cancelled, there are moneys remaining in the such Debt Service Fund, said moneys will be transferred to the general fund of the District as provided and permitted by law. Investment of Proceeds. Funds on deposit in the Escrow Fund will be invested as described above. Moneys in the Debt Service Funds are expected to be invested through the County s pooled investment fund. See APPENDIX E SAN DIEGO COUNTY TREASURY POOL herein. Redemption Optional Redemption. The Series A Refunding Bonds maturing on May 1, 2027 are not subject to redemption prior to their stated maturity dates. The Series A Refunding Bonds maturing on and after May 1, 2028 may be redeemed prior to their respective stated maturity dates at the option of the District, from any source of funds, in whole or in part, on May 1, 2027 or on any date thereafter, at a redemption 10

17 price equal to the principal amount of such Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption, without premium. The Series B Refunding Bonds are not subject to redemption prior to their stated maturity dates. Selection of Bonds for Redemption. Whenever provision is made for the optional redemption of Bonds and less than all Bonds are to be redeemed, the Paying Agent, upon written instruction from the District, shall select Bonds for redemption as so directed and if not directed, in inverse order of maturity. Within a maturity, the Paying Agent, in a manner determined by the District, shall select Bonds for redemption as directed by the District and, if not so directed, by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that the portion of any Bond to be redeemed in part shall be in a principal amount of $5,000, or any integral multiple thereof. Redemption Notice. When redemption is authorized or required pursuant to the Resolution, the Paying Agent, upon written instruction from the District, will give notice (a Redemption Notice ) of the redemption of the Bonds. Each Redemption Notice will specify (a) the Bonds or designated portions thereof (in the case of redemption of the Bonds in part but not in whole) which are to be redeemed, (b) the date of redemption, (c) the place or places where the redemption will be made, including the name and address of the Paying Agent, (d) the redemption price, (e) the CUSIP numbers (if any) assigned to the Bonds to be redeemed, (f) the Bond numbers of the Bonds to be redeemed in whole or in part and, in the case of any Bond to be redeemed in part only, the principal amount of such Bond to be redeemed, and (g) the original issue date, interest rate and stated maturity date of each Bond to be redeemed in whole or in part. The Paying Agent will take the following actions with respect to each such Redemption Notice: (a) at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice will be given to the respective Owners of Bonds designated for redemption by registered or certified mail, postage prepaid, at their addresses appearing on the bond register; (b) at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice will be given by registered or certified mail, postage prepaid, telephonically confirmed facsimile transmission, or overnight delivery service, to the Securities Depository; (c) at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice will be given by registered or certified mail, postage prepaid, or overnight delivery service, to one of the Information Services; and (d) such Redemption Notice will be given to such other persons as may be required pursuant to the Continuing Disclosure Certificate. Information Services means the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System. Securities Depository shall mean The Depository Trust Company, 55 Water Street, New York, New York A certificate of the Paying Agent or the District that a Redemption Notice has been given as provided in the Resolution will be conclusive as against all parties. Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given will affect the sufficiency of the proceedings for the redemption of the affected Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Bonds will bear or include the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. Such Redemption Notice may state that no representation is made as to the accuracy or correctness of CUSIP numbers printed thereon. Payment of Redeemed Bonds. When a Redemption Notice has been given substantially as described above, and, when the amount necessary for the redemption of the Bonds called for redemption 11

18 (principal, interest, and premium, if any) is irrevocably set aside in trust for that purpose, as described in Defeasance, the Bonds designated for redemption in such notice will become due and payable on the date fixed for redemption thereof and upon presentation and surrender of said Bonds at the place specified in the Redemption Notice, said Bonds will be redeemed and paid at the redemption price out of such funds. All unpaid interest payable at or prior to the redemption date will continue to be payable to the respective Owners, but without interest thereon. Partial Redemption of Bonds. Upon the surrender of any Bond redeemed in part only, the Paying Agent will execute and deliver to the Owner thereof a new Bond or Bonds of like tenor and maturity and of authorized denominations equal in principal amounts to the unredeemed portion of the Bond surrendered. Such partial redemption is valid upon payment of the amount required to be paid to such Owner, and the County and the District will be released and discharged thereupon from all liability to the extent of such payment. Effect of Redemption Notice. If on the applicable designated redemption date, money for the redemption of the Bonds to be redeemed, together with interest to such redemption date, is held by an independent escrow agent selected by the District so as to be available therefor on such redemption date as described in Defeasance, and if a Redemption Notice thereof will have been given substantially as described above, then from and after such redemption date, interest on the Bonds to be redeemed shall cease to accrue and become payable. Rescission of Redemption Notice. With respect to any Redemption Notice in connection with the optional redemption of Bonds (or portions thereof) as described above, unless upon the giving of such notice such Bonds or portions thereof shall be deemed to have been defeased as described in Defeasance, such Redemption Notice will state that such redemption will be conditional upon the receipt by an independent escrow agent selected by the District, on or prior to the date fixed for such redemption, of the moneys necessary and sufficient to pay the principal, and premium, if any, and interest on, such Bonds (or portions thereof) to be redeemed, and that if such moneys shall not have been so received said Redemption Notice will be of no force and effect, no portion of the Bonds will be subject to redemption on such date and such Bonds will not be required to be redeemed on such date. In the event that such Redemption Notice contains such a condition and such moneys are not so received, the redemption will not be made and the Paying Agent will within a reasonable time thereafter (but in no event later than the date originally set for redemption) give notice to the persons to whom and in the manner in which the Redemption Notice was given that such moneys were not so received. In addition, the District will have the right to rescind any Redemption Notice, by written notice to the Paying Agent, on or prior to the date fixed for such redemption. The Paying Agent will distribute a notice of the rescission of such Redemption Notice in the same manner as such notice was originally provided. Bonds No Longer Outstanding. When any Bonds (or portions thereof), which have been duly called for redemption prior to maturity, or with respect to which irrevocable instructions to call for redemption prior to maturity at the earliest redemption date have been given to the Paying Agent, in form satisfactory to it, and sufficient moneys shall be held irrevocably in trust for the payment of the redemption price of such Bonds or portions thereof, and, accrued interest thereon to the date fixed for redemption, then such Bonds will no longer be deemed outstanding and shall be surrendered to the Paying Agent for cancellation. Book-Entry Only System The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC 12

19 Direct Participants or Indirect Participants (as defined herein) will distribute to the Beneficial Owners (a) payments of interest on, principal of or premium, if any, on the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered Owner of the Bonds, or that they will so do on a timely basis or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Official Statement. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with Participants are on file with DTC. The Depository Trust Company, New York, New York, 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 3.6 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, and together with the Direct Participants, the 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 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 the 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 13

20 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, defaults, and proposed amendments to the Resolution. For example, 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 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). Redemption proceeds and distributions 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 District or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds or distributions to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. For every transfer and exchange of Bonds, Owners requesting such transfer or exchange may be charged a sum sufficient to cover any tax, governmental charge or transfer fees that may be imposed in relation thereto, which charge may include transfer fees imposed by the Paying Agent, DTC or the DTC Participant in connection with such transfers or exchanges. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. 14

21 The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to the Owners thereof. Discontinuation of Book-Entry Only System; Registration, Payment and Transfer of Bonds So long as any of the Bonds remain outstanding, the District will cause the Paying Agent to maintain at its principal office all books and records necessary for the registration, exchange and transfer of such Bonds, which shall at all times be open to inspection by the District, and, upon presentation for such purpose, the Paying Agent shall, under such reasonable regulations as it may prescribe, register, exchange or transfer or cause to be registered, exchanged or transferred, on said books, Bonds as provided in the Resolution. In the event that the book-entry system described above is no longer used with respect to the Bonds, the following provisions will govern the payment, registration, transfer, exchange and replacement of the Bonds. The principal the Bonds and any premium and interest upon the redemption thereof prior to the maturity will be payable in lawful money of the United States of America upon presentation and surrender of the Bonds at the designated office of the Paying Agent, initially located in Los Angeles, California. Interest on the Bonds will be paid by the Paying Agent by either (i) check or draft mailed to the person whose name appears on the registration books of the Paying Agent as the registered Owner, and to that person s address appearing on the registration books as of the close of business on the Record Date, or (ii) by wire to a bank and account number on file with the Paying Agent as of the Record Date. Any Bond may be exchanged for Bonds of like tenor, maturity and Transfer Amount (which with respect to any outstanding Bonds means the principal amount thereof) upon presentation and surrender at the principal office of the Paying Agent, together with a request for exchange signed by the registered Owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. A Bond may be transferred only on the Bond Register by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the office of the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. Upon exchange or transfer, the Paying Agent shall register, authenticate and deliver a new Bond or Bonds of like tenor and of any authorized denomination or denominations requested by the Owner equal to the Transfer Amount of the Bond surrendered and bearing interest at the same rate and maturing on the same date. Neither the District nor the Paying Agent will be required (a) to issue or transfer any Bonds during a period beginning with the opening of business on the 16th day next preceding any Bond Payment Date, the stated maturity of any of the Bonds or any date of selection of Bonds to be redeemed and ending with the close of business on the applicable Bond Payment Date, the close of business on the applicable stated maturity date or any day on which the applicable notice of redemption is given or (b) to transfer any Bonds which have been selected or called for redemption in whole or in part. Defeasance All or any portion of the outstanding maturities of the Bonds may be defeased at any time prior to maturity in the following ways: (a) Cash: by irrevocably depositing with an independent escrow agent selected by the District an amount of cash which, together with amounts transferred from the respective 15

22 Debt Service Fund, if required, is sufficient to pay all Bonds outstanding and designated for defeasance, including all principal thereof, interest thereon and redemption premium, if any, at or before their maturity dates; (b) Government Obligations: by irrevocably depositing with the County or with an independent escrow agent selected by the District noncallable Government Obligations together with monies transferred from the respective Debt Service Fund together with any other cash, if required, in such amount as will, in the opinion of an independent certified public accountant, be fully sufficient to pay and discharge all Bonds outstanding and designated for defeasance, including all principal thereof, interest thereon and redemption premium, if any, at or before their maturity dates; then, notwithstanding that any such maturities of Bonds shall not have been surrendered for payment, all obligations of the District and the County with respect to all such designated outstanding Bonds shall cease and terminate, except only the obligation of the County and of the Paying Agent or an independent escrow agent selected by the District to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) above, to the Owners of such designated Bonds not so surrendered and paid all sums due with respect thereto. Government Obligations means direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or obligations the payment of principal of and interest on which is secured, guaranteed or otherwise backed by, directly or indirectly, a pledge of the full faith and credit of the United States of America. In the case of direct and general obligations of the United States of America, Government Obligations shall include evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interests must be limited to circumstances where (a) a bank or trust company acts as custodian and holds the underlying United States obligations; (b) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States obligations; and (c) the underlying United States obligations are held in a special account, segregated from the custodian s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that such obligations are rated or assessed at least as high as direct general obligations of the United States of America by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ( S&P ) or Moody s Investors Service ( Moody s ). 16

23 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Bonds are expected to be applied as follows: Series A Series B Sources of Funds Refunding Bonds Refunding Bonds Uses of Funds Principal Amount of Bonds $49,990, $10,100, Original Issue Premium 7,794, ,096, Total Sources $57,784, $12,196, Costs of Issuance (1) $412, $77, Deposit to Escrow Fund 57,372, ,119, Total Uses $57,784, $12,196, (1) Reflects all costs of issuance, including but not limited to the underwriting discount, legal and financial advisory fees, printing costs, rating agency fees, and the costs and fees of the Escrow Agent and Verification Agent. DISTRICT TAX BASE The information in this section describes ad valorem property taxation, assessed valuation, and other measures of the tax base of the District. Prior to the Crossover Date, the Series A Refunding Bonds shall be secured by and payable solely from monies on deposit in the Escrow Subaccount therefor. The Series B Refunding Bonds are, and the Series A Refunding Bonds from and after the Crossover Date will be, payable solely from ad valorem property taxes levied and collected by the County on taxable property in the District. The District s general fund is not a source for the repayment of the Bonds. Ad Valorem Property Taxation District property taxes are assessed and collected by the County at the same time and on the same rolls as special district property taxes. Assessed valuations are the same for both the District and the County s taxing purposes. Taxes are levied for each fiscal year on taxable real and personal property which is located in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. A supplemental roll is developed when property changes hands or new construction is completed. The County levies and collects all property taxes for property falling within the County s taxing boundaries. The valuation of secured property is established as of January 1 and is subsequently enrolled in August. Property taxes on the secured roll are payable in two installments, due November 1 and February 1 of the calendar year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent installment plus any additional amount determined by the Treasurer. After the second installment of taxes on the secured roll is delinquent, the tax collector shall collect a cost of $10 for preparing the delinquent tax records and giving notice of delinquency. Property on the secured roll with delinquent taxes is declared tax-defaulted on July 1 of the 17

24 calendar year. Such property may thereafter be redeemed, until the right of redemption is terminated, by payment of the delinquent taxes and the delinquency penalty, plus a $15 redemption fee and a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the respective county treasurer. Property taxes on the unsecured roll as of July 31 become delinquent if they are not paid by August 31 and are thereafter subject to a delinquent penalty of 10%. Taxes added to the unsecure tax roll after July 31, if unpaid are delinquent and subject to a penalty of 10% on the last day of the month succeeding the month of enrollment. In the case of unsecured property taxes, an additional penalty of 1.5% per month begins to accrue when such taxes remain unpaid on the last day of the second month after the 10% penalty attaches. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the assessee; (2) filing a certificate in the office of the County clerk specifying certain facts in order to obtain a judgment lien on specific property of the assessee; (3) filing a certificate of delinquency for record in the County recorder s office in order to obtain a lien on specified property of the assessee; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of the exemptions. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. Assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) is allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies, including school districts, share the growth of base revenues from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. Assessed Valuations The assessed valuation of property in the District is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization ( SBE ). Assessed valuations are reported at 100% of the full cash value of the property, as defined in Article XIIIA of the State Constitution. For a discussion of how properties currently are assessed, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS herein. The table on the following page shows a 10-year history of assessed valuations of the District. 18

25 ASSESSED VALUATIONS Fiscal Years through Carlsbad Unified School District Local Secured Utility Unsecured Total $16,191,216,493 $128,425,804 $777,236,122 $17,096,878, ,066,035, ,746, ,267,082 17,045,048, ,942,061, ,125, ,739,847 16,861,926, ,777,488, ,025, ,408,112 16,705,922, ,684,309, ,925, ,041,360 16,643,276, ,027,982, ,800, ,981,609 16,987,764, ,339,892,057 99,891, ,041,290 18,337,824, ,343,553,082 80,601, ,862,734 19,297,025, ,458,398,988 76,100,000 1,462,284,238 20,996,783, ,179,696,381 60,600, ,273,497 22,162,569,878 Source: California Municipal Statistics, Inc. Economic and other factors beyond the District s control, such as general market decline in property values, disruption in financial markets that may reduce availability of financing for purchasers of property, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the State and local agencies and property used for qualified education, hospital, charitable or religious purposes), or the complete or partial destruction of the taxable property caused by a natural or manmade disaster, such as earthquake, flood, drought or toxic contamination, could cause a reduction in the assessed value of taxable property within the District. Any such reduction would result in a corresponding increase in the annual tax rate levied by the County to pay the debt service with respect to the Bonds. See THE BONDS Security and Sources of Payment herein. 19

26 Appeals and Adjustments of Assessed Valuations. Under State law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the SBE, with the appropriate county board of equalization or assessment appeals board. The County Assessor may independently reduce assessed values as well based upon the above factors or reductions in the fair market value of the taxable property. In most cases, an appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. In addition to the above-described taxpayer appeals, county assessors may independently reduce assessed valuations based on changes in the market value of property, or for other factors such as the complete or partial destruction of taxable property caused by natural or man-made disasters such as earthquakes, floods, drought, fire, or toxic contamination pursuant to relevant provisions of the State Constitution. Whether resulting from taxpayer appeals or county assessor reductions, adjustments to assessed value are subject to yearly reappraisals by the county assessor and may be adjusted back to their original values when real estate market conditions improve. Once property has regained its prior assessed value, adjusted for inflation, it once again is subject to the annual inflationary growth rate factor allowed under Article XIIIA. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution herein. Assembly Bill 102. On June 27, 2017, the Governor signed into law Assembly Bill 102 ( AB 102 ). AB 102 restructures the functions of the SBE and creates two new separate agencies: (i) the California Department of Tax and Fee Administration, and (ii) the Office of Tax Appeals. Under AB 102, the California Department of Tax and Fee Administration will take over programs previously in the BOE Property Tax Department, such as the Tax Area Services Section, which is responsible for maintaining all property tax-rate area maps and for maintaining special revenue district boundaries. Under AB 102, the SBE will continue to perform the duties assigned by the State Constitution related to property taxes, however, beginning January 1, 2018, the SBE will only hear appeals related to the programs that it constitutionally administers and the Office of Tax Appeals will hear appeals on all other taxes and fee matters, such as sales and use tax and other special taxes and fees. AB 102 obligates the Office of Tax Appeals to adopt regulations as necessary to carry out its duties, powers, and responsibilities. No assurances can be given as to the effect of such regulations on the appeals process or on the assessed valuation of property within the District. [REMAINDER OF PAGE LEFT BLANK] 20

27 Assessed Valuation by Jurisdiction. The table on the following page shows an analysis of the distribution of taxable property in the District by jurisdiction, in terms of its fiscal year assessed valuation. ASSESSED VALUATION BY JURISDICTION Fiscal Year Carlsbad Unified School District Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Carlsbad $21,739,180, % $31,122,776, % City of Oceanside 414,929, ,320,395, City of Vista 8,459, ,972,979, Total District $22,162,569, % San Diego County $22,162,569, % $495,955,509, % Source: California Municipal Statistics, Inc. [REMAINDER OF PAGE LEFT BLANK] 21

28 Assessed Valuation of Single Family Homes. The following table shows the distribution of single family homes within the District among various fiscal year assessed valuation ranges, as well as the average and median assessed valuation of single family homes within the District. PER PARCEL ASSESSED VALUATION OF SINGLE FAMILY HOMES Fiscal Year Carlsbad Unified School District No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 16,936 $9,707,840,401 $573,207 $537, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $99, % 5.037% $60,402, % 0.622% 100, ,999 1, ,024, , ,999 1, ,956, , ,999 1, ,184, , ,999 1, ,159, , ,999 1, ,307, , ,999 1, ,254,624, , ,999 1, ,298,959, , ,999 1, ,119,741, , , ,341, ,000,000-1,099, ,849, ,100,000-1,199, ,618, ,200,000-1,299, ,214, ,300,000-1,399, ,234, ,400,000-1,499, ,494, ,500,000-1,599, ,845, ,600,000-1,699, ,820, ,700,000-1,799, ,276, ,800,000-1,899, ,843, ,900,000-1,999, ,246, ,000,000 and greater ,695, Total 16, % $9,707,840, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units Source: California Municipal Statistics, Inc. [REMAINDER OF PAGE LEFT BLANK] 22

29 Assessed Valuation and Parcels by Land Use. The following table shows the distribution of taxable property within the District by principal use, as measured by assessed valuation and parcels in fiscal year ASSESSED VALUATION AND PARCELS BY LAND USE Fiscal Year Carlsbad Unified School District % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Rural $33,238, % % Commercial 3,227,819, Vacant Commercial 183,745, Industrial 2,752,286, Vacant Industrial 194,841, Recreational/Open Space 257,023, Government/Social/Institutional 33,535, Subtotal Non-Residential $6,682,491, % 1, % Residential: Single Family Residence $9,707,840, % 16, % Condominium/Townhouse 2,667,762, , Mobile Home 178,581, Mobile Home Park 20,472, Residential Units 336,236, Residential Units/Apartments 1,031,311, Timeshare Properties 287,619, , Miscellaneous Residential Improvements 6,783, Vacant Residential 260,597, Subtotal Residential $14,497,205, % 41, % Total $21,179,696, % 42, % (1) Local secured assessed valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc. [REMAINDER OF PAGE LEFT BLANK] 23

30 Secured Tax Charges and Delinquencies The following table shows secured ad valorem property tax levies within the District, and amounts delinquent as of June 30, for fiscal years through (1) SECURED TAX CHARGES AND DELINQUENCIES Fiscal Years through Carlsbad Unified School District Secured Amt. Del. % Del. Tax Charge (1) June 30 June $58,334, (2) (2) ,765, (2) (2) ,898, (2) (2) ,253, (2) (2) ,607, (2) (2) ,930, (2) (2) ,659, (2) (2) ,147, (2) (2) ,468, (2) (2) Secured Amt. Del. % Del. Tax Charge (3) June 30 June $5,658, (2) (2) ,910, (2) (2) ,154, (2) (2) ,041, (2) (2) ,435, (2) (2) ,356, (2) (2) ,725, (2) (2) ,878, (2) (2) ,383, (2) (2) 1% general fund apportionment. (2) San Diego County utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution of 100% of the assessments levied to the taxing entity, with the County retaining all penalties and interest. See Alternative Method of Tax Apportionment Teeter Plan below. (3) Reflects general obligation bond debt service levy only. Source: California Municipal Statistics, Inc. [REMAINDER OF PAGE LEFT BLANK] 24

31 Alternative Method of Tax Apportionment Teeter Plan The County Board has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 et seq. of the Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an accrual basis when due (irrespective of actual collections) to its local political subdivisions, including the District, for which the County acts as the tax-levying or tax-collecting agency. The Teeter Plan is applicable to all tax levies for which the County acts as the tax-levying or taxcollecting agency, or for which the County treasury is the legal depository of the tax collections. As adopted by the County, the Teeter Plan excludes Mello-Roos Community Facilities Districts and special assessment districts which provide for accelerated judicial foreclosure of property for which assessments are delinquent. The ad valorem property tax to be levied to pay the interest on and principal of the Bonds will be subject to the Teeter Plan, beginning in the first year of such levy. The District will receive 100% of the ad valorem property tax levied to pay the Bonds irrespective of actual delinquencies in the collection of the tax by the County. In connection with its adoption of the Teeter Plan, the County advances to the participating taxing agencies an amount equal to 95% of the total prior year s delinquent secured property taxes and assessments (not including penalties and interest) and 100% of the current year s delinquent secured property taxes and assessments outstanding. The Teeter Plan is to remain in effect unless the County Board orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the County Board receives a petition for its discontinuance joined in by a resolution adopted by at least twothirds of the participating revenue districts in the County. In the event the County Board is to order discontinuance of the Teeter Plan subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the District) for which the County acts as the tax-levying or tax-collecting agency. Tax Rates The following table summarizes the total ad valorem property tax rates, as a percentage of assessed valuation, levied by all taxing entities in a typical tax rate area (a TRA ) within the District during the five-year fiscal year period from to SUMMARY OF AD VALOREM PROPERTY TAX RATES (TRA 9-000) (1) Fiscal Years through Carlsbad Unified School District General Tax Rate % % % % % Carlsbad Unified School District Mira Vista Community College District Metropolitan Water District Total % % % % % (1) Fiscal year assessed valuation of TRA is $5,309,496,603. Source: California Municipal Statistics, Inc. 25

32 Principal Taxpayers The more property (by assessed value) which is owned by a single taxpayer within the District, the greater amount of tax collections that are exposed to weaknesses in such a taxpayer s financial situation and ability or willingness to pay property taxes. The following table lists the 20 largest local secured taxpayers in the District in terms of their fiscal year secured assessed valuations. Each taxpayer listed below is a name listed on the tax rolls. The District cannot make any representation as to whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table below. (1) 20 LARGEST LOCAL SECURED TAXPAYERS Fiscal Year Carlsbad Unified School District % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Poseidon Resources (Channelside) LLC Seawater Desalination Plant $561,360, % 2. L C Investment 2010 LLC Hotel 231,254, Legoland California LLC Theme Park 196,899, Grand Pacific Carlsbad Hotel LP Hotel 189,160, RPI Carlsbad LP Shopping Center/Movie Theater 167,971, CPG Carlsbad Holdings LLC Outlet Stores 124,388, Pacific View Apartments Carlsbad LLC Apartments 122,282, D P Carlsbad Magnifica Investors LP Apartments 114,240, Aviara Resorts Associates SPE LLC Hotel 107,500, H.F Fenton Company Industrial 99,348, Brookwood CBI LLC Industrial 95,278, Isis Pharmaceuticals Inc. BMR-Gazell Commercial Building 94,975, B A Leasing BSC LLC Industrial 83,818, Rancho Costera LLC Residential Development 71,129, Grand Pacific Palisades Owners Assn. Inc. Resort/Timeshare 69,263, Carlsbad 2200 LLC Commercial Building 61,064, SSR Western Multifamily LLC Apartments 59,795, Stellar Properties LLC Industrial 59,261, Icon Owner Pool 1 West/Southwest LLC Commercial Building 59,026, Callaway Golf Co. Industrial 53,260, $2,621,279, % Local Secured Assessed Valuation: $21,179,696,381. Source: California Municipal Statistics, Inc. Statement of Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. dated as of October 1, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such longterm obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 26

33 The table shows the percentage of each overlapping entity s assessed value located within the boundaries of the District. The table also shows the corresponding portion of the overlapping entity s existing debt payable from property taxes levied within the District. The total amount of debt for each overlapping entity is not given in the table. The first column in the table names each public agency which has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency s outstanding debt to taxable property in the District. [REMAINDER OF PAGE LEFT BLANK] 27

34 Assessed Valuation: $22,162,569,878 STATEMENT OF DIRECT AND OVERLAPPING DEBT Carlsbad Unified School District DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 10/1/17 Metropolitan Water District 0.808% $605,314 Mira Costa Community College District ,814,000 Palomar Community College District ,222 Carlsbad Unified School District ,288,765 (1) Palomar Pomerado Health System ,995 Carlsbad Unified School District Community Facilities District No ,535,000 City of Carlsbad Community Facilities District No. 3, Improvement Area No ,037,363 City of Carlsbad Community Facilities District No. 3, Improvement Area No ,555,000 City of Carlsbad 1915 Act Bonds ,005,363 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $235,365,022 DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations 4.469% $12,770,838 San Diego County Pension Obligation Bonds ,960,482 San Diego County Superintendent of Schools General Fund Obligations ,147 Mira Costa and Palomar Community College District General Fund Obligations ,265 Carlsbad Unified School District Certificates of Participation ,245,000 City of Oceanside General Fund Obligations ,625 City of Oceanside Pension Obligation Bonds ,609 City of Vista General Fund Obligations ,909 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $83,476,875 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $5,295,000 COMBINED TOTAL DEBT $324,136,897 (2) Ratios to Assessed Valuation: Direct Debt ($167,288,765) % Total Direct and Overlapping Tax and Assessment Debt % Combined Direct Debt ($211,533,765) % Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($963,219,792): Total Overlapping Tax Increment Debt % (1) Excludes general obligation bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. 28

35 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS The Series B Refunding Bonds are, and the Series A Refunding Bonds from and after the Crossover Date shall be, payable solely from the proceeds of an ad valorem property tax required to be levied by the County on taxable property within the District in an amount sufficient for the payment thereof. (See THE BONDS Security and Sources of Payment herein) Articles XIIIA, XIIIB, XIIIC and XIIID of the Constitution, Propositions 98 and 111, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the County to levy taxes on behalf of the District and to the District to spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the County to levy taxes for payment of the Bonds. Article XIIIA of the California Constitution Article XIIIA ( Article XIIIA ) of the State Constitution limits the amount of ad valorem property taxes on real property to 1% of full cash value as determined by the county assessor. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed or a change in ownership has occurred after the 1975 assessment, subject to exemptions in certain circumstances of property transfer or reconstruction. Determined in this manner, the full cash value is also referred to as the base year value. The full cash value is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA has been amended to allow for temporary reductions of assessed value in instances where the fair market value of real property falls below the adjusted base year value described above. Proposition 8 approved by the voters in November of 1978 provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the County to pay debt service on the Bonds. See THE BONDS Security and Sources of Payment and DISTRICT TAX BASE herein. Article XIIIA requires a vote of two-thirds or more of the qualified electorate of a city, county, special district or other public agency to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978, or (b), as the result of an amendment approved by State voters on June 3, 1986, on any bonded indebtedness approved by two-thirds of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978, or (c) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by fifty-five percent or more of the votes cast on the proposition, but only if certain accountability measures are included in the proposition. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any state taxes for the purpose of increasing tax revenues. 29

36 Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, subject to claims, if any, on tax increment and subject to changes in organizations, if any, of affected jurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to such jurisdictions. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. All taxable property value included in this Official Statement is shown at 100% of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Unitary Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the SBE as part of a going concern rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. So long as the District is not a basic aid district, taxes lost through any reduction in assessed valuation will be compensated by the State as equalization aid under the State s school financing formula. See DISTRICT FINANCIAL INFORMATION herein. Article XIIIB of the California Constitution Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. As amended, Article XIIIB defines: (a) change in the cost of living with respect to school districts to mean the percentage change in California per capita income from the preceding year, and 30

37 (b) change in population with respect to a school district to mean the percentage change in the ADA of the school district from the preceding fiscal year. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for bonded debt service such as the Bonds, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the State legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. Article XIIIB also includes a requirement that fifty percent of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution. See Propositions 98 and 111 herein. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the 31

38 governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Article XIIIC and Article XIIID of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the State Constitution Articles XIIIC and XIIID (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the State Constitution and special taxes approved by a twothirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the State Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District. Propositions 98 and 111 On November 8, 1988, voters of the State approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changed State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of State general fund revenues as the percentage appropriated to such districts in the fiscal year, and (b) the amount actually appropriated to such districts from the State general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the State legislature to suspend this formula for a one-year period. The Accountability Act also changed how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount are, instead of being returned to taxpayers, is transferred to K-14 school districts. Any such transfer to K-14 school districts is excluded 32

39 from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year is automatically increased by the amount of such transfer. These additional moneys enter the base funding calculation for K-14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which can be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Since the Accountability Act is unclear in some details, there can be no assurances that the State Legislature or a court might not interpret the Accountability Act to require a different percentage of State general fund revenues to be allocated to K-14 school districts, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. On June 5, 1990, the voters of the State approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limitation Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: a. Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. b. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the minimum funding level for such districts. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into K-14 school district base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. c. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the State Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the State Legislature and the Governor, which was expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. 33

40 d. Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. e. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues ( Test 1 ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment ( Test 2 ). Under Proposition 111, K-14 school districts will receive the greater of (1) Test 1, (2) Test 2, or (3) a third test ( Test 3 ), which will replace Test 2 in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capital personal income. Under Test 3, K-14 school districts will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the State Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the State Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the State Constitution previously limited property taxes to 1% of the value of property, and property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to buy or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 placed certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate per $100,000 of taxable property value projected to be levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), per $100,000 of taxable property value, when assessed valuation is projected to increase in accordance with Article XIIIA of the Constitution. These requirements are not part of Proposition 39 and can be changed with a majority vote of both houses of the State Legislature and approval by the Governor. 34

41 Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State s authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State s general fund and transportation funds, the State s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst s Office (the LAO ) on July 15, 2010, the reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 was expected to be approximately $1 billion in fiscal year , with an estimated immediate fiscal effect equal to approximately 1% of the State s total general fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State s general fund costs by approximately $1 billion annually for several decades. Jarvis vs. Connell On May 29, 2002, the State Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State). The Court of Appeal held that either a final budget bill, an emergency appropriation, a self-executing authorization pursuant to state statutes (such as continuing appropriations) or the State Constitution or a federal mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are self-executing authorizations or are subject to a federal mandate. On May 1, 2003, the State Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act. 35

42 Proposition 30 and Proposition 55 On November 6, 2012, voters of the State approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), which temporarily increased the State Sales and Use Tax and personal income tax rates on higher incomes. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,001 for single filers (over $500,000 but less than $600,001 for joint filers and over $340,000 but less than $408,001 for head-ofhousehold filers), (ii) 2% for taxable income over $300,000 but less than $500,001 for single filers (over $600,000 but less than $1,000,001 for joint filers and over $408,000 but less than $680,001 for head-ofhousehold filers), and (iii) 3% for taxable income over $500,000 for single filers (over $1,000,000 for joint filers and over $680,000 for head-of-household filers). The California Children s Education and Health Care Protection Act of 2016 (also known as Proposition 55 ) is a constitutional amendment approved by the voters of the State on November 8, Proposition 55 extends the increases to personal income tax rates for high-income taxpayers that were approved as part of Proposition 30 through Proposition 55 did not extend the temporary State Sales and Use Tax rate increase enacted under Proposition 30, which expired as of January 1, The revenues generated from the personal income tax increases will be included in the calculation of the Proposition 98 Minimum Funding Guarantee (defined herein) for school districts and community college districts. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Propositions 98 and 111 herein. From an accounting perspective, the revenues generated from the personal income tax increases are being deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing board is prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. Proposition 2 On November 4, 2014, voters approved the Rainy Day Budget Stabilization Fund Act (also known as Proposition 2 ). Proposition 2 is a legislatively-referred constitutional amendment which makes certain changes to State budgeting practices, including substantially revising the conditions under which transfers are made to and from the State s Budget Stabilization Account (the BSA ) established by the California Balanced Budget Act of 2004 (also known as Proposition 58). Under Proposition 2, and beginning in fiscal year and each fiscal year thereafter, the State will generally be required to annually transfer to the BSA an amount equal to 1.5% of estimated State general fund revenues (the Annual BSA Transfer ). Supplemental transfers to the BSA (a Supplemental BSA Transfer ) are also required in any fiscal year in which the estimated State general fund revenues that are allocable to capital gains taxes exceed 8% of total estimated general fund tax revenues. Such excess capital gains taxes net of any portion thereof owed to K-14 school districts 36

43 pursuant to Proposition 98 will be transferred to the BSA. Proposition 2 also increases the maximum size of the BSA to an amount equal to 10% of estimated State general fund revenues for any given fiscal year. In any fiscal year in which a required transfer to the BSA would result in an amount in excess of the 10% threshold, Proposition 2 requires such excess to be expended on State infrastructure, including deferred maintenance. For the first 15-year period ending with the fiscal year, Proposition 2 provides that half of any required transfer to the BSA, either annual or supplemental, must be appropriated to reduce certain State liabilities, including making certain payments owed to K-14 school districts, repaying State interfund borrowing, reimbursing local governments for State mandated services, and reducing or prefunding accrued liabilities associated with State-level pension and retirement benefits. Following the initial 15-year period, the Governor and the State Legislature are given discretion to apply up to half of any required transfer to the BSA to the reduction of such State liabilities. Any amount not applied towards such reduction must be transferred to the BSA or applied to infrastructure, as described above. Proposition 2 changes the conditions under which the Governor and the State Legislature may draw upon or reduce transfers to the BSA. The Governor does not retain unilateral discretion to suspend transfers the BSA, nor does the State Legislature retain discretion to transfer funds from the BSA for any reason, as previously provided by law. Rather, the Governor must declare a budget emergency, defined as an emergency within the meaning of Article XIIIB of the Constitution or a determination that estimated resources are inadequate to fund State general fund expenditures, for the current or ensuing fiscal year, at a level equal to the highest level of State spending within the three immediately preceding fiscal years. Any such declaration must be followed by a legislative bill providing for a reduction or transfer. Draws on the BSA are limited to the amount necessary to address the budget emergency, and no draw in any fiscal year may exceed 50% of funds on deposit in the BSA unless a budget emergency was declared in the preceding fiscal year. Proposition 2 also requires the creation of the Public School System Stabilization Account (the PSSSA ) into which transfers will be made in any fiscal year in which a Supplemental BSA Transfer is required (as described above). Such transfer will be equal to the portion of capital gains taxes above the 8% threshold that would be otherwise paid to K-14 school districts as part of the minimum funding guarantee. A transfer to the PSSSA will only be made if certain additional conditions are met, as follows: (i) the minimum funding guarantee was not suspended in the immediately preceding fiscal year, (ii) the operative Proposition 98 formula for the fiscal year in which a PSSSA transfer might be made is Test 1, (iii) no maintenance factor obligation is being created in the budgetary legislation for the fiscal year in which a PSSSA transfer might be made, (iv) all prior maintenance factor obligations have been fully repaid, and (v) the minimum funding guarantee for the fiscal year in which a PSSSA transfer might be made is higher than the immediately preceding fiscal year, as adjusted for ADA growth and cost of living. Proposition 2 caps the size of the PSSSA at 10% of the estimated minimum guarantee in any fiscal year, and any excess funds must be paid to K-14 school districts. Reductions to any required transfer to the PSSSA, or draws on the PSSSA, are subject to the same budget emergency requirements described above. However, Proposition 2 also mandates draws on the PSSSA in any fiscal year in which the estimated minimum funding guarantee is less than the prior year s funding level, as adjusted for ADA growth and cost of living. 37

44 Proposition 51 The Kindergarten Through Community College Public Education Facilities Bond Act of 2016 (also known as Proposition 51) is a voter initiative that was approved by voters on November 8, Proposition 51 authorizes the sale and issuance of $9 billion in general obligation bonds for the new construction and modernization of K-14 facilities. K-12 School Facilities. Proposition 51 includes $3 billion for the new construction of K-12 facilities and an additional $3 billion for the modernization of existing K-12 facilities. K-12 school districts will be required to pay for 50% of the new construction costs and 40% of the modernization costs with local revenues. If a school districts lack sufficient local funding, it may apply for additional state grant funding, up to 100% of the project costs. In addition, a total of $1 billion will be available for the modernization and new construction of charter school ($500 million) and technical education ($500 million) facilities. Generally, 50% of modernization and new construction project costs for charter school and technical education facilities must come from local revenues. However, schools that cannot cover their local share for these two types of projects may apply for state loans. State loans must be repaid over a maximum of 30 years for charter school facilities and 15 years for career technical education facilities. For career technical education facilities, state grants are capped at $3 million for a new facility and $1.5 for a modernized facility. Charter schools must be deemed financially sound before project approval. Community College Facilities. Proposition 51 includes $2 billion for community college district facility projects, including buying land, constructing new buildings, modernizing existing buildings, and purchasing equipment. In order to receive funding, community college districts must submit project proposals to the Chancellor of the community college system, who then decides which projects to submit to the State legislature and Governor based on a scoring system that factors in the amount of local funds contributed to the project. The Governor and State legislature will select among eligible projects as part of the annual state budget process. The District makes no guarantees that it will either pursue or qualify for Proposition 51 state facilities funding. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the State Constitution and Propositions 22, 26, 30, 39, 98, 55 and 51 were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. [REMAINDER OF PAGE LEFT BLANK] 38

45 DISTRICT FINANCIAL INFORMATION The information in this section concerning State funding of public education and the District s finances is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from State revenues. Prior to the Crossover Date, the Series A Refunding Bonds will be secured by and payable solely from monies on deposit in the Escrow Subaccount therefor. The Series B Refunding Bonds are, and the Series A Refunding Bonds from and after the Crossover Date will be, payable solely from the proceeds of an ad valorem property tax which is required to be levied by the County on taxable property within the District in an amount sufficient for the payment thereof. See THE BONDS Security and Sources of Payment herein. State Funding of Education School district revenues consist primarily of guaranteed State moneys, local property taxes and funds received from the State in the form of categorical aid under ongoing programs of local assistance. All State aid is subject to the appropriation of funds in the State s annual budget. Revenue Limit Funding. Previously, school districts operated under general purpose revenue limits established by the State Department of Education. In general, revenue limits were calculated for each school district by multiplying the ADA for such district by a base revenue limit per unit of ADA. Revenue limit calculations were subject to adjustment in accordance with a number of factors designed to provide cost of living adjustments ( COLAs ) and to equalize revenues among school districts of the same type. Funding of a school district s revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Beginning in fiscal year , school districts have been funded based on uniform system of funding grants assigned to certain grade spans. See Local Control Funding Formula herein. The table below reflects the District s historical ADA and the revenue limit rates per unit of ADA for fiscal years through (1) Year AVERAGE DAILY ATTENDANCE AND REVENUE LIMIT Fiscal Years through Carlsbad Unified School District Average Daily Attendance (1) Base Revenue Limit Per ADA (2) Deficit Revenue Limit per ADA (2) ,081 $5, $5, ,285 5, , ,313 6, , ,418 6, , ,593 6, , ,619 6, , ,471 6, , Reflects ADA as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. An attendance month is each four-week period of instruction beginning with the first day of school for any school district. (2) Deficit revenue limit funding, if provided for in State budgetary legislation, reduced the revenue limit allocations received by school districts by applying a deficit factor to the base revenue limit for a given fiscal year, and resulted from an insufficiency of appropriation funds in the State budget to provide for State aid owed to school districts. The State s practice of deficit limit funding was most recently reinstated beginning in fiscal year and eliminated with the implementation of the LCFF (defined herein). Source: Carlsbad Unified School District. 39

46 Local Control Funding Formula. State Assembly Bill 97 (Stats. 2013, Chapter 47) ( AB 97 ), enacted as part of the State budget, established the current system for funding school districts, charter schools and county offices of education. Certain provisions of AB 97 were amended and clarified by Senate Bill 91 (Stats. 2013, Chapter 49) ( SB 91 ). The primary component of AB 97 was the implementation of the Local Control Funding Formula ( LCFF ), which replaced the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. State allocations are now provided on the basis of target base funding grants per unit of ADA (a Base Grant ) assigned to each of four grade spans. Each Base Grant is subject to certain adjustments and add-ons, as discussed below. Full implementation of the LCFF is expected to occur over a period of several fiscal years. Beginning in fiscal year , an annual transition adjustment has been calculated for each school district, equal to such district s proportionate share of appropriations included in the State budget to close the gap between the prior-year funding level and the target allocation following full implementation of the LCFF. In each year, school districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. The Base Grants per unit of ADA for each grade span are as follows: (i) $6,845 for grades K-3; (ii) $6,947 for grades 4-6; (iii) $7,154 for grades 7-8; and (iv) $8,289 for grades During the implementation period, the Base Grants are to be adjusted for COLAs by applying the implicit price deflator for government goods and services. Following full implementation of the LCFF, the provision of COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among Base Grants are linked to differentials in statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. See also State Budget Measures for information on the adjusted Base Grants provided by current budgetary legislation. The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and the provision of career technical education in high schools. Following full implementation of the LCFF, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site in order to continue receiving the adjustment to the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. AB 97 also provides additional add-ons to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement and Home-to-School Transportation programs during fiscal year School districts that serve students of limited English proficiency ( EL students), students from low income families that are eligible for free or reduced priced meals ( LI students) and foster youth are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI (foster youth automatically meet the eligibility requirements for free or reduced priced meals, and are therefore not discussed herein separately). The LCFF authorizes a supplemental grant add-on (each, a Supplemental Grant ) for school districts that serve EL/LI students, equal to 20% of the applicable Base Grant multiplied by such districts percentage of unduplicated EL/LI student enrollment. School districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a Concentration Grant ) equal to 50% of the applicable Base Grant multiplied the percentage of such district s unduplicated EL/LI student enrollment in excess of the 55% threshold. 40

47 The following table shows a breakdown of the District s ADA by grade span, total enrollment, and the percentage of EL/LI student enrollment for fiscal years through ADA, ENROLLMENT AND EL/LI ENROLLMENT PERCENTAGE Fiscal Years through Carlsbad Unified School District Average Daily Attendance (1) Enrollment (2) Fiscal Year K Total ADA Total Enrollment % of EL/LI Enrollment (3) , , , , , , % , , , , , , , , , , , , , , , , , , (4) 3, , , , , , (5) 3, , , , , , (1) Except for fiscal year , reflects P-2 ADA. (2) Fiscal year enrollment as of October report submitted to the California Basic Educational Data System ( CBEDS ). Fiscal years through reflect certified enrollment as of the fall census day (the first Wednesday in October), which is reported to the California Longitudinal Pupil Achievement Data System ( CALPADS ) in each school year and used to calculate each school district s unduplicated EL/LI student enrollment. Adjustments may be made to the certified EL/LI counts by the California Department of Education. CALPADS figures generally exclude preschool and adult transitional students. (3) For purposes of calculating Supplemental and Concentration Grants, a school district s fiscal year percentage of unduplicated EL/LI students will be expressed solely as a percentage of its total fiscal year total enrollment. For fiscal year , the percentage of unduplicated EL/LI enrollment will be based on the two-year average of EL/LI enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated EL/LI students is based on a rolling average of such district s EL/LI enrollment for the then-current fiscal year and the two immediately preceding fiscal years. (4) Estimated. (5) Budgeted. Source: Carlsbad Unified School District. For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF provides for a permanent economic recovery target ( ERT ) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, the LCFF assumes the discontinuance of deficit revenue limit funding, implementation of a COLA in fiscal years through , and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the implementing period of the LCFF. The District does not qualify for the ERT add-on. The sum of a school district s adjusted Base, Supplemental and Concentration Grants will be multiplied by such district s P-2 ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the State Legislature to school districts. Certain schools districts, known as basic aid districts, have allocable local property tax collections that equal or exceed such districts total LCFF allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the 41

48 State Constitution. The implication for basic aid districts is that the legislatively determined allocations to school districts, and other politically determined factors, are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. The District fell out of basic aid status in fiscal year and does not currently qualify as a basic aid district. Accountability. Regulations adopted by the State Board of Education require that school districts increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such EL/LI students, and detail the conditions under which school districts can use supplemental or concentration funding on a school-wide or districtwide basis. School districts are also required to adopt local control and accountability plans ( LCAPs ) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by the LCFF. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs were required to be adopted beginning in fiscal year , covering a three-year period, and updated annually thereafter. The State Board of Education has developed and adopted a template LCAP for use by school districts. Support and Intervention. AB 97, as amended by SB 91, establishes a new system of support and intervention to assist school districts meet the performance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and not later than five days thereafter submit such LCAPs or updates to their respective county superintendents of schools. On or before August 15 of each year, a county superintendent may seek clarification regarding the contents of a district s LCAP (or annual update thereto), and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit non-binding recommendations for amending the LCAP or annual update, and such recommendations must be considered by the respective school district at a public hearing within 15 days. A district s LCAP or annual update must be approved by the county superintendent by October 8 of each year if the superintendent determines that (i) the LCAP or annual update adheres to the State template, and (ii) the district s budgeted expenditures are sufficient to implement the actions and strategies outlined in the LCAP. A school district is required to receive additional support if its respective LCAP or annual update thereto is not approved, if the district requests technical assistance from its respective county superintendent, or if the district does not improve student achievement across more than one State priority for one or more student subgroups. Such support can include a review of a district s strengths and weaknesses in the eight State priority areas, or the assignment of an academic expert to assist the district identify and implement programs designed to improve outcomes. Assistance may be provided by the California Collaborative for Educational Excellence, a state agency created by the LCFF and charged with assisting school districts achieve the goals set forth in their LCAPs. The State Board of Education was required to develop rubrics to assess school district performance and the need for support and intervention. The State Superintendent of Public Instruction (the State Superintendent ) is further authorized, with the approval of the State Board of Education, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized (i) to modify a district s LCAP, (ii) impose budget revisions designed to improve student outcomes, and (iii) stay or rescind actions of the local governing board that would prevent such district from improving student 42

49 outcomes; provided, however, that the State Superintendent is not authorized to rescind an action required by a local collective bargaining agreement. Other Revenue Sources Other State Sources. In addition to State allocations determined pursuant to the LCFF, the District receives other State revenues consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year , categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was folded into the LCFF. Categorical funding for certain programs was excluded from the LCFF, and school districts will continue to receive restricted State revenues to fund these programs. Federal and Local Sources. The federal government provides funding for several of the District s programs, including special education programs, programs under the Every Student Succeeds Act, and specialized programs such as Drug Free Schools, Innovative Strategies, and Vocational & Applied Technology. In addition, school districts may receive additional local revenues beyond local property tax collections, such as from leases and rentals, interest earnings, interagency services, developer fees (described below), redevelopment revenues, foundation revenues, and other local sources. Developer Fees. The District collects developer fees to finance essential school facilities within the District and are deposited into the Capital Facilities Fund. The following table of developer fee revenues reflects the collection of fees from fiscal year through , an estimated amount for fiscal year , and a budgeted amount for fiscal year (1) Estimated. (2) Budgeted. Source: Carlsbad Unified School District. DEVELOPER FEES Fiscal Years through Carlsbad Unified School District Total Year Revenues $765, , , ,057, ,128, (1) 2,793, (2) 1,659,866 [REMAINDER OF PAGE LEFT BLANK] 43

50 Foundation. The Carlsbad Educational Foundation ( the Foundation ) is an independent 501(c)(3) nonprofit corporation that supports the District. It was established in 1983 by a group of citizens. The District deposits the cash contributions made by the Foundation into its unrestricted general fund. The following table shows a four-year history of cash contributions made by the Foundation to the District: FOUNDATION CONTRIBUTIONS Fiscal Years through Carlsbad Unified School District Fiscal Year Donations $364, , , ,110 Source: The Charter Oak Unified School District. Tax Offset Revenues and Pass-Through Revenues. The District receives tax offset revenue from the County as a part of certain redevelopment projects within the boundaries of the District (the Tax Offset Revenues ). The Tax Offset Revenues received by the District are deposited directly into the District s general fund and are offset against the State apportionment received by the District. The amount of Tax Offset Revenues received by the District from fiscal years through , estimated amounts for fiscal year , and a budgeted amount for fiscal year are shown in the following table. (1) TAX OFFSET REVENUES AND PASS-THROUGH REVENUES Fiscal Years through Carlsbad Unified School District Fiscal Year Tax Offset Revenues (1) $3,408, , , , (2) 2,259, (3) 193,290 Tax Offset Revenues received by the District are offset against the State apportionments received by the District. (2) Estimated. (3) Budgeted. Source: Carlsbad Unified School District. Dissolution of Redevelopment Agencies On December 30, 2011, the State Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos ( Matosantos ), finding ABx1 26, a trailer bill to the State budget, to be constitutional. As a result, all redevelopment agencies in the State ceased to exist as a matter of law on February 1, ABx1 26 was modified by Assembly Bill No (Chapter 26, Statutes of ) ( AB 1484 ), which, together with ABx1 26, is referred to herein as the Dissolution Act. The Dissolution Act provides that all rights, powers, duties and obligations of a redevelopment agency under the 44

51 California Community Redevelopment Law that have not been repealed, restricted or revised pursuant to ABx1 26 will be vested in a successor agency, generally the county or city that authorized the creation of the redevelopment agency (each, a Successor Agency ). All property tax revenues that would have been allocated to a redevelopment agency, less the corresponding county auditor-controller s cost to administer the allocation of property tax revenues, are now allocated to a corresponding Redevelopment Property Tax Trust Fund ( Trust Fund ), to be used for the payment of pass-through payments to local taxing entities, and thereafter to bonds of the former redevelopment agency and any enforceable obligations of the Successor Agency, as well as to pay certain administrative costs. The Dissolution Act defines enforceable obligations to include bonds, loans, legally required payments, judgments or settlements, legal binding and enforceable obligations, and certain other obligations. Among the various types of enforceable obligations, the first priority for payment is tax allocation bonds issued by the former redevelopment agency; second is revenue bonds, which may have been issued by the host city, but only where the tax increment revenues were pledged for repayment and only where other pledged revenues are insufficient to make scheduled debt service payments; third is administrative costs of the Successor Agency, equal to at least $250,000 in any year, unless the oversight board reduces such amount for any fiscal year or a lesser amount is agreed to by the Successor Agency; then, fourth tax revenues in the Trust Fund in excess of such amounts, if any, will be allocated as residual distributions to local taxing entities in the same proportions as other tax revenues. Moreover, all unencumbered cash and other assets of former redevelopment agencies will also be allocated to local taxing entities in the same proportions as tax revenues. Notwithstanding the foregoing portion of this paragraph, the order of payment is subject to modification in the event a Successor Agency timely reports to the Controller and the Department of Finance that application of the foregoing will leave the Successor Agency with amounts insufficient to make scheduled payments on enforceable obligations. If the county auditorcontroller verifies that the Successor Agency will have insufficient amounts to make scheduled payments on enforceable obligations, it shall report its findings to the Controller. If the Controller agrees there are insufficient funds to pay scheduled payments on enforceable obligations, the amount of such deficiency shall be deducted from the amount remaining to be distributed to taxing agencies, as described as the fourth distribution above, then from amounts available to the Successor Agency to defray administrative costs. In addition, if a taxing agency entered into an agreement pursuant to Health and Safety Code Section for payments from a redevelopment agency under which the payments were to be subordinated to certain obligations of the redevelopment agency, such subordination provisions shall continue to be given effect. As noted above, the Dissolution Act expressly provides for continuation of pass-through payments to local taxing entities. Per statute, 100% of contractual and statutory two percent passthroughs, and 56.7% of statutory pass-throughs authorized under the Community Redevelopment Law Reform Act of 1993 (AB 1290, Chapter 942, Statutes of 1993) ( AB 1290 ), are restricted to educational facilities without offset against apportionments by the State. Only 43.3% of AB 1290 pass-throughs are offset against State aid so long as the affected local taxing entity uses the moneys received for land acquisition, facility construction, reconstruction, or remodeling, or deferred maintenance as provided under Education Code Section 42238(h). ABX1 26 states that in the future, pass-throughs shall be made in the amount which would have been received... had the redevelopment agency existed at that time, and that the county auditorcontroller shall determine the amount of property taxes that would have been allocated to each redevelopment agency had the redevelopment agency not been dissolved pursuant to the operation of [ABX1 26] using current assessed values... and pursuant to statutory [pass-through] formulas and contractual agreements with other taxing agencies. 45

52 Successor Agencies continue to operate until all enforceable obligations have been satisfied and all remaining assets of the Successor Agency have been disposed of. AB 1484 provides that once the debt of the Successor Agency is paid off and remaining assets have been disposed of, the Successor Agency shall terminate its existence and all pass-through payment obligations shall cease. The District can make no representations as to the extent to which its base apportionments from the State may be offset by the future receipt of residual distributions or from unencumbered cash and assets of former redevelopment agencies any other surplus property tax revenues pursuant to the Dissolution Act. Accounting Practices The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Education Code Section 41010, is to be followed by all State school districts. The District s expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Delinquent taxes not received after the fiscal year end are not recorded as revenue until received. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. The District s accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the general fund which accounts for all financial resources not requiring a special type of fund. The District s fiscal year begins on July 1 and ends on June 30. Comparative Financial Statements The District s general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. Audited financial statements for the District for the fiscal year ended June 30, 2016, and prior fiscal years are on file with the District and available for public inspection at the Carlsbad Unified School District, 6225 El Camino Real, Carlsbad, California 92009, telephone: (760) , Attention: Assistant Superintendent of Business Services. The audited financial statements for the year ended June 30, 2016, are included in APPENDIX B hereto. The table on the following page reflects the District s audited general fund revenues, expenditures and fund balances from fiscal year to fiscal year [REMAINDER OF PAGE LEFT BLANK] 46

53 GENERAL FUND REVENUES, EXPENDITURES AND FUND BALANCES Fiscal Years through Carlsbad Unified School District Audited Actuals Audited Actuals Audited Actuals Audited Actuals Audited Actuals REVENUES: Revenue Limit Sources/LCFF Sources (1) State Apportionments $(7,142) (2) $2,109,419 $912,334 $912,282 $4,954,477 Education Protection Account Funds ,113,736 2,119,162 2,127,834 Local Sources 61,169,443 65,519,169 63,844,009 69,163,569 73,077,642 Federal Sources 3,369,592 3,161,437 3,262,085 3,187,071 3,461,789 Other State Sources 4,593,055 4,830,838 7,287,423 5,813,724 13,741,120 Other Local Sources 5,209,569 7,199,367 8,205,500 8,735,337 8,802,944 TOTAL REVENUES 74,334,517 82,820,230 85,625,087 89,931, ,165,806 EXPENDITURES: Current: Instruction 50,515,503 49,247,217 53,109,074 56,652,193 64,015,696 Instruction-Related Services: 8,165,274 8,009,337 8,567,263 9,442,709 9,838,247 Pupil Services 7,698,254 6,911,870 7,131,492 7,937,787 8,101,216 Ancillary Services 648, , ,108 1,016,820 1,309,110 Community Services 174, , , , ,711 General Administration 4,974,081 4,680,717 5,362,706 6,135,004 6,301,307 Plant Services 7,318,790 7,589,782 8,272,817 9,089,778 9,394,865 Other outgo 51, , , , ,005 Debt Service Debt Issue Costs , , Principal 317, Interest 327, TOTAL EXPENDITURES 80,192,115 77,791,795 83,989,022 91,081, ,767,209 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (5,857,598) 5,028,435 1,636,065 (1,149,875) 5,398,597 OTHER FINANCING SOURCES (USES): Transfers In 520, Transfers Out Other Sources NET FINANCING SOURCES (USES) 520, NET CHANGE IN FUND BALANCES (5,337,090) 5,028,435 1,636,065 (1,149,875) 5,398,597 Fund Balance, July 1 15,047,690 9,710,600 14,739,035 16,375,099 15,225,224 Fund Balance, June 30 $9,710,600 $14,739,035 $16,375,100 $15,225,224 $20,623,821 (1) Beginning in fiscal year , this category is coded LCFF Sources. (2) The State made a negative adjustment to the fiscal year State Apportionment as a result of changes between P-1 ADA and P-2 ADA during fiscal year Source: Carlsbad Unified School District. [REMAINDER OF PAGE LEFT BLANK] 47

54 Budget Process State Budgeting Requirements. The District is required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. The budget process for school districts was substantially amended by Assembly Bill 1200 ( AB 1200 ), which became State law on October 14, Portions of AB 1200 are summarized below. Additional amendments to the budget process were made by Assembly Bill 2585, effective as of September 9, 2014, including the elimination of the dual budget cycle option for school districts. All school districts must now be on a single budget cycle. School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. The county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, and will determine if the budget allows the district to meet its current obligations, if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments, whether the budget includes the expenditures necessary to implement a local control and accountability plan, and whether the budget s ending fund balance exceeds the minimum recommended reserve for economic uncertainties. On or before September 15, the county superintendent will approve, conditionally approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by September 15 of the county superintendent s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent s recommendations. The committee must report its findings no later than September 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. No later than October 22, the county superintendent must notify the State Superintendent of Public Instruction of all school districts whose budget may be disapproved. For districts whose budgets have been disapproved, the district must revise and readopt its budget by October 8, reflecting changes in projected income and expense since July 1, including responding to the county superintendent s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8, will approve or disapprove the revised budgets. If the budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section No later than October 8, the county superintendent must notify the State Superintendent of Public Instruction of all school districts whose budget has been disapproved. Until a district s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. Interim Financial Reports. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the two subsequent fiscal years. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the 48

55 remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. The District has never had an adopted budget disapproved by the county superintendent of schools and, within the past five years, the District has not received a negative or qualified certification of an Interim Financial Report pursuant to AB Budgeting Trends. The following table sets forth the District s general fund adopted budgets for fiscal years through , ending results for fiscal years through , and unaudited actual results from fiscal year [REMAINDER OF PAGE LEFT BLANK] 49

56 COMPARISON OF GENERAL FUND BUDGETS AND ENDING RESULTS Fiscal Years through Carlsbad Unified School District Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Adopted Audited Adopted Audited Adopted Audited Adopted Unaudited Adopted Budget (1) Actuals (1) Budget (1) Actuals (1) Budget (1) Actuals (1) Budget (2) Actuals (3) REVENUES: LCFF/Revenue Limit Sources (4) $65,324,620 $66,870,079 $68,023,562 $72,195,013 $79,842,222 $80,159,953 $85,312,700 $86,478,883 $88,847,900 Federal Revenue 2,994,394 3,262,085 2,827,588 3,187,071 3,128,234 3,461,789 3,441,880 3,574,623 3,530,933 Other State Revenue 3,784,410 5,210,358 2,799,465 5,813,724 9,246,872 13,741,120 9,559,686 10,408,169 7,050,888 Other Local Revenue 6,419,045 8,205,500 7,012,284 8,735,337 6,647,450 8,802,944 6,281,894 8,342,662 6,139,270 Total Revenues 78,522,469 83,548,022 80,662,899 89,931,145 98,864, ,165, ,596, ,804, ,568,991 Budget (3) EXPENDITURES: Certificated Salaries 38,405,177 39,948,911 40,658,885 42,734,897 43,151,959 46,938,907 47,445,505 48,777,173 48,336,918 Classified Salaries 11,112,908 11,630,044 11,735,425 12,323,137 12,196,683 13,381,099 13,863,841 13,791,840 13,939,029 Employee Benefits 17,563,712 17,034,309 17,976,455 20,672,134 19,795,687 22,827,982 26,449,499 26,528,081 28,484,141 Books and Supplies 2,921,267 2,810,352 3,676,071 2,781,651 3,589,511 4,415,329 4,037,382 3,187,442 5,063,391 Services and Operating Expenditures 10,433,303 9,890,825 10,793,846 11,425,894 11,906,740 11,518,835 11,406,493 11,503,963 12,410,710 Direct Support/Indirect Costs Other Outgo (57,188) 502, , , , , , , ,078 Capital Outlay 158,000 95,356 53, , , ,052 1,030,736 1,262, ,475 Total Expenditures 80,537,179 81,911,957 85,193,084 91,081,020 91,372, ,767, ,957, ,857, ,459,742 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (2,014,710) 1,636,065 (4,530,185) (1,149,875) 7,492,353 5,398,597 (361,144) 2,947,244 (3,890,751) OTHER FINANCING SOURCES (USES): Operating Transfers In Operating Transfer Out , , ,000 Other Sources Contributions Total Other Financing Sources (Uses) (100,000) (100,000) (100,000) NET CHANGE IN FUND BALANCES (2,014,710) 1,636,065 (4,530,185) (1,149,875) 7,492,353 5,398,597 (461,144) 2,847,244 (3,990,751) FUND BALANCE, JULY 1 14,739,035 14,739,035 16,375,099 16,375,099 15,225,224 15,225,224 19,467, ,623,821 23,471,064 FUND BALANCE, JUNE 30 $12,724,325 $16,375,100 $11,844,914 $15,225,224 $22,717,577 $20,623,821 $19,005, $23,471,064 $19,480,313 Note: Sums may differ from totals due to rounding. (1) From the District s Comprehensive Audited Financial Report for fiscal years through (2) (3) (4) From the District s Budget for fiscal year , adopted by the Board on June 22, From the District s Unaudited Actuals for fiscal year , adopted by the Board on September 13, Beginning in fiscal year , this category is coded LCFF Sources. Source: Carlsbad Unified School District. 50

57 State Budget Measures The following information concerning the State s budgets has been obtained from publicly available information which the District believes to be reliable; however, the District does not guarantee the accuracy or completeness of this information and has not independently verified such information Budget. On June 27, 2017, the Governor signed into law the State budget for fiscal year (the Budget ). The following information is drawn from the LAO s preliminary review of the Budget. For fiscal year , the Budget projects total general fund revenues and transfers of $118.5 billion and total expenditures of $121.4 billion. The State is projected to end the fiscal year with total available reserves of $7.4 billion, including $642 million in the traditional general fund reserve and $6.7 billion in the BSA. For fiscal year , the Budget projects total general fund revenues of $125.9 billion, reflecting a 6% increase over the prior year and driven primarily by a projected 5% increase in personal income, sales and use tax collections. The Budget authorizes expenditures of $125.1 billion. The State is projected to end the fiscal year with total available reserves of $9.9 billion, including $1.4 billion in the traditional general fund reserve and $8.5 billion in the BSA. With respect to education funding, the Budget revises the Proposition 98 minimum funding guarantees for both fiscal years and , as a result of lower-than-estimated general fund revenue collections. The Budget sets the Proposition 98 minimum funding guarantee for fiscal year at $68.7 billion, an decrease of $379 million from the prior year. However, total Proposition 98 funding exceeded the minimum guarantee by $53 million as a result of various adjustments related to the LCFF and community college apportionments. The Budget revises the minimum funding guarantee for fiscal year at $71.3 billion, reflecting a decrease of $558 million from the prior year. Total spending, however, exceed the minimum funding guarantee by approximately $29 million, as a result of a $514 million settle up payment related to an obligation created by understating the minimum guarantee in a prior year. For fiscal year , the Budget sets the minimum funding guarantee at $74.5 billion, reflecting an increase of $3.1 billion (or 4.4%) from the revised prior-year level. Fiscal year is projected to be a Test 2 year, with the change in the minimum funding guarantee attributable to a 3.7% increase in per capita personal income and a projected 0.05% decline in K-12 attendance. With respect to K-12 education, the Budget sets Proposition 98 funding at $64.7 billion, including $45.7 billion from the State general fund, reflecting an increase of $2.7 billion (or 4.3%) from the prior year. Per-pupil spending increases 4.3% to $10,863. Other significant features with respect to K-12 education funding include the following: Local Control Funding Formula approximately $1.4 billion in Proposition 98 funding to continue the implementation of the LCFF. Total LCFF funding for school districts and charter schools is set at $57.4 billion, a 2.7% increase from the prior year. The Budget projects that this funding will bring LCFF implementation to approximately 97%. As a result, the adjusted Base Grants are as follows: (i) $7,941 for grades K-3, (ii) $7,301 for grades 4-6, (iii) $7,518 for grades 7-8, and (iv) $8,939 for grades See also DISTRICT FINANCIAL INFORMATION State Funding of Education Local Control Funding Formula herein 51

58 Discretionary Funding An increase of $877 million in one-time Proposition 98 funding that local educational agencies may use for any purpose. Similar to features included in prior State budgets, these funds would offset any applicable unpaid reimbursement claims for State-mandated activities. Maintenance Factor; Settle Up Payment The Budget provides for an additional maintenance factor payment of $536 million, after which the State s outstanding obligation would be approximately $900 million. The Budget also provides $603 million to fund a settle-up payment related to an obligation created in fiscal year when revenue estimates understated the minimum funding guarantee. This reduces the State s total settle up obligation to approximately $440 million. Career Technical Education (CTE) The State Budget for fiscal year established the Career Technical Education Incentive Grant Program for local education agencies to establish new or expand high-quality CTE programs. The Budget provides $200 million as the final installment of funding for this program. The Budget also provides the California Department of Education with $15.4 million in on-going Proposition 98 funding to support efforts linking secondary and postsecondary CTE. K-12 Educational Mandates $3.5 million to fund a 1.56% COLA to the block grant program for State mandated K-12 educational programs and activities. The Budget establishes a statutory COLA for these programs moving forward. The also provides $61 million to fund a 1.56% COLA to several other categorical programs. Teacher Workforce Initiative The Budget funds a variety of teacher recruitment and training programs, including (i) $25 million in one-time Proposition 98 funding for grants to assist classified school employees secure bachelor s degrees and teaching credentials; (ii) $11 million in federal Title II funds to establish a program to help local educational agencies attract and support teachers, principals and other school leaders; and (iii) $5 million in onetime Proposition 98 funding for a new program that would encourage teachers to obtain bilingual credentials and teach in bilingual settings. Proposition 39 Passed by voters in November 2012, Proposition 39 increases State corporate tax revenues and requires that, for a five-year period starting in fiscal year , a portion of these additional revenues be allocated to local education agencies to improve energy efficiency and expand the use of alternative energy in public buildings. The Budget allocates $423 million of such funds to support school district and charter school energy efficiency projects in fiscal year After School Safety and Education Safety Program an increase of $50 million in Proposition 98 funding (for a total of $600 million) to increase per-child reimbursement rates for providers of local after school education and enrichment programs. Proposition 56 Passed by voters in November 2016, Proposition 56 increases the per-pack State sales tax on cigarettes by $2, and requires that a portion of the revenue generated be used for school programs designed to prevent and reduce the use of tobacco and nicotine products. The Budget allocates $32 million of Proposition 56 revenues to support these programs. Charter School Facility Grant Program Under this program, the State provides certain charter schools with grants to defray the cost of renting and leasing school facilities. The 52

59 Budget increases the per-student funding rate to $1,117 and provides an ongoing COLA for the program moving forward. Equity and Improvement Program $2.5 million in one-time Proposition 98 funding for two or more county offices of education to assist local educational agencies in closing achievement gaps in public schools. REFUNDING: Proposition 51 The Kindergarten Through Community College Public Education Facilities Bond Act of 2016 (also known as Proposition 51) is a voter initiative approved at the November 8, 2016 election that authorizes the sale and issuance of $9 billion in general obligation bonds for the new construction and modernization of K-14 facilities. The Budget allocates $593 million of such bond funds for K-12 school facility projects. Refugee Students $10 million in one-time Proposition 98 funding for the State Department of Social Services to provide grants to school districts that serve notable numbers of refugee students. For additional information regarding the Budget, see the State Department of Finance website at and the LAO s website at However, the information presented on such websites is not incorporated herein by reference. Future Actions. The District cannot predict what actions will be taken in the future by the State legislature and the Governor to address changing State revenues and expenditures. The District also cannot predict the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions or results could produce a significant shortfall of revenue and cash, and could consequently impair the State s ability to fund schools. State budget shortfalls in future fiscal years may also have an adverse financial impact on the financial condition of the District. However, the obligation to levy ad valorem property taxes upon all taxable property within the District for the payment of principal of and interest on the Bonds would not be impaired. CARLSBAD UNIFIED SCHOOL DISTRICT The information in this section concerning the operations of the District and the District s finances are provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from the general fund of the District. Prior to the Crossover Date, the Series A Refunding Bonds will be secured by and payable solely from monies on deposit in the Escrow Subaccount therefor. The Series B Refunding Bonds are, and the Series A Refunding Bonds from and after the Crossover Date will be, payable solely from the proceeds of an ad valorem property tax which is required to be levied by the County in an amount sufficient for the payment thereof. See THE BONDS Security and Sources of Payment herein. Introduction The District was established as a unified school district in The District is located in the northwestern portion of the County and encompasses approximately 30.2 square miles. The District provides kindergarten through twelfth grade education services, maintaining nine elementary schools, three middle schools, two high schools, one alternative school and one independent study school. The 53

60 District s average daily attendance for fiscal year is budgeted to be 10, and the total fiscal year assessed value of property within the District is $22,162,569,878. Unless otherwise indicated, the following financial, statistical and demographic data has been provided by the District. Additional information concerning the district and copies of the most recent and subsequent audited financial reports of the District may be obtained by contacting: Carlsbad Unified School District, 6225 El Camino Real, Carlsbad, California 92009, telephone: (760) , Attention: Assistant Superintendent of Business Services. Administration The District is governed by a five-member Board of Trustees, each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. Current members of the Board, together with their offices and the date each member s term expires, are listed below: BOARD OF TRUSTEES Carlsbad Unified School District Name Office Term Expires Elisa Williamson President December 2020 Ray Pearson Vice President December 2020 Kathy Rallings Clerk December 2018 Claudine Jones Member December 2018 Veronica Williams Member December 2018 The Superintendent of the District is responsible for administering the affairs of the District in accordance with the policies of the Board. Dr. Benjamin Churchill is the Superintendent of the District. Brief biographies of the Superintendent and Assistant Superintendent, Business Services follow: Benjamin Churchill Ed.D., Superintendent. Dr. Benjamin Churchill became the Superintendent of the District on July 1, Prior thereto, he served as the Chief Academic Officer for Community Unit School District 300 in Alonquin, Illinois for 8 years. In addition, during his 21 year career in education he has served as an Assistant Superintendent of Teaching and Learning, a high school principal, an associate principal of curriculum and instruction and a high school English teacher. Dr. Churchill holds a B.A. in philosophy from Valparaiso University, a M.S. in teaching and learning from DePaul University, a M.S. in school leadership from Northeastern Illinois University, and an Ed.D. in advanced education administration from Argosy University. Christopher Wright, Assistant Superintendent of Business Services. Mr. Wright became Assistant Superintendent of Business Services on July 1, Prior thereto, he served as Associate Superintendent of Business Services at Oceanside Unified School District for three years. Prior to that, he served as Vice President, School Finance for ExED San Diego. In 2009, he was selected as a Broad Resident, a two year leadership development program focused on developing emerging business leaders to make an immediate impact in the management of school districts, and completed his residency with Denver Public Schools in Denver, Colorado. Mr. Wright holds a B.S. in political science from the United States Naval Academy, and a M.B.A. from San Diego State University. 54

61 Historical Enrollment The following table shows enrollment and ADA figures for the District for the years indicated. ENROLLMENT AND AVERAGE DAILY ATTENDANCE Fiscal Years through Carlsbad Unified School District Fiscal Year Average Daily Attendance (1) Enrollment (2) ,313 10, ,418 10, ,593 11, ,619 11, ,472 10, ,566 10, ,599 11, ,641 11, (3) 10,742 11, (4) 10,884 11,317 (1) Except for fiscal year , reflects P-2 ADA. Figures are rounded. (2) (3) Enrollment for years prior to fiscal is as of October CBEDS report. Fiscal years through certified enrollment as of the fall census day (the first Wednesday in October) reported to CALPADS. See also DISTRICT FINANCIAL INFORMATION State Funding of Education Local Control Funding Formula herein. Estimated. (4) Budgeted. Source: Carlsbad Unified School District Labor Relations The District currently employs certificated employees full time equivalent ( FTE ) and classified employees FTE. District employees, except management and some part-time employees, are represented by two bargaining units as noted below: Number of Employees In Bargaining Unit Contract Expiration Date Labor Organization Carlsbad Unified Teachers Association ( CUTA ) 555 6/30/2017 (1) Laborers International Union of North America ( LIUNA ) 387 6/30/2017 (1) (1) The CUTA and LIUNA are working under the terms of their expired bargaining agreements. Source: Carlsbad Unified School District. District Retirement Systems The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter. 55

62 STRS. All full-time certificated employees, as well as certain classified employees, are members of the State Teachers Retirement System ( STRS ). STRS provides retirement, disability and survivor benefits to plan members and beneficiaries under a defined benefit program (the STRS Defined Benefit Program ). The STRS Defined Benefit Program is funded through a combination of investment earnings and statutorily set contributions from three sources: employees, employers, and the State. Benefit provisions and contribution amounts are established by State statutes, as legislatively amended from time to time. Prior to fiscal year , and unlike typical defined benefit programs, none of the employee, employer nor State contribution rates to the STRS Defined Benefit Program varied annually to make up funding shortfalls or assess credits for actuarial surpluses. In recent years, the combined employer, employee and State contributions to the STRS Defined Benefit Program have not been sufficient to pay actuarially required amounts. As a result, and due to significant investment losses, the unfunded actuarial liability of the STRS Defined Benefit Program has increased significantly in recent fiscal years. In September 2013, STRS projected that the STRS Defined Benefit Program would be depleted in 31 years assuming existing contribution rates continued, and other significant actuarial assumptions were realized. In an effort to reduce the unfunded actuarial liability of the STRS Defined Benefit Program, the State recently passed the legislation described below to increase contribution rates. Prior to July 1, 2014, K-14 school districts were required by such statutes to contribute 8.25% of eligible salary expenditures, while participants contributed 8% of their respective salaries. On June 24, 2014, the Governor signed AB 1469 ( AB 1469 ) into law as a part of the State s fiscal year budget. AB 1469 seeks to fully fund the unfunded actuarial obligation with respect to service credited to members of the STRS Defined Benefit Program before July 1, 2014 (the 2014 Liability ), within 32 years, by increasing member, K-14 school district and State contributions to STRS. Commencing July 1, 2014, the employee contribution rate increased over a three-year phase-in period in accordance with the following schedule: MEMBER CONTRIBUTION RATES STRS (Defined Benefit Program) Effective Date STRS Members Hired Prior to January 1, 2013 STRS Members Hired After January 1, 2013 July 1, % 8.150% July 1, July 1, Source: AB [REMAINDER OF PAGE LEFT BLANK] 56

63 Pursuant to AB 1469, K-14 school districts contribution rate will increase over a seven-year phase-in period in accordance with the following schedule: K-14 SCHOOL DISTRICT CONTRIBUTION RATES STRS (Defined Benefit Program) Source: AB Effective Date K-14 school districts July 1, % July 1, July 1, July 1, July 1, July 1, July 1, Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter the STRS Teachers Retirement Board (the STRS Board ), is required to increase or decrease the K-14 school districts contribution rate to reflect the contribution required to eliminate the remaining 2014 Liability by June 30, 2046; provided that the rate cannot change in any fiscal year by more than 1% of creditable compensation upon which members contributions to the STRS Defined Benefit Program are based; and provided further that such contribution rate cannot exceed a maximum of 20.25%. In addition to the increased contribution rates discussed above, AB 1469 also requires the STRS Board to report to the State Legislature every five years (commencing with a report due on or before July 1, 2019) on the fiscal health of the STRS Defined Benefit Program and the unfunded actuarial obligation with respect to service credited to members of that program before July 1, The reports are also required to identify adjustments required in contribution rates for K-14 school districts and the State in order to eliminate the 2014 Liability. The District s contributions to STRS were $3,112,141 in fiscal year , $3,292,809 in fiscal year , $3,708,727 in fiscal year , $5,086,424 in fiscal year , and $6,051,395 (unaudited) for fiscal year The District has budgeted $7,015,634 for its contribution to STRS for fiscal year The State also contributes to STRS, currently in an amount equal to 6.328% of teacher payroll for fiscal year The State s contribution reflects a base contribution rate of 2.017%, and a supplemental contribution rate that will vary from year to year based on statutory criteria. Based upon the recommendation from its actuary, for fiscal year and each fiscal year thereafter, the STRS Board is required, with certain limitations, to increase or decrease the State s contribution rates to reflect the contribution required to eliminate the unfunded actuarial accrued liability attributed to benefits in effect before July 1, For the first time, in fiscal year , the State contribution rate will increase 0.5% of covered payroll (the maximum rate increase allowed per year under current law) to 6.828%. In addition, the State is currently required to make an annual general fund contribution up to 2.5% of the fiscal year covered STRS member payroll to the Supplemental Benefit Protection Account (the SBPA ), which was established by statute to provide supplemental payments to beneficiaries whose purchasing power has fallen below 85% of the purchasing power of their initial allowance. 57

64 PERS. Classified employees working four or more hours per day are members of the Public Employees Retirement System ( PERS ). PERS provides retirement and disability benefits, annual costof-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by the State statutes, as legislatively amended from time to time. PERS operates a number of retirement plans including the Public Employees Retirement Fund ( PERF ). PERF is a multipleemployer defined benefit retirement plan. In addition to the State, employer participants at June 30, 2014 included 1,580 public agencies and 1,513 K-14 school districts. PERS acts as the common investment and administrative agent for the member agencies. The State and K-14 school districts (for classified employees, which generally consist of school employees other than teachers) are required by law to participate in PERF. Employees participating in PERF generally become fully vested in their retirement benefits earned to date after five years of credited service. One of the plans operated by PERS is for K-14 school districts throughout the State (the Schools Pool ). Contributions by employers to the Schools Pool are based upon an actuarial rate determined annually and contributions by plan members vary based upon their date of hire. The District is currently required to contribute to PERS at an actuarially determined rate, which is % of eligible salary expenditures for fiscal year and will be % for fiscal year Participants enrolled in PERS prior to January 1, 2013 contribute 7% of their respective salaries in fiscal year and will contribute at the same rate for fiscal year , while participants enrolled after January 1, 2013 contribute at an actuarially determined rate, which is 6% of their respective salaries for fiscal year and 6.5% in fiscal year See California Public Employees Pension Reform Act of 2013 herein. The District s contributions to PERS were $1,138,742 in fiscal year , $1,121,287 in fiscal year , $1,205,298 in fiscal year , $1,302,874 in fiscal year , $1,399,970 in fiscal year , and $1,812,190 (unaudited) in fiscal year The District has budgeted $2,048,854 for its contribution to PERS for fiscal year [REMAINDER OF PAGE LEFT BLANK] 58

65 State Pension Trusts. Each of STRS and PERS issues a separate comprehensive financial report that includes financial statements and required supplemental information. Copies of such financial reports may be obtained from each of STRS and PERS as follows: (i) STRS, P.O. Box 15275, Sacramento, California ; (ii) PERS, P.O. Box , Sacramento, California Moreover, each of STRS and PERS maintains a website, as follows: (i) STRS: (ii) PERS: However, the information presented in such financial reports or on such websites is not incorporated into this Official Statement by any reference. (1) Fiscal Year FUNDED STATUS STRS (Defined Benefit Program) and PERS (Dollar Amounts in Millions) (1) Fiscal Years through Accrued Liability Value of Trust Assets (MVA) (2) STRS 59 Unfunded Liability (MVA) (2) Value of Trust Assets (AVA) (3) Unfunded Liability (AVA) (3) $208,405 $147,140 $68,365 $143,930 $64, , ,118 80, ,232 70, , ,176 74, ,614 73, , ,749 61, ,495 72, , ,633 72, ,553 76, , , , ,976 96,728 Fiscal Year Accrued Liability Value of Trust Assets (MVA) (2) PERS Unfunded Liability (MVA) (2) Value of Trust Assets (AVA) (3) Unfunded Liability (AVA) (3) $58,358 $45,901 $12,457 $51,547 $6, ,439 44,854 14,585 53,791 5, ,487 49,482 12,005 56,250 5, ,600 56,838 8, (4) -- (4) ,325 56,814 16, (4) -- (4) (5) 77,544 55,785 21, (4) -- (4) Amounts may not add due to rounding. (2) Reflects market value of assets, including the assets allocated to the SBPA reserve. Since the benefits provided through the SBPA are not a part of the projected benefits included in the actuarial valuations summarized above, the SBPA reserve is subtracted from the STRS Defined Benefit Program assets to arrive at the value of assets available to support benefits included in the respective actuarial valuations. (3) Reflects actuarial value of assets. (4) Effective for the June 30, 2014 actuarial valuation, PERS no longer uses an actuarial value of assets. (5) On April 18, 2017, the PERS Board of Administration approved the K-14 school district contribution rate for fiscal year and released certain actuarial information to be incorporated into the June 30, 2016 actuarial valuation to be released in summer Source: PERS Schools Pool Actuarial Valuation; STRS Defined Benefit Program Actuarial Valuation. The STRS Board has sole authority to determine the actuarial assumptions and methods used for the valuation of the STRS Defined Benefit Program. Based on the multi-year CalSTRS Experience Analysis (spanning from July 1, 2010, through June 30, 2015), on February 1, 2017, the STRS Board adopted a new set of actuarial assumptions that reflect member s increasing life expectancies and current economic trends. These new assumptions were first reflected in the STRS Defined Benefit Program Actuarial Valuation, as of June 30, 2016 (the 2016 Actuarial Valuation ). The new actuarial assumptions include, but are not limited to: (i) adopting a generational mortality methodology to reflect

66 past improvements in life expectancies and provide a more dynamic assessment of future life spans, (ii) decreasing the investment rate of return (net of investment and administrative expenses) to 7.25% for the 2016 Actuarial Valuation and 7.00% for the June 30, 2017 actuarial evaluation, and (iii) decreasing the projected wage growth to 3.50% and the projected inflation rate to 2.75%. The 2016 Actuarial Valuation continues using the Entry Age Normal Actuarial Cost Method. Based on the change in actuarial assumptions adopted by the STRS Board, recent investment experience and the insufficiency of the contributions received in fiscal year to cover interest on the unfunded actuarial obligation, the 2016 Actuarial Valuation reports that the unfunded actuarial obligation increased by $20.5 billion since the June 30, 2015 actuarial valuation and the funded ratio decreased by 4.8% to 63.7% over such time period. Had the investment rate of return been lowered to 7.00% for the 2016 Actuarial Valuation, the unfunded actuarial obligation and the funded ratio would have been $105.1 billion and 61.8%, respectively. As a result, it is currently projected that there will be a need for higher contributions from the State, employers and members in the future to reach full funding by According to the 2016 Actuarial Valuation, the future revenues from contributions and appropriations for the STRS Defined Benefit Program are projected to be sufficient to finance its obligations, except for a small portion of the unfunded actuarial obligation related to service accrued on or after July 1, 2014 for member benefits adopted after 1990, for which AB 1469 provides no authority to the STRS Board to adjust rates to pay down that portion of the unfunded actuarial obligation. This finding reflects the scheduled contribution rate increases directed by statute, assumes additional increases in the scheduled contribution rates allowed under the current law will be made, and is based on the valuation assumptions and valuation policy adopted by the STRS Board, including a 7.00% investment rate of return assumption. In recent years, the PERS Board of Administration (the PERS Board ) has taken several steps, as described below, intended to reduce the amount of the unfunded accrued actuarial liability of its plans, including the Schools Pool. On March 14, 2012, the PERS Board voted to lower the PERS rate of expected price inflation and its investment rate of return (net of administrative expenses) (the PERS Discount Rate ) from 7.75% to 7.5%. On February 18, 2014, the PERS Board voted to keep the PERS Discount Rate unchanged at 7.5%. On November 17, 2015, the PERS Board approved a new funding risk mitigation policy to incrementally lower the PERS Discount Rate by establishing a mechanism whereby such rate is reduced by a minimum of 0.05% to a maximum of 0.25% in years when investment returns outperform the existing PERS Discount Rate by at least four percentage points. On December 21, 2016, the PERS Board voted to lower the PERS Discount Rate to 7.0% over the next three years in accordance with the following schedule: 7.375% in fiscal year , 7.25% in fiscal year and 7.00% in fiscal year The new discount rate went into effect July 1, 2017 for the State and will go into effect July 1, 2018 for K-14 school districts and other public agencies. Lowering the PERS Discount Rate means employers that contract with PERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013, under the Reform Act (defined below) will also see their contribution rates rise. The three-year reduction of the discount rate to 7.0% is expected to result in average employer rate increases of approximately 1-3% of normal cost as a percent of payroll for most miscellaneous retirement plans and a 2-5% increase for most safety plans. On April 17, 2013, the PERS Board approved new actuarial policies aimed at returning PERS to fully-funded status within 30 years. The policies include a rate smoothing method with a 30-year fixed amortization period for gains and losses, a five-year increase of public agency contribution rates, 60

67 including the contribution rate at the onset of such amortization period, and a five year reduction of public agency contribution rates at the end of such amortization period. The new actuarial policies were first included in the June 30, 2014 actuarial valuation and were implemented with respect the State, K-14 school districts and all other public agencies in fiscal year Also, on February 20, 2014, the PERS Board approved new demographic assumptions reflecting (i) expected longer life spans of public agency employees and related increases in costs for the PERS system and (ii) trends of higher rates of retirement for certain public agency employee classes, including police officers and firefighters. The new actuarial assumptions were first reflected in the Schools Pool in the June 30, 2015 actuarial valuation. The increase in liability due to the new assumptions will be amortized over 20 years with increases phased in over five years, beginning with the contribution requirement for fiscal year The new demographic assumptions affect the State, K-14 school districts and all other public agencies. The District can make no representations regarding the future program liabilities of STRS, or whether the District will be required to make additional contributions to STRS in the future above those amounts required under AB The District can also provide no assurances that the District s required contributions to PERS will not increase in the future. California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into law the California Public Employees Pension Reform Act of 2013 (the Reform Act ), which makes changes to both STRS and PERS, most substantially affecting new employees hired after January 1, 2013 (the Implementation Date ). For STRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor (the age factor is the percent of final compensation to which an employee is entitled for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. Similarly, for non-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increases the eligibility requirement for the maximum age factor of 2.5% to age 67. Among the other changes to PERS and STRS, the Reform Act also: (i) requires all new participants enrolled in PERS and STRS after the Implementation Date to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (ii) requires STRS and PERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (previously 12 months for STRS members who retire with 25 years of service), and (iii) caps pensionable compensation for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution (to be adjusted annually based on changes to the Consumer Price Index for all Urban Consumers) and benefit base for members participating in Social Security or 120% for members not participating in social security (to be adjusted annually based on changes to the Consumer Price Index for all Urban Consumers), while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off. GASB Statement Nos. 67 and 68. On June 25, 2012, GASB approved Statements Nos. 67 and 68 ( Statements ) with respect to pension accounting and financial reporting standards for state and local governments and pension plans. The new Statements, No. 67 and No. 68, replace GASB Statement No. 27 and most of Statements No. 25 and No. 50. The changes impact the accounting treatment of pension plans in which state and local governments participate. Major changes include: (1) the inclusion of unfunded pension liabilities on the government s balance sheet (currently, such unfunded liabilities are typically included as notes to the government s financial statements); (2) more components of full pension costs being shown as expenses regardless of actual contribution levels; (3) lower actuarial 61

68 discount rates being required to be used for underfunded plans in certain cases for purposes of the financial statements; (4) closed amortization periods for unfunded liabilities being required to be used for certain purposes of the financial statements; and (5) the difference between expected and actual investment returns being recognized over a closed five-year smoothing period. In addition, according to GASB, Statement No. 68 means that, for pensions within the scope of the Statement, a cost-sharing employer that does not have a special funding situation is required to recognize a net pension liability, deferred outflows of resources, deferred inflows of resources related to pensions and pension expense based on its proportionate share of the net pension liability for benefits provided through the pension plan. Because the accounting standards do not require changes in funding policies, the full extent of the effect of the new standards on the District is not known at this time. The reporting requirements for pension plans took effect for the fiscal year beginning July 1, 2013 and the reporting requirements for government employers, including the District, took effect for the fiscal year beginning July 1, As of June 20, 2016, the District s proportionate shares of the STRS and PERS pension liabilities were $64,298,731 and $15,921,015, respectively. See also APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note N. Other Post-Employment Benefits Benefit Plan. The District provides certain post-employment benefits through a single-employer defined benefit health care plan (the Plan ). The Plan provides medical benefits to eligible retirees and their eligible dependents to age 65 (the Post-Employment Benefits ). Eligibility for Post-Employment Benefits requires retirement from the District with at least 10 years of eligible service (15 years for classified employees and certificated employees hired after November 1, 2008). The retirees are required to contribute to the cost of the health care coverage based on an active employee contribution schedule. As of July 1, 2016, membership in the Plan consisted of 951 eligible active employees and 71 eligible retirees. See APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note O Other Postemployment Benefits herein. Funding Policy. The District currently funds the Plan on a pay-as-you-go basis to cover the cost of premiums for current retirees. For fiscal year the District recognized $1,103,358 of Plan expenditures, all of which were used for current premiums. For fiscal year the District recognized $1,344,349 of Plan expenditures, all of which were used for current premiums. For fiscal year the District recognized $744,854 of Plan expenditures, all of which were used for current premiums. For fiscal year the District recognized $10,489,924 of Plan expenditures, all of which were used for current premiums. For fiscal year the District has budgeted that it will recognize $11,252,167 of Plan expenditures, all of which are expected to be used for current premiums. Accrued Liability. The District has implemented GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefit Plans Other Than Pension Plans, pursuant to which the District has commissioned and received several actuarial studies of its outstanding liabilities with respect to the Post-Employment Benefits. The most recent of these studies (the Study ), determined that the actuarial accrued liability ( AAL ) with respect to Plan benefits, as of a July 1, 2016 valuation date, was $24,165,770. The Study also concluded that the annual required contribution ( ARC ) was $3, 363,205 for the fiscal year ending June 30, The ARC is the amount that would be necessary to fund the value of future benefits earned by current employees during each fiscal year (the Normal Cost ) and the amount necessary to amortize the AAL, in accordance with the GASB Statements Nos. 43 and 45; the ARC is expected to increase each year based on covered payroll. As of June 30, 2017, the District recognized a long-term obligation (the Net OPEB Obligation ) of $17,328,310 with respect to its accrued liability for the Post-Employment Benefits. The Net 62

69 OPEB Obligation is based on the District s contributions towards the ARC during fiscal year See CARLSBAD UNIFIED SCHOOL DISTRICT District Debt Structure Long-Term Debt and APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note O herein. Risk Management The District is exposed to various loss related to torts, theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District has one selfinsurance fund (the Internal Service Fund ) to account for and finance its uninsured risks of loss. The Internal Service Fund provides dental and vision coverage to employees. All funds of the District participate in the program, but only the general fund makes payments to the Self Insurance Fund based on actuarial estimates of the amounts needed to pay prior and current year claims and to establish a liability for open claims and Incurred But Not Reported ( IBNR ) claims. The claims and liability of $164,208 is included in the liabilities under accounts payable and is reported in accordance with Financial Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated at the end of the fiscal year. Changes in the Internal Service Fund s claim liability in the fiscal year ended June 30, 2016 are indicated below. Beginning Fiscal Year Liability Current Year Claims and Changes in Estimates Ending Fiscal Year Liability Claim Internal Service Fund: Payments Fiscal Year $140,710 $1,115,971 $1,092,473 $164,208 Fiscal Year , , , ,881 See also APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note T herein. Joint Powers Agreements The District participates in one joint power agreement ( JPA ) entity, the San Diego County Schools Risk Management ( SDCSRM ). The relationship between the District and the JPA is such that the JPA is not a component unit of the District. SDCSRM arranges for and provides various types of insurances for its member districts as requested. SDCSRM is governed by a board consisting of a representative from each member district. The board controls the operations of the JPA, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in the JPA. For more information, see APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT Note M attached hereto. 63

70 District Debt Structure Long-Term Debt. A schedule of changes in long-term debt for the year ended June 30, 2016, is shown below: Beginning Balance Increases Decreases Ending Balance Governmental Activities: General Obligation (GO) Bonds Bond Principal $184,028,002 $38,305,000 $47,332,423 $175,000,579 Bond Premiums 6,317,332 8,740,656 1,403,130 13,654,858 Bond Accreted Interest 38,323,210 7,028,738 2,682,577 42,669,371 Total GO Bonds $228,668,544 $54,074,394 $51,418,130 $231,324,808 Certificates of Participation (COPs) COPs Principal 42,875, ,230,000 41,645,000 COPs Premium 380, , ,424 Total COPs $43,255, $1,245,618 $42,009,424 Capital Leases 5,165, ,000 4,835,000 Special Tax Bonds 1,825, ,000 1,730,000 Compensated Absences 291,958 64, ,731 Net Pension Liability 64,277,199 15,942, ,219,746 Net OPEB Obligation 13,175,288 2,748, ,854 15,149,268 Total Governmental Activities $356,658,031 $72,830,548 $53,863,602 $375,624,977 * Excludes the Bonds described herein, but includes the Refunded Bonds. Also does not reflect the District s 2016 COPs (defined herein), issued on November 10, 2016 in the aggregate principal amount of $41,805,000, a portion of the proceeds of which were used prepay all of the District s then-outstanding 2009 COPs (defined herein). Source: Carlsbad Unified School District. [REMAINDER OF PAGE LEFT BLANK] 64

71 General Obligation Bonds. Bonded Debt. The District has issued general obligation bonds pursuant to several voterapproved authorizations. The proceeds of such bonds have been used to acquire, construct and equip District sites and facilities. The District has also issues several series of general obligation refunding bonds to refinance portions of its outstanding bonded indebtedness. The District does not have any meaningful amount of unauthorized bonds under the two separate voter-approved authorizations. The following table summarizes the outstanding general obligation bond issuances by the District (not including the Bonds). Issuance Initial Principal Amount Principal Outstanding (1) Date of Delivery 1997 Election, Series A $26,498,696 $4,661,347 10/03/ Election, Series B 79,998,017 35,528,477 5/29/ Election, Series C 52,998,238 47,117,849 6/07/ Election, Series D 25,000,000 25,000,000 6/07/ Refunding Bonds (2) 16,495,000 15,940,000 5/14/ Refunding Bonds (3) 38,305,000 38,005,000 2/25/2016 (1) As of December 1, Includes principal of the Refunded Bonds. (2) Issued for the purpose of refunding a portion of the then-outstanding 2006 Series A Bonds. (3) Issued for the purpose of refunding a portion of the then-outstanding 2006 Series A Bonds and 2006 Series B Bonds. Source: Carlsbad Unified School District. [REMAINDER OF PAGE LEFT BLANK] 65

72 The following table displays the total annual debt service requirements of the District for all of its outstanding general obligation bonded debt (and assuming no optional redemptions): OUTSTANDING GENERAL OBLIGATION BONDED INDEBTEDNESS (1) Carlsbad Unified School District Year Ending (August 1) 1997 Series A Bonds 2006 Series B Bonds (2) 2006 Series C Bonds 2006 Series D 2014 Bonds (3) Refunding Bonds 2016 Refunding Bonds 2017 Refunding Bonds, Series A 2017 Refunding Bonds, Series B Total Annual Debt Service 2018 $3,050, $5,335, $251, $1,227, $1,934, $1,782, $853, $530, $14,963, ,120, ,490, , ,227, ,938, ,782, ,119, , ,825, ,185, ,078, ,171, ,227, ,932, ,222, ,119, , ,390, ,255, ,078, ,669, ,727, ,933, ,380, ,119, , ,618, ,320, ,078, ,368, , ,930, ,549, ,119, ,140, ,159, ,078, ,368, , ,938, ,717, ,119, ,692, ,568, ,078, ,368, , ,933, ,890, ,119, ,277, ,320, ,078, ,368, , ,934, ,071, ,194, ,911, ,211, ,078, ,368, ,154, ,931, ,248, ,190, ,580, ,551, ,078, ,554, ,936, ,442, ,191, ,202, ,633, ,302, ,090, ,747, ,773, ,824, ,086, ,088, ,935, ,934, ,024, ,908, ,092, ,140, ,166, ,231, ,784, ,089, ,345, ,451, ,436, ,711, ,085, ,552, ,785, ,647, ,296, ,763, ,707, ,863, ,328, ,970, ,162, ,409, ,409, Total $15,930, $100,110, $123,008, $33,180, $19,342, $52,532, $78,602, $13,496, $436,202, (1) (2) (3) Includes debt service on the 2009 Series B Bonds to be refunded with the Series A Refunding Bonds. Excludes debt service on the 2011 Series C Bonds to be refunded with the proceeds of the Series B Refunding Bonds. Debt service on the 2006 Series B Bonds is based on the year ending on May 1. Reflects gross debt service on the District s Election of 2006 General Obligation Bonds, Series D, which were designated as federally-taxable Qualified School Construction Bonds pursuant to an irrevocable election by the District to have Section 6431(f)(3)(B) of the Internal Revenue Code apply thereto. As a result, the District expects to receive, on or about each interest payment date, a cash subsidy (the Subsidy Payment ) from the United States Treasury (the Treasury ) equal to the lesser of (a) the interest payable on such 2006 Series D Bonds or (b) the amount of interest that would have been payable on each such interest payment date if such interest were determined at a federally-determined tax credit rate on the date of the sale of the Series 2006 Series D Bonds. The cash payment does not constitute a full faith and credit guarantee of the United States Government, but is required to be paid by the Treasury under the American Recovery and Reinvestment Act of 2009 (the Recovery Act ). The Subsidy Payments are subject to reduction (the Sequestration Reduction ) pursuant to the federal Balanced Budget and Emergency Deficit Control Act of 1985, as amended, which currently includes provisions reducing the Subsidy Payments by 6.6% through the end of the current federal fiscal year (September 30, 2018). In the absence of action by the U.S. Congress, the rate of the Sequestration Reduction is subject to change in the following federal fiscal year. The District cannot predict whether or how subsequent sequestration actions may affect Subsidy Payments currently scheduled for receipt in future federal fiscal years. However, notwithstanding any such reduction, the County Board of Supervisors is empowered and obligated to levy ad valorem property taxes in an amount sufficient to pay the principal of and interest on the 2006 Series D Bonds. The County will deposit any cash subsidy payments received into a debt service fund for such bonds. 66

73 Mello-Roos Community Facilities Districts. In 1989, the District established its Community Facilities District No. 1 ( CFD No. 1 ) pursuant to the Mello-Roos Community Facilities Act of 1982 (the Mello-Roos Act ), to finance school facilities and related school improvements within the Aviara Residential Community and on other sites within the District. CFD No. 1 is located within the District in the southern portion of the City of Carlsbad. The qualified electors of CFD No. 1, by a two-thirds affirmative vote, approved a rate and method of apportionment of an annual special tax on residential and commercial property in CFD No. 1 (the CFD No. 1 RMA ) and the issuance of not-to-exceed $14,000,000 in bonded indebtedness. On April 11, 1990, the District issued its Carlsbad Unified School District Community Facilities District No. 1 (Aviara), Special Tax Bonds, Series 1990 in the aggregate principal amount of $12,175,000 ( Series 1990 CFD Bonds ) to provide funds to pay costs of the acquisition and construction of certain school facilities. On July 7, 1998, the District issued its 1998 Special Tax Refunding Bonds (CFD. No. 1) in the aggregate principal amount of $12,460,000 (the 1998 Refunding CFD Bonds ) in order to advance refund the outstanding Series 1990 CFD Bonds. The 1998 Refunding CFD Bonds have fully matured and are no longer outstanding. In 1994, the District established its Community Facilities District No. 3 ( CFD No. 3 ) pursuant to the Mello-Roos Act, to finance school facilities and related school improvements within the District. CFD No. 3 is comprised of several non-contiguous properties in the District, the largest portion of which is located in the northeastern portion of the City of Carlsbad. The qualified electors of CFD No. 3, by a two-thirds affirmative vote, approved a rate and method of apportionment of an annual special tax on residential and commercial property in CFD No. 3 and the issuance of not-to-exceed $175,000,000 in bonded indebtedness. No bonds have been issued by the District on behalf of CFD No. 3. The District receives approximately $4.5 million each year from the special tax levied within CFD No. 3 and such proceeds are currently being used to offset lease payments due on the 2016 COPs (defined below) and 2013 Refunding Lease (defined below), however, such special tax revenues have not been pledged for the repayment of any of the obligations and no assurance can be given that special tax revenues will be received by the District in an amount sufficient to pay any portion of payments with respect to the 2016 COPs or payments under the 2013 Refunding Lease coming due or that the District will elect to use the proceeds from such special taxes for those purposes. See Certificates of Participation and Lease Refinancing below. In 1998, the District established its Community Facilities District No. 4 ( CFD No. 4 ) pursuant to the Mello-Roos Act to provide funds to plan for, design, acquire, lease, expand, improve, rehabilitate and finance the costs of school and school facilities, real property or other tangible property within the boundaries of CFD No. 4. CFD No. 4, which is located in the City of Carlsbad and lies in the southern portion of the District. The qualified electors of CFD No. 4, by a two-thirds affirmative vote, approved a rate and method of apportionment of an annual special tax on residential and commercial property in CFD No. 4. No bonds have been issued by the District on behalf of CFD No. 4. In 2012, the District established its Community Facilities District No. 5 ( CFD No. 5 ) pursuant to the Mello-Roos Act, to provide funds to design, acquire, construct, lease, expand, improve, rehabilitate and finance any elementary school, middle school, or high school needed by the District to serve the student population generated as a result of the development of property within CFD No. 5. The qualified electors of CFD No. 5, by a two-thirds affirmative vote, approved a rate and method of apportionment of an annual special tax on residential and commercial property in CFD No. 5 and the issuance of not-toexceed $60,000,000 in bonded indebtedness. No bonds have been issued by the District on behalf of CFD No

74 On June 18, 2014, the District issued its Community Facilities District No. 1 of the Carlsbad Unified School District Special Tax Bonds, Series 2014 in the aggregate principal amount of $1,825,000 (the Series 2014 CFD Bonds ) for the purpose of financing certain school facilities. The Series 2014 CFD Bonds are payable from a special tax levied on all taxable parcels within CFD No. 1 pursuant to the CFD No. 1 RMA. The Series 2014 CFD Bonds are special obligations of CFD No. 1, payable solely from the net proceeds of the special tax levied within CFD No. 1. The District s general fund is not a source of payment for the Series 2014 CFD Bonds. CFD No. 1 has covenanted to levy in each year an amount of special taxes at least equal to (i) any amounts necessary to fund specified administration costs of CFD No. 1, and (ii) 110% of the debt service coming due on all outstanding special tax bonds of CFD No. 1 in such year. The following table shows the debt service on the Series 2014 CFD Bonds. SERIES 2014 CFD BONDS ANNUAL DEBT SERVICE Community Facilities District No. 1 Year Ending (September 1) Principal Interest Total Payment 2018 $105, $56, $161, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $1,535, $389, $1,924, Source: Carlsbad Unified School District. [REMAINDER OF PAGE LEFT BLANK] 68

75 Lease Refinancing. On August 8, 2013, the District entered into a lease agreement with Capital One Public Funding, LLC in the aggregate principal amount of $6,105,000 (the 2013 Refunding Lease ), the proceeds of which were used to currently refund certain of the District s then-outstanding lease obligations. The following table summarizes future payment requirements of the District with respect to the 2013 Refunding Lease: 2013 REFUNDING LEASE SEMI-ANNUAL PAYMENTS Carlsbad Unified School District Period Ending Principal Interest Debt Service 10/1/2017 $350,000 $62,860 $412,860 4/1/ ,960 57,960 10/1/ ,000 57, ,960 4/1/ ,850 52,850 10/1/ ,000 52, ,850 4/1/ ,600 47,600 10/1/ ,000 47, ,600 4/1/ ,210 42,210 10/1/ ,000 42, ,210 4/1/ ,680 36,680 10/1/ ,000 36, ,680 4/1/ ,940 30,940 10/1/ ,000 30, ,940 4/1/ ,130 25,130 10/1/ ,000 25, ,130 4/1/ ,110 19,110 10/1/ ,000 19, ,110 4/1/ ,950 12,950 10/1/ ,000 12, ,950 4/1/ ,000 6, ,650 Total $4,490,000 $720,370 $5,210,370 Source: Carlsbad Unified School District. [REMAINDER OF PAGE LEFT BLANK] 69

76 Certificates of Participation. On November 10, 2016, the District executed and delivered the Certificates of Participation (2016 Refunding and Financing Projects) in an aggregate principal amount of $41,805,000 (the 2016 COPs ), the net proceeds of which were used (i) prepay all of the District s thenoutstanding Certificates of Participation (Refunding Project) 2009 Series A (the 2009 COPs ), and (ii) finance improvements to District sites and facilitates. The following table shows future annual lease payment obligations of the District with respect to the 2016 COPs. ANNUAL LEASE PAYMENTS CERTIFICATES OF PARTICIPATION Carlsbad Unified School District Year Ending (October 1) Principal Interest Total Payment 2018 $1,565, $1,779, $3,344, ,640, ,701, ,341, ,725, ,619, ,344, ,810, ,532, ,342, ,895, ,442, ,337, ,000, ,347, ,347, ,095, ,247, ,342, ,205, ,142, ,347, ,315, ,032, ,347, ,425, , ,341, ,550, , ,345, ,680, , ,348, ,760, , ,321, ,790, , ,240, ,475, , ,814, ,310, , ,550, ,980, , ,127, ,550, , ,638, ,335, , ,376, Total $40,105, $17,095, $57,200, Source: Carlsbad Unified School District. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, 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 calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of corporations. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of 70

77 cash attributable to such excludable income. The amount of original issue discount deemed received by the Bond Owner will increase the Bond Owner s basis in the Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Bond Counsel s opinion as to the exclusion from gross income of interest (and original issue discount) on the Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies 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 to assure that interest (and original issue discount) on the Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements. The amount by which a Bond Owner s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bond Owner s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Bonds to the extent that it adversely affects the exclusion from gross income of interest on the Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE BONDS THERE MIGHT BE FEDERAL, STATE, OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE, OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE, OR LOCAL TAX TREATMENT OF THE BONDS OR THE MARKET VALUE OF THE BONDS. TAX REFORM LEGISLATION HAS BEEN INTRODUCED AND IS BEING CONSIDERED BY CONGRESS THAT, AMONG OTHER MATTERS, SIGNIFICANTLY ALTERS INCOME TAX RATES AND REPEALS THE ALTERNATIVE MINIMUM TAX. THESE PROPOSED LEGISLATIVE CHANGES OR OTHER CHANGES WHICH MIGHT BE INTRODUCED IN CONGRESS COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE BONDS. IT IS POSSIBLE THAT LEGISLATIVE CHANGES WILL BE INTRODUCED WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME OR STATE TAX BEING IMPOSED ON OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE BONDS STATUTORY CHANGES WILL NOT BE 71

78 INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE BONDS. Bond Counsel s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of bond counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) on the Bonds for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Bonds. Copies of the proposed forms of opinions of Bond Counsel are attached hereto as APPENDIX A. LIMITATION ON REMEDIES; BANKRUPTCY General. State law contains certain safeguards to protect the financial solvency of school districts. See DISTRICT FINANCIAL INFORMATION Budget Process herein. If the safeguards are not successful in preventing a school district from becoming insolvent, the State Superintendent, operating through an administrator appointed thereby, may be authorized under State law to file a petition under Chapter 9 of the United States Bankruptcy Code (the Bankruptcy Code ) on behalf of the school district for the adjustment of its debts, assuming that the school district meets certain other requirements contained in the Bankruptcy Code necessary for filing such a petition. School districts are not themselves authorized to file a bankruptcy proceeding, and they are not subject to involuntary bankruptcy. Bankruptcy courts are courts of equity and as such have broad discretionary powers. If the District were to become the debtor in a proceeding under Chapter 9 of the Bankruptcy Code, the automatic stay provisions of Bankruptcy Code Sections 362 and 922 generally would prohibit creditors from taking any action to collect amounts due from the District or to enforce any obligation of the District related to such amounts due, without consent of the District or authorization of the bankruptcy court (although such stays would not operate to block creditor application of pledged special revenues to payment of indebtedness secured by such revenues). In addition, as part of its plan of adjustment in a chapter 9 bankruptcy case, the District may be able to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Bonds and other transaction documents related to the Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable. There also may be other possible effects of a bankruptcy of the District that could result in delays or reductions in payments on the Bonds. Moreover, regardless of any specific adverse determinations in any District bankruptcy 72

79 proceeding, the fact of a District bankruptcy proceeding could have an adverse effect on the liquidity and market price of the Bonds. Statutory Lien. Pursuant to Government Code Section 53515, the Bonds are secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax, and such lien automatically arises, without the need for any action or authorization by the local agency or its governing board, and is valid and binding from the time the Bonds are executed and delivered. See THE BONDS Security and Sources of Payment herein. Although a statutory lien would not be automatically terminated by the filing of a Chapter 9 bankruptcy petition by the District, the automatic stay provisions of the Bankruptcy Code would apply and payments that become due and owing on the Bonds during the pendency of the Chapter 9 proceeding could be delayed, unless the Bonds are determined to be secured by a pledge of special revenues within the meaning of the Bankruptcy Code and the pledged ad valorem taxes are applied to pay the Bonds in a manner consistent with the Bankruptcy Code. Special Revenues. If the ad valorem tax revenues that are pledged to the payment of the Bonds are determined to be special revenues within the meaning of the Bankruptcy Code, then the application in a manner consistent with the Bankruptcy Code of the pledged ad valorem revenues should not be subject to the automatic stay. Special revenues are defined to include, among others, taxes specifically levied to finance one or more projects or systems of the debtor, but excluding receipts from general property, sales, or income taxes levied to finance the general purposes of the debtor. State law prohibits the use of the tax proceeds for any purpose other than payment of the Bonds and the proceeds general obligation bonds can only be used to finance the acquisition or improvement of real property and other capital expenditures included in the proposition, so such tax revenues appear to fit the definition of special revenues. However, there is no binding judicial precedent dealing with the treatment in bankruptcy proceedings of ad valorem tax revenues collected for the payments of general obligation bonds in California, so no assurance can be given that a bankruptcy court would not hold otherwise. Possession of Tax Revenues; Remedies. The County on behalf of the District is expected to be in possession of the ad valorem property taxes and certain funds to repay the Bonds and may invest these funds in the County s pooled investment fund, as described in THE BONDS Application and Investment of Bond Proceeds herein and APPENDIX E SAN DIEGO COUNTY TREASURY POOL attached hereto. If the County goes into bankruptcy and has possession of tax revenues (whether collected before or after commencement of the bankruptcy), and if the County does not voluntarily pay such tax revenues to the owners of the Bonds, it is not entirely clear what procedures the owners of the Bonds would have to follow to attempt to obtain possession of such tax revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. Further, should those investments suffer any losses, there may be delays or reductions in payments on the Bonds. Opinions of Bond Counsel Qualified by Reference to Bankruptcy, Insolvency and Other Laws Relating to or Affecting Creditor s Rights. The proposed forms of the approving opinions of Bond Counsel attached hereto as APPENDIX A are qualified by reference to bankruptcy, insolvency and other laws relating to or affecting creditor s rights. Bankruptcy proceedings, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. 73

80 LEGAL MATTERS Legality for Investment in California Under provisions of the Financial Code, the Bonds are legal investments for commercial banks in the State to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the Government Code, are eligible for security for deposits of public moneys in the State. Expanded Reporting Requirements On May 17, 2006, the President signed the Tax Increase Prevention and Reconciliation Act of 2005 ( TIPRA ). Under Section 6049 of the Internal Revenue Code of 1986, as amended by TIPRA, interest paid on tax-exempt obligations will be subject to information reporting in a manner similar to interest paid on taxable obligations. The effective date for this provision is for interest paid after December 31, 2005, regardless of when the tax-exempt obligations were issued. The purpose of this change was to assist in relevant information gathering for the IRS relating to other applicable tax provisions. TIPRA provides that backup withholding may apply to such interest payments made after March 31, 2007 to any bondholder who fails to file an accurate Form W-9 or who meets certain other criteria. The information reporting and backup withholding requirements of TIPRA do not affect the excludability of such interest from gross income for federal income tax purposes. Continuing Disclosure Current Undertaking. The District has covenanted for the benefit of Owners and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (which currently ends June 30), commencing with the report for the Fiscal Year, and to provide notices of the occurrence of certain listed events. The Annual Report and notices of listed events will be filed by the District in accordance with the requirements of S.E.C. Rule 15c2-12(b)(5) (the Rule ). The specific nature of the information to be contained in the Annual Report or the notices of listed events is included in APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE attached hereto. These covenants have been made in order to assist the Underwriter in complying with the Rule. Prior Undertakings. The District has previously entered into an undertaking pursuant to the Rule on behalf of CFD No. 1 with respect to the Mello-Roos Act Bonds issued by the CFD No. 1 (the Mello- Roos Bonds ), and various undertakings with respect to the Rule with respect to its previously issued certificates of participation and general obligation bonds. Within the past five years, the District failed to timely file its audited financial statements for fiscal year as required with respect to the Mello-Roos Bonds. In addition, within the past five years, the District has also failed to timely file certain notices of enumerated events as required by its existing continuing disclosure undertakings. The District has since made such required filings, and, for such five year period, the District is in material compliance with its existing continuing disclosure undertakings. Within the past five years, the District has never filed a notice of a failure to provide annual financial information, on or before the date specified in its prior continuing disclosure agreements. Wildan Financial Services serves as the dissemination agent for the District, and will undertake the role of dissemination agent for the undertaking in connection with the Bonds. 74

81 No Litigation No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District s ability to receive ad valorem property taxes or to collect other revenues or contesting the District s ability to issue and retire the Bonds. Financial Statements The financial statements with supplemental information for the year ended June 30, 2016, the independent auditor s report of the District, and the related statements of activities and of cash flows for the year then ended, and the report dated November 30, 2016 of Wilkinson Hadley King & Co. LLP (the Auditor ), are included in this Official Statement as APPENDIX B. In connection with the inclusion of the financial statements and the report of the Auditor herein, the District did not request the Auditor to, and the Auditor has not undertaken to, update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report. Escrow Verification Upon delivery of the Bonds, the Verification Agent will deliver a report on the mathematical accuracy of certain computations based upon certain information and assumptions provided to them by the Underwriter relating to (a) the adequacy of the maturing principal of and interest on the Federal Securities in the respective Escrow Subaccounts, together with any moneys held therein as cash, to pay (i) the debt service due on the Series A Refunding Bonds prior to the Crossover Date, (ii) the interest on 2011 Series C Bonds prior to the first optional redemption date therefor, and (iii) the redemption prices of the Refunded Bonds on the first optional redemption dates therefor following the issuance of the Bonds, and (b) the computations of yield of the Bonds and the Federal Securities in the respective Escrow Subaccounts which support Bond Counsel s opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes. Legal Opinion The legal opinions of Bond Counsel, approving the validity of each respective series of the Bonds, will be supplied to the respective original purchasers thereof without cost. Copies of the proposed forms of such legal opinions are attached to this Official Statement as APPENDIX A. Rating MISCELLANEOUS The Bonds have been assigned a rating of Aa1 by Moody s. Generally, rating agencies base their ratings on information and materials furnished to them (which may include information and material from the District which is not included in this Official Statement) and on investigations, studies and assumptions by the rating agencies. The rating reflects only the view of the rating agency, and any explanation of the significance of such rating should be obtained from the rating agency at the following address: Moody s Investors Service, 7 World Trade Center at 250 Greenwich, New York, New York There is no assurance that the rating will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of the rating 75

82 agency, circumstances so warrant. The District undertakes no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal of the rating obtained may have an adverse effect on the market price of the Bonds. The District has covenanted in a Continuing Disclosure Certificate to file notices of any rating changes on the Bonds. See LEGAL MATTERS Continuing Disclosure herein and APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE attached hereto. Notwithstanding such covenant, information relating to rating changes on the Bonds may be publicly available from Moody s prior to such information being provided to the District and prior to the date the District is obligated to file a notice of rating change pursuant to the Rule. Purchasers of the Bonds are directed to Moody s, its website and official media outlets for the most current rating changes with respect to the Bonds after the initial issuance thereof. Underwriting Citigroup Global Markets Inc. (the Underwriter ) has agreed to purchase all of the Series A Refunding Bonds for a purchase price of $57,585, (consisting of the principal amount of $49,990,000.00, plus original issue premium of $7,794,566.25, and less Underwriter s discount of $199,350.19). The Underwriter has agreed to purchase all of the Series B Refunding Bonds for a purchase price of $12,169, (consisting of the principal amount of $10,100,000.00, plus original issue premium of $2,096, and less Underwriter s discount of $26,607.57). The purchase contract for the Bonds provide that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase contract, the approval of certain legal matters by bond counsel and certain other conditions. The initial offering prices stated on the inside cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell Bonds to certain dealers and others at prices lower than such initial offering prices. [REMAINDER OF PAGE LEFT BLANK] 76

83 Additional Information The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the Resolution providing for issuance of the Bonds, and the constitutional provisions, statutes and other documents referenced herein, do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions. All data contained herein has been taken or constructed from District records. Appropriate District officials, acting in their official capacities, have reviewed this Official Statement and have determined that, as of the date hereof, the information contained herein is, to the best of their knowledge and belief, true and correct in all material respects and does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading. This Official Statement has been approved by the District. Any statement in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended only as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners, beneficial or otherwise, of the Bonds. CARLSBAD UNIFIED SCHOOL DISTRICT By: /s/ Benjamin Churchill, Ed.D. Superintendent 77

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85 APPENDIX A FORMS OF OPINIONS OF BOND COUNSEL Upon issuance and delivery of the Bonds, Stradling Yocca Carlson & Rauth, Bond Counsel, proposes to render its final approving opinion with respect to the Series A Refunding Bonds substantially in the following form: Board of Trustees Carlsbad Unified School District Members of the Board of Trustees: December 6, 2017 We have examined a certified copy of the record of the proceedings relative to the issuance and sale of $49,990,000 Carlsbad Unified School District 2017 General Obligation Refunding Bonds, Series A (2024 (Crossover) (the Bonds ). As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Based on our examination as bond counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. Such proceedings and proofs show lawful authority for the issuance and sale of the Bonds pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code of the State of California (the Act ), and a resolution of the Board of Trustees of the Carlsbad Unified School District (the Resolution ). 2. The Bonds, prior to May 1, 2024 (the Crossover Date ), will be secured by and payable solely from proceeds of the Bonds on deposit in an escrow fund established therefor. From and after the Crossover Date, the Bonds shall constitute valid and binding general obligations of the District, payable as to both principal and interest from the proceeds of a levy of ad valorem taxes on all property within the District subject to taxation thereby, which taxes are unlimited as to rate or amount. 3. Under existing statutes, regulations, rulings and judicial decisions, 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 calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the federal income tax liability of corporations. 4. Interest on the Bonds is exempt from State of California personal income tax. 5. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The A-1

86 amount of original issue discount deemed received by a Bond Owner will increase the Bond Owner s basis in the applicable Bond. Original issue discount that accrues to the Bond Owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. 6 The amount by which a Bond Owner s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the Code ); such amortizable Bond premium reduces the Bond Owner s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Bond Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Bond Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than ourselves. Other than expressly stated herein, we express no opinion regarding tax consequences with respect to the Bonds. The opinions expressed herein as to the exclusion from gross income of interest (and original issue discount) on the Bonds are based upon certain representations of fact and certifications made by the District and others and are subject to the condition that the District complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements. It is possible that subsequent to the issuance of the Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Bonds such changes or interpretations will not occur. The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against public agencies in the State of California. Respectfully submitted, Stradling Yocca Carlson & Rauth A-2

87 Upon issuance and delivery of the Bonds, Stradling Yocca Carlson & Rauth, Bond Counsel, proposes to render its final approving opinion with respect to the Series B Refunding Bonds substantially in the following form: Board of Trustees Carlsbad Unified School District Members of the Board of Trustees: December 6, 2017 We have examined a certified copy of the record of the proceedings relative to the issuance and sale of $10,100,000 Carlsbad Unified School District 2017 General Obligation Refunding Bonds, Series B (the Bonds ). As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Based on our examination as bond counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. Such proceedings and proofs show lawful authority for the issuance and sale of the Bonds pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code of the State of California (the Act ), and a resolution of the Board of Trustees of the Carlsbad Unified School District (the Resolution ). 2. The Bonds constitute valid and binding general obligations of the District, payable as to both principal and interest from the proceeds of a levy of ad valorem property taxes on all property subject to such taxes in the District, which taxes are unlimited as to rate or amount. 3. Under existing statutes, regulations, rulings and judicial decisions, 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 calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the federal income tax liability of corporations. 4. Interest on the Bonds is exempt from State of California personal income tax. 5. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Bond Owner will increase the Bond Owner s basis in the applicable Bond. Original issue discount that accrues to the Bond Owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of A-3

88 tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. 6 The amount by which a Bond Owner s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the Code ); such amortizable Bond premium reduces the Bond Owner s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Bond Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Bond Owner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than ourselves. Other than expressly stated herein, we express no opinion regarding tax consequences with respect to the Bonds. The opinions expressed herein as to the exclusion from gross income of interest (and original issue discount) on the Bonds are based upon certain representations of fact and certifications made by the District and others and are subject to the condition that the District complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements. It is possible that subsequent to the issuance of the Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Bonds such changes or interpretations will not occur. The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against public agencies in the State of California. Respectfully submitted, Stradling Yocca Carlson & Rauth A-4

89 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT B-1

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91 CARLSBAD UNIFIED SCHOOL DISTRICT COUNTY OF SAN DIEGO CARLSBAD, CALIFORNIA AUDIT REPORT JUNE 30, W. Douglas Ave. El Cajon, California

92 Introductory Section

93 Carlsbad Unified School District Audit Report For The Year Ended June 30, 2016 TABLE OF CONTENTS Page Exhibit/Table FINANCIAL SECTION Independent Auditor's Report... 1 Management's Discussion and Analysis (Required Supplementary Information)... 4 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position Exhibit A-1 Statement of Activities Exhibit A-2 Fund Financial Statements: Balance Sheet - Governmental Funds Exhibit A-3 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Exhibit A-4 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Exhibit A-5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Exhibit A-6 Statement of Net Position - Internal Service Fund Exhibit A-7 Statement of Revenues, Expenses, and Changes in Fund Net Position - Internal Service Fund Exhibit A-8 Statement of Cash Flows - Proprietary Funds Exhibit A-9 Statement of Fiduciary Net Position - Fiduciary Funds Exhibit A-10 Notes to the Financial Statements Required Supplementary Information Budgetary Comparison Schedules: General Fund Exhibit B-1 Schedule of Funding Progress for Other Post Employment Benefits Plan Exhibit B-2 Schedule of the District's Proportionate Share of the Net Pension Liability - California State Teachers' Retirement System Exhibit B-3 Schedule of District's Contributions - California State Teachers' Retirement System Exhibit B-4 Schedule of the District's Proportionate Share of the Net Pension Liability - California Public Employee'S Retirement System Exhibit B-5 Schedule of District's Contributions - California Public Employee'S Retirement System.. 67 Exhibit B-6 Notes to Required Supplementary Information Combining Statements as Supplementary Information: Combining Balance Sheet - All Nonmajor Governmental Funds Exhibit C-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - All Nonmajor Governmental Funds Exhibit C-2

94 Carlsbad Unified School District Audit Report For The Year Ended June 30, 2016 TABLE OF CONTENTS Page Exhibit/Table OTHER SUPPLEMENTARY INFORMATION SECTION Local Education Agency Organization Structure Schedule of Average Daily Attendance Table D-1 Schedule of Instructional Time Table D-2 Schedule of Financial Trends and Analysis Table D-3 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements Table D-4 Schedule of Charter Schools Table D-5 Schedule of Expenditures of Federal Awards Table D-6 Notes to the Schedule of Expenditures of Federal Awards Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Program and on Internal Control over Compliance Required by Title 2 CFR Part 200 (Uniform Guidance) Independent Auditor's Report on State Compliance Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings Corrective Action Plan... 91

95 Financial Section

96 Independent Auditor's Report To the Board of Trustees Carlsbad Unified School District Carlsbad, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Carlsbad Unified School District ("the District") as of and for the year ended June 30, 2016, 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 of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 Carlsbad Unified School District as of June 30, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

97 Emphasis of Matter Change in Accounting Principles As described in Note A to the financial statements, in 2016, Carlsbad Unified School District adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 72, Fair Value. Our opinion is not modified with respect to this matter. As described in Note A to the financial statements, in 2016, Carlsbad Unified School District adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Our opinion is not modified with respect to this matter. As described in Note A to the financial statements, in 2016, Carlsbad Unified School District adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 76, Hierarchy of GAAP. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, budgetary comparison information, schedule of funding progress for OPEB benefits, schedule of the District's proportionate share of the net pension liability and schedule of District pension contributions identified as Required Supplementary Information in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Carlsbad Unified School District's basic financial statements. The combining financial statements are presented for purposes of additional analysis and are not required parts of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Subpart F -- Audit Requirements (Uniform Guidance) and is also not a required part of the basic financial statements. The accompanying other supplementary information is presented for purposes of additional analysis as required by the State's audit guide, Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting prescribed in Title 5, California Code of Regulations, Section and is also not a required part of the basic financial statements. 2

98 The combining financial statements and other supplementary information and the schedule of expenditures of federal awards 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 financial statements and other supplementary information and the schedule of expenditures of federal awards 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 November 30, 2016 on our consideration of Carlsbad Unified 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 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 Carlsbad Unified School District's internal control over financial reporting and compliance. El Cajon, California November 30,

99 CARLSBAD UNIFIED SCHOOL DISTRICT MANAGEMENT DISCUSSION AND ANALYSIS (MD&A) For the Fiscal Year Ended June 30, 2016 (Unaudited) This section of the Carlsbad Unified School District s annual financial report presents our discussion and analysis of the District s financial performance during the fiscal year that ended June 30, FINANCIAL HIGHLIGHTS General Fund (Unrestricted and Restricted) revenues exceeded expenditures by $5,398,597 in fiscal year , bringing the ending fund balance to $20,623,821. The State requires most Districts to maintain a reserve of not less than 3%; additional reserves are recommended, particularly for districts that depend heavily on local property taxes. However, based on earlier Board action, the District s minimum reserve level has increased to 5%. The District has been able to meet the required, higher reserve level. Furthermore, the District has maintained a Basic Aid Assigned Reserve of $3.1 million to assist with funding fluctuations in future years for a district operating largely on the receipt of local tax revenues. Student enrollment remained basically flat over prior year at 11,077. OVERVIEW OF THE FINANCIAL STATEMENTS The annual financial report of the Carlsbad Unified School District is comprised of three components: Management Discussion and Analysis providing a narrative introduction and analysis of the financial statements for the current and prior years. District-Wide Financial Statements providing both short-term and long-term information about the District s overall financial status. Fund Financial Statements providing individual aspects of District operations. Management s Discussion and Analysis The Management s Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental Accounting Standards Board (GASB) in its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Government, issued in Certain comparative information between the current year and the prior year is required in the MD&A. MD&A

100 District-Wide Financial Statements The district-wide statements report information about the District as a whole, using accounting methods similar to those used by private-sector companies. The statement of net position includes all District assets and liabilities, such as land, buildings and long-term debt. All current year revenues and expenses are accounted for in the statements, regardless of when cash is received or paid, in compliance with the full accrual method of reporting. The district-wide statements report the District s net position and how they have changed. Net position the difference between the total assets and total liabilities present one measurement of the District s financial condition. Over time, the change in net position is an indicator of whether the District s financial position is improving or not. District-wide financial statements distinguish between governmental activities and business-type activities. Since Carlsbad Unified School District has no business-type activities, all district operations are reported within the category of governmental activities. Fund Financial Statements The fund financial statements provide more detailed information about the component funds that jointly comprise the District budget. Funds are accounting devices used to track specific sources of funding and spending for particular programs. Some funds are required by state law. Others are established to control and manage money for particular purposes or to show that certain revenues are properly used. The governmental fund financial statements tell how District operations are financed, as well as what remains available. The statements provide a detailed view of the short-term financial position of the District, without consideration of long-term assets and liabilities. MD&A

101 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net position Table 1 shows that District assets totaled over $394.8 million as of June 30, Major components of the asset balance are as follows: (1) Cash and investments represent a large component of district assets at $72.6 million; (2) Buildings represent the largest component valued at $294.9 million; (3) Land plus site improvements are valued at $58.8 million; and (4) Equipment at $27.6 million. Capital assets are valued at historical cost less depreciation of $77.5 million, and not market value. Market value for land and buildings owned is considerably higher than the book value reported here. Construction work in progress and other assets complete the total at June 30, Liabilities totaled $382.2 million on June 30, Major components of the $375.6 million long-term liabilities are: (1) $42 million in outstanding obligations for Certificates of Participation (COPs) issued for new school construction and modernization projects; (2) General Obligation Bond debt issued for school construction and modernization constitutes $231.3 million; (3) Other general long-term debt was $1.7 million. Net OPEB Obligations were $15.1 million; compensated absences were $356,731; and capital leases were $4.8 million; and $80.2 for net pension liability. Overall, net position of the Carlsbad Unified School District were $28.7 million on June 30, This represents an increase of $3,854,629 over the course of the year (Table 2). Table 1 Net Position Assets June 30, 2015 Current Assets: Cash $71,511,451 Other 6,045,922 Capital Assets: Land 36,276,875 Site Improvements 22,463,083 Buildings 291,810,677 Equipment 26,807,965 Work in Progress 7,408,407 Less Acc. Depr. (69,245,846) $393,078,534 Deferred Outflows $14,457,122 Liabilities Current Liabilities 7,588,837 Long Term Liabilities 358,209,068 $ 365,797,905 Deferred Inflows $ 16,922,900 June 30, 2016 $72,684,714 5,105,512 36,276,875 22,614, ,973,395 27,677,784 13,082,823 (77,557,927) $394,857,559 $20,515,468 6,627, ,624,977 $ 382,252,446 $ 4,361,101 Net Position $ 24,904,851 $ 28,759,480 Table 2 Change in Net position Beginning Net position $26,019,385* Ending Net position $24,904,851 Change in net position $ (1,114,534) $32,945,002** $28,759,480 $ (4,185,522) *As a result of implementation of GASB 68 & 71 the district restated the beginning net position to account for pension liability and related deferred inflows and outflows of resources for the first time in **Prior year adjustment to add Outflows and Inflows corrections changed the beginning net position. MD&A

102 Governmental Activities Table 3 shows the percentage of each revenue and expenditure to the total governmental revenues and expenditures in fiscal year and fiscal year Table 3 Governmental Activities Revenues Program Revenues: Charges for Services Grants and Contributions General Revenues: Taxes and Subventions State and Federal Unrestricted Aid Interest and Investment Earnings Interagency Revenues Miscellaneous Total Revenues Total Expenditures Instruction Instruction Related Services Student Support Services Maintenance and Operations Data Processing Administration Interest on Long-Term Debt Other Total Expenditures Revenues less Expenditures June 30, 2015 % $ 2,701, % 19,850, % $ 83,053, % 5,597, % 210,188.18% 361,645.31% 3,157, % 114,932, % $ 64,183, % 9,574, % 10,519, % 9,898, % 845, % 5,176, % 14,027, % 1,821, % 116,046, % $ <1,114,534> June 30, 2016 % $ 3,723, % 21,648, % $ 87,266, % 14,749, % 160,854.12% 126,481.10% 3,766, % 131,441, % $ 78,003, % 10,944, % 11,558, % 10,857, % 1,175,160.87% 6,202, % 13,180, % 3,704, % 135,627, % $ <4,185,522> DISTRICT FUNDS District accounts are organized into various funds, each of which is a separate accounting identity. Governmental resources allocated to individual funds are recorded for the purpose of specific activities in accordance with laws, regulations and other requirements. The General Fund accounts for all financial resources of the District except those required to be in a Special Revenue Fund, Capital Project Fund, Debt Service Fund, Proprietary Fund, or Fiduciary Fund. MD&A

103 General Fund General Fund (Unrestricted and Restricted) revenues plus transfers totaled $106.1 million for fiscal year , an increase of 18.05% from the prior year. This fiscal year the State s new Local Control Funding Formula (LCFF) Gap closure funding percentage was 52.56% General Fund expenditures plus transfers totaled $100.7 million, an increase of 10.63% over prior year. Employee salaries and benefits remained the largest share of expenditures at 82.51%. The ending fund balance was $20.6 million on June 30, Special Revenue Funds The Deferred Maintenance Fund was used in prior years to account for State apportionments and District contributions for major maintenance of facilities. The monies are now available for flexible use by the District and have been transferred to the General Fund to support operations. The Cafeteria Fund accounts for federal, state and local resources to operate the Child Nutrition program. Capital Projects Funds The Building Fund accounts for the construction of facilities and buildings from the proceeds of general obligation bonds. The district issued $40 million in General Obligation Bonds, Series A in September 2007, $80 million Series B in June, 2010, $52.99 million Series C, and $25 million Series D as Qualified School Construction Bonds (QSCB) in June Several projects were completed in 2016 across the district. Approved by the board in August 19, 2015, upgrades to the district wide door hardware and locking systems were completed approximately in April of Other district wide projects included upgrades to the carpeting and floor in various sites, technology upgrades, and the installation of the Carlsbad High School wrestling mat. The Capital Facilities Fund is used to account for resources received from developer impact fees, sometimes known as school fees or developer fees. The downturn of the economy resulted in depressed local construction activity. Fee revenue had been in the low two hundred thousands in the past years but this fiscal year , the district collected $1,128,499 plus interest earnings of $9,441. Revenue is restricted for facilities projects. MD&A

104 Debt Service Funds The Bond Interest and Redemption Fund accounts for the accumulation of resources for the repayment of District general obligation bonds. Proprietary Funds The Self-Insurance Fund is used to separate monies associated with the self-insurance activities of the District. The ending balance at this time is sufficient to cover District liabilities and reserves required by the actuarial analysis. Fiduciary Funds Student Body Funds account for the activities of student groups. The District serves as fiscal agent for these restricted funds. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets Capital outlay expenditures for fiscal year were over $9.8 million. Long-Term Debt The total principal payment for the fiscal year was $375.6 million. The principal repayments were summarized in the chart below. General Obligation Bonds Certificates of Participation $ 231,324,808 $ 42,009,424 Capital Leases $ 4,835,000 Other General Long- Term Debt Net OPEB Obligations Compensated Absences Net Pension Liability $ 1,730,000 $15,149,268 $356,731 $80,219,746 MD&A

105 FACTORS AFFECTING THE DISTRICT S FINANCIAL FUTURE In 2013, Governor Jerry Brown adopted the Local Control Funding Funding Formula (LCFF) that is estimated to take eight years for full implementation. At Year 3 in , the District is already at about 88% to full implementation. Even with the increased costs in pension obligations and health & welfare costs, Carlsbad Unified School District remained in sound financial position at the close of fiscal year The District anticipates potential growth due to new development in the Spring of 2017 as well as possibly allowing inter-district transfers. This would help offset the on-going increased costs and low COLA projections ahead. Table 4 MD&A

106 Table 5 Revenue per ADA in is $9,984, an increase of 17.6% over prior year. Expenditures per ADA were $9,476, an increase of $881 per ADA over FY 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, contact the Business office, at (760) or at Carlsbad Unified School District, 6225 El Camino Real, Carlsbad, CA MD&A

107 Basic Financial Statements

108 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2016 EXHIBIT A-1 Governmental Activities ASSETS Cash $ 72,684,714 Receivables 3,308,195 Stores 93,408 Prepaid Expenses 1,703,909 Capital Assets: Land 36,276,875 Improvements 22,614,383 Buildings 294,973,395 Equipment 27,677,784 Work in Progress 13,082,823 Less Accumulated Depreciation (77,557,927) Total Assets 394,857,559 DEFERRED OUTFLOWS OF RESOURCES 20,515,468 LIABILITIES Accounts Payable and Other Current Liabilities 6,233,070 Unearned Revenue 394,399 Long-Term Liabilities: Due Within One Year 12,010,823 Due in More Than One Year 363,614,154 Total Liabilities 382,252,446 DEFERRED INFLOWS OF RESOURCES 4,361,101 NET POSITION Net Investment in Capital Assets 36,657,483 Restricted for: Capital Projects 33,363,328 Debt Service 18,781,684 Educational Programs 543,249 Other Purposes (Expendable) 244,989 Other Purposes (Nonexpendable) 1,827,318 Unrestricted (62,658,571) Total Net Position $ 28,759,480 The accompanying notes are an integral part of this statement. 12

109 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 EXHIBIT A-2 Net (Expense) Revenue and Changes in Program Revenues Net Position Operating Capital Charges for Grants and Grants and Governmental Functions Expenses Services Contributions Contributions Activities Governmental Activities: Instruction $ 78,003,548 $ 1,234,122 $ 15,325,241 $ - $ (61,444,185) Instruction-Related Services: Instructional Supervision and Administration 2,048,482 5, ,022 - (1,357,108) Instructional Library, Media and Technology 1,360,114-8,128 - (1,351,986) School Site Administration 7,536, ,883 - (7,279,248) Pupil Services: Home-to-School Transporation 2,182,795-53,552 - (2,129,243) Food Services 2,816,359 1,344,927 1,236,818 - (234,614) All Other Pupil Services 6,559,241 28,986 1,551,677 - (4,978,578) General Administration: Centralized Data Processing 1,175, ,110 - (1,167,019) All Other General Administration 6,202, ,642 - (6,025,538) Plant Services 10,857, ,207 1,872,292 - (8,833,556) Ancillary Services 1,377,355-30,574 - (1,346,781) Community Services 121,711 2,003 10,488 - (109,220) Enterprise Activities 1,115, , (165,016) Interest on Long-Term Debt 13,180, (13,180,942) Other Outgo - Transfers Between Agencies 747,005 4, ,201 - (309,815) Other Outgo - Debt Issue Costs 342, (342,409) Total Expenses $ 135,627,089 $ 3,723,203 $ 21,648,628 $ - $ (110,255,258) General Revenues: Taxes and Subventions: Taxes Levied for General Purposes 73,077,642 Taxes Levied for Debt Service 14,189,879 Taxes Levied for Other Specific Purposes (1,199) Federal and State Aid Not Restricted to Specific Programs 14,749,423 Interest and Investment Earnings 160,854 Interagency Revenues 126,481 Miscellaneous 3,766,656 Total General Revenues $ 106,069,736 Change in Net Position (4,185,522) Net Position Beginning - As Restated (See Note T) 32,945,002 Net Position Ending $ 28,759,480 The accompanying notes are an integral part of this statement. 13

110 CARLSBAD UNIFIED SCHOOL DISTRICT BALANCE SHEET - GOVERNMENTAL FUNDS JUNE 30, 2016 General Building Fund Fund ASSETS: Cash in County Treasury $ 19,993,416 $ 18,669,174 Cash in Revolving Fund 30,000 - Cash with a Fiscal Agent/Trustee - - Accounts Receivable 3,132,021 26,514 Due from Other Funds 71,167 - Stores Inventories 22,354 - Prepaid Expenditures 1,660,132 1,372 Total Assets 24,909,090 18,697,060 LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable $ 3,321,640 $ 74,845 Due to Grantor Governments 578,579 - Due to Other Funds 2, Unearned Revenue 382,546 - Total Liabilities 4,285,269 75,348 Fund Balance: Nonspendable Fund Balances 1,712,486 1,371 Restricted Fund Balances 1,278,070 18,620,341 Committed Fund Balances 3,124,698 - Assigned Fund Balances 9,470,207 - Unassigned Fund Balances 5,038,360 - Total Fund Balance 20,623,821 18,621,712 Total Liabilities and Fund Balances $ 24,909,090 $ 18,697,060 The accompanying notes are an integral part of this statement. 14

111 EXHIBIT A-3 Blended Bond Other Total Component Interest Governmental Governmental Unit & Redemption Funds Funds $ 6,777,906 $ 18,781,684 $ 1,702,042 $ 65,924, ,000 5,871, ,871,453 14, ,806 3,290,370 2, , ,054 93, ,406 1,703,910 12,665,892 18,781,684 1,933,308 76,987,034 $ 28,701 $ - $ 121,367 $ 3,546, ,579 31,585-39,079 73, , ,399 60, ,299 4,593, ,460 1,827,317 12,605,606 18,781,684 1,647,549 52,933, ,124, ,470, ,038,360 12,605,606 18,781,684 1,761,009 72,393,832 $ 12,665,892 $ 18,781,684 $ 1,933,308 $ 76,987,034 15

112 CARLSBAD UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2016 EXHIBIT A-4 Total fund balances - governmental funds balance sheet $ 72,393,832 Capital assets: In governmental funds, only current assets are reported. In the statement of net position, all assets are reported, including capital assets and accumulated depreciation. Capital assets relating to governmental activities, at historical cost 394,625,260 Accumulated depreciation (77,557,927) Net 317,067,333 Unmatured interest on long-term debt: In governmental funds, interest on long-term debt is not recognized until the period in which it matures and is paid. In the government-wide statement of net position, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was: (1,926,830) Long-term liabilities: In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consist of: General obligation bonds payable 231,324,808 Net pension liability 80,219,746 Net OPEB obligation 15,149,268 Compensated absences payable 356,731 Certificates of participation payable 42,009,424 Special tax bonds payable 1,730,000 Capital leases payable 4,835,000 Total: (375,624,977) Deferred gain or loss on debt refunding: In the government wide financial statements deferred gain or loss on debt refunding is recognized as a deferred outflow of resources (for a loss) or deferred inflow of resources (for a gain) and subsequently amortized over the life of the debt. Deferred gain or loss on debt refunding recognized as a deferred outflow of resources or deferred inflow of resources on the statement of net position was: 7,047,499 Deferred outflows and inflows of resources relating to pensions: In governmental funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the statement of net position, deferred outflows and inflows of resources relating to pensions are reported. Deferred outflows of resources relating to pensions 13,467,969 Deferred inflows of resources relating to pensions (4,361,101) Internal service funds: Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost-recovery basis. Because internal service funds are presumed to operate for the benefit of governmental activities, assets and liabilities of internal service funds are reported with governmental activities in the statement of net position. Net position for internal service funds are: 695,755 Net position of governmental activities - statement of net position $ 28,759,480 The accompanying notes are an integral part of this statement. 16

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114 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 General Building Fund Fund Revenues: LCFF Sources: State Apportionment or State Aid $ 4,954,477 $ - Education Protection Account Funds 2,127,834 - Local Sources 73,077,642 - Federal Revenue 3,461,789 - Other State Revenue 13,741,120 - Other Local Revenue 8,802, ,315 Total Revenues 106,165, ,315 Expenditures: Current: Instruction 64,015,696 - Instruction - Related Services 9,838,247 - Pupil Services 8,101,216 - Ancillary Services 1,309,110 - Community Services 121,711 - General Administration 6,301,307 - Plant Services 9,394, ,610 Other Outgo 747, ,408 Capital Outlay 938,052 7,710,057 Debt Service: Principal - 41,270,000 Interest - 5,086,292 Total Expenditures 100,767,209 54,517,367 Excess (Deficiency) of Revenues Over (Under) Expenditures 5,398,597 (54,399,052) Other Financing Sources (Uses): Transfers In - - Transfers Out - - Proceeds From Sale of Bonds - 38,305,000 Other Sources - 8,393,700 Total Other Financing Sources (Uses) - 46,698,700 Net Change in Fund Balance 5,398,597 (7,700,352) Fund Balance, July 1 15,225,224 26,322,064 Fund Balance, June 30 $ 20,623,821 $ 18,621,712 The accompanying notes are an integral part of this statement. 17

115 EXHIBIT A-5 Blended Bond Other Total Component Interest Governmental Governmental Unit & Redemption Funds Funds $ - $ - $ - $ 4,954, ,127, ,077,642-1,118,189 1,139,811 5,719,789-67,123 96,330 13,904,573 5,076,755 14,205,239 2,497,972 30,701,225 5,076,755 15,390,551 3,734, ,485, ,015, ,838, ,620,950 10,722, ,309, , ,855 6,335, ,847-16,344 9,698, ,089,413 62,234-1,103,141 9,813, ,000 6,062,423 1,325,000 48,987, ,000 6,768,952 2,161,191 14,156, ,081 12,831,375 7,260, ,087,513 4,365,674 2,559,176 (3,526,368) (45,601,973) - - 3,486,191 3,486,191 (3,486,191) - - (3,486,191) ,305, ,393,700 (3,486,191) - 3,486,191 46,698, ,483 2,559,176 (40,177) 1,096,727 11,726,123 16,222,508 1,801,186 71,297,105 $ 12,605,606 $ 18,781,684 $ 1,761,009 $ 72,393,832 18

116 CARLSBAD UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 EXHIBIT A-6 Net change in fund balances - total governmental funds $ 1,096,727 Amounts reported for governmental activities in the statement of activities are different because: Capital outlay: In governmental funds, the costs of capital assets are reported as expenditures in the period when the assets are acquired. In the statement of activities, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is: Expenditures for capital outlay 9,858,253 Depreciation expense (8,312,081) Net 1,546,172 Debt service: In governmental funds, repayments of long-term debt are reported as expenditures. In the government-wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were: 48,987,423 Debt proceeds: In governmental funds, proceeds from debt are recognized as Other Financing Sources. In the government-wide statements, proceeds from debt are reported as increases to liabilities. Amounts recognized in governmental funds as proceeds from debt, net of issue premium or discount, were: (46,698,700) Unmatured interest on long-term debt: In governmental funds, interest on long-term debt is recognized in the period it becomes due. In the government-wide statement of activities, it is recognized in the period that it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was: (6,771,298) Pensions: In government funds, pension costs are recognized when employer contributions are made. in the statement of activities, pension costs are recognized on the accrual basis. This year, the difference between accrual-basis pension costs and actual employer contributions was: (7,893,938) Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB costs are recognized when the employer contributions are made. In the statement of activities, costs are measured and recognized in relation to the annual required contribution. The annual required contribution is the normal costs related to the current period plus a calculated amount necessary to systematically amortize any unfunded liability in accordance with generally accepted accounting principles. This year, the difference between the annual required contribution and amounts actually funded was: (1,973,980) Compensated absences: In governmental funds, compensated absences are measured by the amounts paid during the period. In the statement of activities, compensated absences are measured by the amounts earned. The difference between compensated absences paid and compensated absences earned was: (64,773) Amortization of debt issue premium or discount or deferred gain or loss from debt refunding: In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an Other Financing Source or an Other Financing Use in the period it is incurred. In the government-wide statements, the premium or discount, plus any deferred gain or loss from debt refunding, is amortized as interest over the life of the debt. Amortization of premium or discount, or deferred gain or loss from debt refunding, for the period is: 7,746,790 19

117 Internal Service Funds: Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost-recovery basis. Because internal service funds are presumed to benefit governmental activities, internal service activities are reported as governmental in the statement of activities. The net increase or decrease in internal service funds was: (159,945) Change in net position of governmental activities - statement of activities $ (4,185,522) The accompanying notes are an integral part of this statement. 20

118 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION INTERNAL SERVICE FUND JUNE 30, 2016 Nonmajor Internal Service Fund EXHIBIT A-7 Self-Insurance Fund ASSETS: Current Assets: Cash in County Treasury $ 630,101 Cash with a Fiscal Agent/Trustee 228,940 Accounts Receivable 17,823 Total Current Assets 876,864 Total Assets 876,864 LIABILITIES: Current Liabilities: Accounts Payable $ 181,109 Total Current Liabilities 181,109 Total Liabilities 181,109 NET POSITION: Unrestricted (Deficit) 695,755 Total Net Position $ 695,755 The accompanying notes are an integral part of this statement. 21

119 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - INTERNAL SERVICE FUND FOR THE YEAR ENDED JUNE 30, 2016 Nonmajor Internal Service Fund EXHIBIT A-8 Self-Insurance Fund Operating Revenues: Local Revenue $ 956,027 Total Revenues 956,027 Operating Expenses: Services and Other Operating Expenses 1,115,971 Total Expenses 1,115,971 Income (Loss) before Contributions and Transfers (159,944) Change in Net Position (159,944) Total Net Position - Beginning 855,699 Total Net Position - Ending $ 695,755 The accompanying notes are an integral part of this statement. 22

120 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2016 EXHIBIT A-9 Nonmajor Internal Service Fund Self-Insurance Fund Cash Flows from Operating Activities: Cash Received for Interfund Services Provided $ 949,050 Cash Payments to Other Suppliers for Goods and Services (1,083,752) Net Cash Provided (Used) by Operating Activities (134,702) Cash Flows from Investing Activities: Interest and Dividends on Investments 4,841 Net Cash Provided (Used) for Investing Activities 4,841 Net Increase (Decrease) in Cash and Cash Equivalents (129,861) Cash and Cash Equivalents at Beginning of Year 988,902 Cash and Cash Equivalents at End of Year $ 859,041 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating Income (Loss) $ (159,945) Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities Change in Assets and Liabilities: Decrease (Increase) in Receivables (2,136) Increase (Decrease) in Accounts Payable 32,220 Total Adjustments 30,084 Net Cash Provided (Used) by Operating and Investment Activities $ (129,861) The accompanying notes are an integral part of this statement. 23

121 CARLSBAD UNIFIED SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2016 Agency Fund EXHIBIT A-10 Student Body Fund ASSETS: Cash in County Treasury $ 255,191 Cash on Hand and in Banks 384,198 Accounts Receivable 392 Store Inventories 11,265 Total Assets 651,046 LIABILITIES: Due to Student Groups $ 651,046 Total Liabilities 651,046 NET POSITION: Total Net Position $ - The accompanying notes are an integral part of this statement. 24

122 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 A. Summary of Significant Accounting Policies Carlsbad Unified School District (District) accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's "California School Accounting Manual". The accounting policies of the District conform to accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). 1. Reporting Entity The District's combined financial statements include the accounts of all its operations. The District evaluated whether any other entity should be included in these financial statements. The criteria for including organizations as component units within the District's reporting entity, as set forth in GASB Statement No. 14, "The Financial Reporting Entity," include whether: - the organization is legally separate (can sue and be sued in its name) - the District holds the corporate powers of the organization - the District appoints a voting majority of the organization's board - the District is able to impose its will on the organization - the organization has the potential to impose a financial benefit/burden on the District - there is fiscal dependency by the organization on the District The District also evaluated each legally separate, tax-exempt organization whose resources are used principally to provide support to the District to determine if its omission from the reporting entity would result in financial statements which are misleading or incomplete. GASB Statement No. 14 requires inclusion of such an organization as a component unit when: 1) The economic resources received or held by the organization are entirely or almost entirely for the direct benefit of the District, its component units or its constituents; and 2) The District or its component units is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the organization; and 3) Such economic resources are significant to the District. Based on these criteria, the District has two component units, the Carlsbad Unified School District Educational Facilities Corporation and the Carlsbad Unified School District Community Facilities District's (CFD's). Additionally, the District is not a component unit of any other reporting entity as defined by the GASB Statement. 2. Basis of Presentation, Basis of Accounting a. Basis of Presentation Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The District does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the District's funds, with separate statements presented for each fund category. 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. 25

123 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. The District reports the following major governmental funds: General Fund. This 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. Building Fund. This fund accounts for the acquisition of major governmental capital facilities and buildings from the sale of bond proceeds. Capital Project Fund for Blended Component Units. This fund accounts for the activities of the District's Community Facilities Districts. Bond Interest and Redemption Fund. This fund is used to account for the accumulation of resources for, and the repayment of District bonds, interest, and related costs. In addition, the District reports the following fund types: Special Revenue Funds. These funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. Capital Projects Funds. These funds are used to account for the acquisition and/or construction of all major governmental capital assets. Debt Service Funds. These funds account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. Internal Service Funds: These funds are used to account for revenues and expenses related to services provided to parties inside the District. These funds facilitate distribution of support costs to the users of support services on a cost-reimbursement basis. Because the principal users of the internal services are the District's governmental activities, this fund type is included in the "Governmental Activities" column of the government-wide financial statements. Agency Funds: These funds are used to report student activity funds and other resources held in a purely custodial capacity (assets equal liabilities). Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. Fiduciary funds are reported in the fiduciary fund financial statements. However, because their assets are held in a trustee or agent capacity and are therefore not available to support District programs, these funds are not included in the government-wide statements. b. Measurement Focus, Basis of Accounting Government-wide, Proprietary, and Fiduciary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. The government-wide and proprietary fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. 26

124 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Governmental Fund Financial Statements: Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The District considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible-to-accrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. When the District incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the District's policy to use restricted resources first, then unrestricted resources. 3. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June Budgets and Budgetary Accounting Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. By state law, the District's governing board must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District's governing board satisfied these requirements. These budgets are revised by the District's governing board and district superintendent during the year to give consideration to unanticipated income and expenditures. Formal budgetary integration was used as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. 5. Revenues and Expenses a. Revenues - Exchange and Non-Exchange Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current year or expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 60 days. However, to achieve comparability of reporting among California districts and so as to not distort normal revenue patterns, with specific respect to reimbursement grants and corrections to State-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. 27

125 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Non-exchange transactions are transactions in which the District receives value without directly giving equal value in return, including property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose restrictions. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. b. Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on long-term obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the government-wide financial statements. 6. Assets, Liabilities, and Equity a. Deposits and Investments Cash balances held in banks and in revolving funds are insured to $250,000 by the Federal Depository Insurance Corporation. All cash held by the financial institutions is fully insured or collateralized. For purposes of the statement of cash flows, highly liquid investments are considered to be cash equivalents if they have a maturity of three months or less when purchased. In accordance with Education Code Section 41001, the District maintains substantially all its cash in the San Diego County Treasury. The county pools these funds with those of other districts in the county and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds, except for the Tax Override Funds, in which interest earned is credited to the general fund. Any investment losses are proportionately shared by all funds in the pool. The county is authorized to deposit cash and invest excess funds by California Government Code Section et seq. The funds maintained by the county are either secured by federal depository insurance or are collateralized. Information regarding the amount of dollars invested in derivatives with San Diego County Treasury was not available. b. Stores Inventories and Prepaid Expenditures Inventories are recorded using the purchases method in that the cost is recorded as an expenditure at the time individual inventory items are purchased. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure when incurred. 28

126 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 c. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used. Capital assets are being depreciated using the straight-line method over the following estimated useful lives: Asset Class Estimated Useful Lives Buildings Building Improvements Vehicles 5-15 Office Equipment 5-15 Computer Equipment 5-15 d. Compensated Absences Accumulated unpaid employee vacation benefits are recognized as liabilities of the District. The current portion of the liabilities is recognized in the general fund at year end. Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires. e. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the combined balance sheet and revenue is recognized. f. Interfund Activity Interfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers In and Transfers Out are netted and presented as a single "Transfers" line on the government-wide statement of activities. Similarly, interfund receivables and payables are netted and presented as a single "Internal Balances" line of the government-wide statement of net position. g. Property Taxes Secured property taxes attach as an enforceable lien on property as of March 1. Taxes are payable in two installments on November 15 and March 15. Unsecured property taxes are payable in one installment on or before August 31. The County of San Diego bills and collects the taxes for the District. 29

127 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 h. Fund Balances - Governmental Funds Fund balances of the governmental funds are classified as follows: Nonspendable Fund Balance - represents amounts that cannot be spent because they are either not in spendable form (such as inventory or prepaid insurance) or legally required to remain intact (such as notes receivable or principal of a permanent fund). Restricted Fund Balance - represents amounts that are constrained by external parties, constitutional provisions or enabling legislation. Committed Fund Balance - represents amounts that can only be used for a specific purpose because of a formal action by the District's governing board. Committed amounts cannot be used for any other purpose unless the governing board removes those constraints by taking the same type of formal action. Committed fund balance amounts may be used for other purposes with appropriate due process by the governing board. Commitments are typically done through adoption and amendment of the budget. Committed fund balance amounts differ from restricted balances in that the constraints on their use do not come from outside parties, constitutional provisions, or enabling legislation. Assigned Fund Balance - represents amounts which the District intends to use for a specific purpose, but that do not meet the criteria to be classified as restricted or committed. Intent may be stipulated by the governing board or by an official or body to which the governing board delegates the authority. Specific amounts that are not restricted or committed in a special revenue, capital projects, debt service or permanent fund are assigned for purposes in accordance with the nature of their fund type or the fund's primary purpose. Assignments within the general fund conveys that the intended use of those amounts is for a specific purpose that is narrower than the general purposes of the District itself. Unassigned Fund Balance - represents amounts which are unconstrained in that they may be spent for any purpose. Only the general fund reports a positive unassigned fund balance. Other governmental funds might report a negative balance in this classification because of overspending for specific purposes for which amounts had been restricted, committed or assigned. When an expenditure is incurred for a purpose for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds. i. Minimum Fund Balance The District maintains a minimum reserve, within the general fund, an amount not less than three percent or the amount required by state law. The minimum reserve shall apply towards the established three percent minimum Reserve for Economic Uncertainties or an amount that meets or exceeds the requirements by law. The primary purpose of this reserve is to avoid the need for service level reductions in the event of an economic downturn which causes revenues to come in lower than budget. This reserve may be increased from time to time in order to address specific anticipated shortfalls. The District believes a reserve at this level is prudent to maintain a high bond rating and to protect the District from the effects of fluctuations in property tax revenues to which basic aid districts such as this district are vulnerable. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints in use, the Reserve for Economic Uncertainties consists of balances that are otherwise unassigned. On June 17, 2015 the Board voted to approve an increase in the reserve level for economic uncertainties from 3% to 5%. The Board also directed staff to maintain a committed Basic Aid Reserve. 30

128 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Deferred Inflows and Deferred Outflows of Resources Deferred outflows of resources is a consumption of net assets or net position that is applicable to a future reporting period. Deferred inflows of resources is an acquisition of net assets or net position that is applicable to a future reporting period. Deferred outflows of resources and deferred inflows of resources are recorded in accordance with GASB Statement numbers 63 and 65. For the year ended June 30, 2014 the district did not have any deferred inflows of resources. 8. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions and pension expense, information about the fiduciary net position of the CalPERS Schools Pool Cost-Sharing Multiple-Employer Plan (CalPERS Plan) and CalSTRS Schools Pool Cost-Sharing Multiple Employer Plan (CalSTRS Plan), and additions to/deductions from the CalPERS Plan and CalSTRS Plan's fiduciary net positions have been determined on the same basis as they are reported by the CalPERS Financial Office and CalSTRS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. GASB 68 requires that the reported results must pertain to liability and asset information within certain defined time frames. For this report, the following time frames are used: 9. Use of Estimates Valuation Date (VD) June 30, 2014 Measurement Date (MD) June 30, 2015 Measurement Period (MP) July 1, 2014 to June 30, 2015 The preparation of financial statements in conformity with GAAP requires the use of management's estimates. Actual results could differ from those estimates. 10. Fair Value Measurements The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles as defined by Governmental Accounting Standards Board (GASB) Statement No. 72. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. The hierarchy is detailed as follows: Level 1 Inputs: Level 2 Inputs: Level 3 Inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities that a government can access at the measurement date. Inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly or indirectly. Unobservable inputs for an asset or liability. For the current fiscal year the District did not have any recurring or nonrecurring fair value measurements. 31

129 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Change in Accounting Policies In February 2015 the Governmental Accounting Standards Board (GASB) issued Statement No. 72 Fair Value Measurement and Application. This statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The District has implemented the guidance under GASB Statement No. 72 into their accounting policies affective for the fiscal year ending June 30, In June 2015 the Governmental Accounting Standards Board (GASB) issued Statement No. 76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify - in the context of the current governmental financial reporting environment - the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The District has implemented the guidance under GASB Statement No. 76 into their accounting policies effective for the fiscal year ending June 30, In June 2015 the Governmental Accounting Standards Board (GASB) issued Statement No. 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement 68 for pension plans and pensions that are within their respective scopes. The requirements of this Statement extend the approach to accounting and financial reporting established in Statement 68 to all pensions, with modifications as necessary to reflect that for accounting and financial reporting purposes, any assets accumulated for pensions that are provided through pension plans that are not administered through trusts that meet the criteria specified in Statement 68 should not be considered pension plan assets. It also requires that information similar to that required by Statement 68 be included in notes to financial statements and required supplementary information by all similarly situated employers and nonemployer contributing entities. 32

130 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 This Statement also clarifies the application of certain provisions of Statement 67 and 68 with regard to the following issues: 1. Information that is required to be presented as notes to the 10-year schedules of required supplementary information about investment-related factors that significantly affect trends in the amounts reported. 2. Accounting and financial reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities for defined benefit pensions. 3. Timing of employer recognition of revenue for the support of nonemployer contributing entities not in a special funding situation. The District has adopted the provisions of GASB Statement No. 73 effective for the year ending June 30, B. Minimum Fund Balance The District maintains a minimum reserve, within the general fund, an amount not less than three percent or the amount required by state law. The minimum reserve shall apply towards the established three percent minimum Reserve for Economic Uncertainties or an amount that meets or exceeds the requirements by law. The primary purpose of this reserve is to avoid the need for service level reductions in the event of an economic downturn which causes revenues to come in lower than budget. This reserve may be increased from time to time in order to address specific anticipated shortfalls. The District believes a reserve at this level is prudent to maintain a high bond rating and to protect the District from the effects of fluctuations in property tax revenues to which basic aid districts such as this district are vulnerable. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints in use, the Reserve for Economic Uncertainties consists of balances that are otherwise unassigned. C. Compliance and Accountability 1. Finance-Related Legal and Contractual Provisions In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of finance- related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations: Violation None reported Action Taken Not applicable 2. Deficit Fund Balance or Fund Net Position of Individual Funds Following are funds having deficit fund balances or fund net position at year end, if any, along with remarks which address such deficits: Deficit Fund Name Amount Remarks None reported Not applicable Not applicable 33

131 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 D. Cash and Investments 1. Cash in County Treasury: In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the San Diego County Treasury as part of the common investment pool ($66,809,514 as of June 30, 2016). The fair value of the District's portion of this pool as of that date, as provided by the pool sponsor, was $66,809,514. Assumptions made in determining the fair value of the pooled investment portfolios are available from the County Treasurer. The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investments in the pool is reported in the accounting financial statements as amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of the portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. The San Diego County Treasury is not registered with the Securities and Exchange Commission (SEC) as an investment company; however, the County Treasury acts in accordance with investment policies monitored by a Treasury Oversight Committee consisting of members appointed by participants in the investment pool and up to five members of the public having expertise, or an academic background in, public finance. In addition, the County Treasury is audited annually by an independent auditor. 2. Cash on Hand, in Banks, and in Revolving Fund Cash balances on hand and in banks ($384,198 as of June 30, 2016) and in the revolving fund ($30,000) are insured up to $250,000 by the Federal Depository Insurance Corporation. 3. Investments: The District's investments at June 30, 2016 are shown below. Fair Investment or Investment Type Maturity Value Money Market <30 Days $ 3,524,599 Treasury Obligations <30 Days 2,346,854 JPA Treasury Funds <30 Days 228,940 Total Investments $ 6,100,393 34

132 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Investments Authorized by the California Government Code and the District's Investment Policy The table below identifies the investment types that are authorized for the District by the California Government Code (or the District's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District's investment policy where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District's investment policy. Maximum Maximum Maximum Remaining Percentage Investment in Authorized Investment Type Maturity of Portfolio One Issuer Local Agency Bonds, Notes, Warrants 5 Years None None Registered State Bonds, Notes, Warrants 5 Years None None U.S. Treasury Obligations 5 Years None None U.S. Agency Securities 5 Years None None Banker's Acceptance 180 Days 40% 30% Commercial Paper 270 Days 25% 10% Negotiable Certificates of Deposit 5 Years 30% None Repurchase Agreements 1 Year None None Reverse Repurchase Agreements 92 Days 20% of Base None Medium-Term Corporate Notes 5 Years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 Years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund N/A None None Joint Powers Authority Pools N/A None None 5. Analysis of Specific Deposit and Investment Risks GASB Statement No. 40 requires a determination as to whether the District was exposed to the following specific investment risks at year end and if so, the reporting of certain related disclosures: a. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The county is restricted by Government Code Section pursuant to Section to invest only in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements. The ratings of securities by nationally recognized rating agencies are designed to give an indication of credit risk. At year end, the District was not exposed to credit risk. b. Custodial Credit Risk Deposits are exposed to custodial credit risk if they are not covered by depository insurance and the deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution's trust department or agent but not in the District's name. Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the government, and are held by either the counterparty or the counterparty's trust department or agent but not in the District's name. At year end, the District was not exposed to custodial credit risk. 35

133 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 California Government Code requires that a financial institution secure deposits made by State or Local Governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having value of 105% of the secured deposits. As of June 30, 2016, the District's bank balances (including revolving cash) of $106,749 was exposed to custodial credit risk because it was insured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District. c. Concentration of Credit Risk This risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond the amount stipulated by the California Government Code. Investments in any one issuer that represent five percent or more of the total investments are either an external investment pool and are therefore exempt. As such, the District was not exposed to concentration of credit risk. d. Interest Rate Risk This is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the county pool. e. Foreign Currency Risk This is the risk that exchange rates will adversely affect the fair value of an investment. At year end, the District was not exposed to foreign currency risk. 6. Investment Accounting Policy The District is required by GASB Statement No. 31 to disclose its policy for determining which investments, if any, are reported at amortized cost. The District's general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term "short-term" refers to investments which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-earning investment contracts. The District's investments in external investment pools are reported in conformity with GASB Statement No. 77 unless the pool is 2a7-like, in which case they are reported at share value. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission ("SEC") as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of

134 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 E. Accounts Receivable Accounts receivable at June 30, 2016 consisted of intergovernmental grants, entitlements, interest and other local sources as follows: Major Governmental Funds Capital Nonmajor Total General Building Projects Governmental Governmental Fund Fund Fund Funds Funds Federal Government: Federal Programs $ 1,631,297 $ - $ - $ 69,697 $ 1,700,994 State Government: Lottery 1,218, ,218,330 Special Education 190, ,898 Other State Programs 45, ,040 68,127 Local Sources: Interest 44,268 26,514 9,029 2,128 81,939 Other Local Sources 2,141-5,000 22,941 30,082 Total Accounts Receivable $ 3,132,021 $ 26,514 $ 14,029 $ 117,806 $ 3,290,370 Self Student Total Insurance Body Other Fund Fund Funds Local Sources: Interest $ 752 $ 392 $ 1,144 Other Local Sources 17,071-17,071 Total Accounts Receivable $ 17,823 $ 392 $ 18,215 All accounts receivable are considered to be collectible in full and as such no allowance for doubtful accounts has been established. 37

135 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 F. Capital Assets Capital asset activity for the year ended June 30, 2016, was as follows: Beginning Ending Balances Increases Decreases Balances Governmental activities: Capital assets not being depreciated: Land $ 36,276,875 $ - $ - $ 36,276,875 Work in progress 7,408,407 8,502,842 2,828,426 13,082,823 Total capital assets not being depreciated 43,685,282 8,502,842 2,828,426 49,359,698 Capital assets being depreciated: Buildings 291,810,677 3,162, ,973,395 Improvements 22,463, ,300-22,614,383 Equipment 26,807, ,819-27,677,784 Total capital assets being depreciated 341,081,725 4,183, ,265,562 Less accumulated depreciation for: Buildings (44,634,018) (5,990,858) - (50,624,876) Improvements (9,373,624) (967,503) - (10,341,127) Equipment (15,238,204) (1,353,720) - (16,591,924) Total accumulated depreciation (69,245,846) (8,312,081) - (77,557,927) Total capital assets being depreciated, net 271,835,879 (4,128,244) - 267,707,635 Governmental activities capital assets, net $ 315,521,161 $ 4,374,598 $ 2,828,426 $ 317,067,333 Depreciation was charged to functions as follows: Instruction $ 7,361,354 Instruction-Related Services 81,240 Pupil Services 3,117 General Administration 415,740 Plant Services 450,630 $ 8,312,081 G. Interfund Balances and Activities 1. Due To and From Other Funds Balances due to and due from other funds at June 30, 2016, consisted of the following: Due To Fund Due From Fund Amount Purpose General Fund Cafeteria Fund $ 39,079 Cost reimbursements General Fund Capital Projects Fund 31,585 Cost reimbursements General Fund Building Fund 503 Cost reimbursements Capital Projects Fund General Fund 2,504 Cost reimbursements All amounts due are scheduled to be repaid within one year. Total $ 73,671 38

136 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Transfers To and From Other Funds Transfers to and from other funds at June 30, 2016, consisted of the following: Transfers From Transfers To Amount Reason Capital Projects Fund Debt service fund $ 3,486,191 Debt service payments Total $ 3,486,191 H. Accounts Payable Accounts payable at June 30, 2016 consisted of: Major Governmental Funds Capital Nonmajor Total General Building Projects Governmental Governmental Fund Fund Fund Funds Funds Vendor payables $ 1,696,056 $ 73,636 $ 28,701 $ 56,338 $ 1,854,731 Pension related 650, , ,279 Payroll and other benefits 974, ,845 1,033,543 Totals $ 3,321,640 $ 74,845 $ 28,701 $ 121,367 $ 3,546,553 Self Student Total Insurance Body Other Fund Fund Funds Claims liabilities $ 181,109 $ - $ 181,109 Vendors payable Use tax payable Totals $ 181,109 $ - $ 181,109 I. Unearned Revenue Unearned revenue at June 30, 2016 consisted of: Nonmajor Total General Governmental Governmental Fund Funds Funds Federal Sources Team Nutrition Training $ - $ 11,853 $ 11,853 State Sources: Career and Technical Education Grant 276, ,510 California Career Pathways Trust 77,213-77,213 Local Sources: Linked Learning Pilot 28,823-28,823 J. Short-Term Debt Activity $ 382,546 $ 11,853 $ 394,399 The District accounts for short-term debts for maintenance purposes through the General Fund. The proceeds from loans are shown in the financial statements as Other Resources. 39

137 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 K. Components of Ending Fund Balance As of June 30, 2016 ending fund balance in governmental funds consisted of the following: Major Funds Bond Capital Interest and Nonmajor General Building Projects Redemption Governmental Fund Fund Fund Fund Funds Nonspendable Fund Balances Revolving Cash $ 30,000 $ - $ - $ - $ - Stores Inventory 22, ,054 Prepaid Expenses 1,660,132 1, ,406 Total Nonspendable 1,712,486 1, ,460 Restricted Fund Balances Educational Programs 543, Capital Projects 734,822 18,620,341 12,605,606-1,402,559 Debt Service ,781,684 Child Nutrition Program ,990 Total Restricted 1,278,070 18,620,341 12,605,606 18,781,684 1,647,549 Committed Fund Balances Basic Aid Reserve 3,124, Total committed 3,124, Assigned Fund Balances Site Carryover Reserves 634, Mandated Cost Reserve 3,339, Pension Reserve 1,000, Staffing Reserve 800, Technology Reserve 250, Textbook Adoption Reserve 250, Digitization of Records 250, Furniture & Equipment 250, Facility Reserve 200, Maintenance & Operations 250, Lottery Reserve 698, EPA Reserve 50, Other Assigned 1,497, Total Assigned 9,470, Unassigned Fund Balances For Economic Uncertainty 5,038, Other Unassigned Total Unassigned 5,038, Total Fund Balance $ 20,623,821 $ 18,621,712 $ 12,605,606 $ 18,781,684 $ 1,761,009 40

138 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 L. Long-Term Obligations 1. Long-Term Obligation Activity Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the year ended June 30, 2016, are as follows: Amounts Beginning Ending Due Within Balance Increases Decreases Balance One Year Governmental activities: General Obligation (GO) Bonds Bond Principal $ 184,028,002 38,305,000 47,332, ,000,579 6,451,816 Bond Premiums 6,317,332 8,740,656 1,403,130 13,654, ,474 Bond Accreted Interest 38,323,210 7,028,738 2,682,577 42,669,371 3,223,184 Total GO Bonds 228,668,544 54,074,394 51,418, ,324,808 9,923,474 Certificates of Participation (COPs) COPs Principal 42,875,000-1,230,000 41,645,000 1,275,000 COPs Premium 380,042-15, ,424 15,618 Total COPs 43,255,042-1,245,618 42,009,424 1,290,618 Capital Leases 5,165, ,000 4,835, ,000 Special Tax Bonds 1,825,000-95,000 1,730,000 95,000 Compensated absences * 291,958 64, , ,731 Net Pension Liability 64,277,199 15,942,547-80,219,746 - Net OPEB Obligation 13,175,288 2,748, ,854 15,149,268 - Total governmental activities $ 356,658,031 $ 72,830,548 $ 53,863,602 $ 375,624,977 $ 12,010,823 * Other long-term liabilities The funds typically used to liquidate other long-term liabilities in the past are as follows: Liability Activity Type Fund Compensated absences Governmental General 41

139 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Debt Service Requirements Debt service requirements on long-term debt, net of premiums, pension liability, June 30, 2016 are as follows: and net OPEB obligation at Governmental Activities Accreted Year Ending June 30, Principal Interest Interest Total 2017 $ 8,523,547 $ 3,223,184 $ 5,635,334 $ 17,382, ,652,274 3,717,726 6,490,573 17,860, ,702,811 4,132,189 6,627,016 18,462, ,844,018 2,155,982 6,749,567 13,749, ,887,631 2,262,369 6,583,053 16,733, ,575,733 4,794,267 30,889,817 95,259, ,186,582 18,478,418 32,580, ,245, ,819,714 49,570,286 16,836, ,226, ,335, ,125 4,753, ,000-1,000 41,000 Totals $ 223,567,310 $ 88,334,421 $ 112,811,744 $ 424,713, General Obligation Bonds General obligation bonds issued by the District as of June 30, 2016 consisted of the following: Original Issue Date of Issue Interest Rate Maturity Date Amount 1997 Election, Series A 10/03/ % 8/1/2022 $ 26,498, Election, Series A 08/29/ % 8/1/ ,000, Election, Series B 05/29/ % 8/1/ ,998, Election, Series C 06/07/ % 8/1/ ,998, Election, Series D 06/07/ % 8/1/ ,000, Refunding Bonds 05/14/ % 8/1/ ,495, Refunding Bonds 02/25/ % 8/1/ ,305,000 $ 279,294,951 Amount Issued Redeemed Amount Outstanding Current Current Outstanding 7/01/2015 Year Year 6/30/ Election, Series A $ 7,870,971 $ - $ 1,103,245 $ 6,767, A Accreted Interest 12,521, ,654 1,756,755 11,751, Election, Series A 14,595,000-12,290,000 2,305, A Bond Premium 493, ,466 77, Election, Series B 71,964,183-32,989,178 38,975, B Bond Premium 2,082, ,730 1,127, B Accreted Interest 16,179,462 3,247, ,822 18,501, Election, Series C 48,427, ,000 47,552, C Bond Premium 1,149, ,368-1,314, C Accreted Interest 9,621,762 2,794,438-12,416, Election, Series D 25,000, ,000, D Bond Premium 953, ,588-1,134, Refunding Bond 16,170,000-75,000 16,095, Bond Premium 1,638,608-32,934 1,605, Refunding Bonds - 38,305,000-38,305, Bond Premium - 8,393,700-8,393,700 $ 228,668,544 $ 54,074,394 $ 51,418,130 $ 231,324,808 42

140 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Debt service requirements on general obligation bonds, net of premiums at June 30, 2016 is as follows: Accreted Year Ending June 30, Principal Interest Interest Total 2017 $ 6,451,816 $ 3,223,184 $ 3,403,535 $ 13,078, ,862,274 3,717,726 4,337,438 13,917, ,827,811 4,132,189 4,550,988 14,510, ,899,018 2,155,982 4,754,213 9,809, ,852,631 2,262,369 4,677,388 12,792, ,935,733 4,794,267 22,861,031 75,591, ,291,582 18,478,418 27,462, ,232, ,879,714 49,570,286 14,641, ,091, Totals $ 175,000,579 $ 88,334,421 $ 86,688,521 $ 350,023,521 Note: Amounts represented in repayment schedule for accreted interest are reflective of 100% of amounts to be repaid. Amounts represented as accreted interest in debt summary are reflective of amounts that have accrued as of June 30, Capital Leases In August 2014, the District entered into a lease agreement with Capital One Financing to refinance an equipment lease the District held with SunTrust Bank which was used to purchase equipment for the District. The lease requires annual principal payments as scheduled along with semi-annual interest payments at a rate of 2.8%. Upon final payment the title to the equipment transfers to the District. Commitments under capitalized lease agreements provide for minimum future lease payments as of June 30, 2016, as follows: Year Ending June 30, Principal Interest Total 2017 $ 345,000 $ 130,550 $ 475, , , , , , , , , , ,000 89, , ,090, ,880 2,368, ,000 19, ,600 Totals $ 4,835,000 $ 850,920 $ 5,685, Certificates of Participation Certificates of participation as of June 30, 2016 consisted of the following: Original Issue Date of Issue Interest Rate Maturity Date Amount 2009 Series A Refunding 10/14/ % 10/01/2041 $ 50,710,000 Amount Issued Redeemed Amount Outstanding Current Current Outstanding 7/01/2015 Year Year 6/30/ Series A Refunding $ 42,875,000 $ - $ 1,230,000 $ 41,645,000 COPs Premium 380,042-15, ,424 $ 43,255,042 $ - $ 1,245,618 $ 42,009,424 43

141 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Future commitments for certificates of participation, net of premium as of June 30, 2016 are as follows: Year Ending June 30, Principal Interest Total 2017 $ 1,275,000 $ 2,039,837 $ 3,314, ,340,000 1,974,462 3,314, ,405,000 1,911,106 3,316, ,465,000 1,844,625 3,309, ,540,000 1,769,500 3,309, ,925,000 7,583,375 16,508, ,380,000 5,054,500 16,434, ,940,000 2,195,250 12,135, ,335, ,125 4,753, ,000 1,000 41,000 Totals $ 41,645,000 $ 24,791,780 $ 66,436, Special Tax Bonds Special tax bonds as of June 30, 2016 consisted of the following: Original Issue Date of Issue Interest Rate Maturity Date Amount 2014 Special Tax Bonds 06/26/ % 09/01/2029 $ 1,825,000 $ 1,825,000 Amount Issued Redeemed Amount Outstanding Current Current Outstanding 7/01/2015 Year Year 6/30/ Special Tax Bonds $ 1,825,000 $ - $ 95,000 $ 1,730,000 $ 1,825,000 $ - $ 95,000 $ 1,730,000 Debt service requirements on special tax bonds as of June 30, 2016 are as follows: Year Ending June 30, Principal Interest Total 2017 $ 95,000 $ 61,412 $ 156, ,000 57, , ,000 54, , ,000 50, , ,000 46, , , , , ,000 43, ,981 Totals $ 1,730,000 $ 480,523 $ 2,210,523 Special tax bonds are issued by the Carlsbad Unified School District Community Facilities District's (CFD's) which are included in the audit as a blended component unit of the District. The CFD's are funded by Mello-Roos taxes which will be used to repay these bonds. The repayment of these bonds will not be the obligation of the District outside of the CFD's. 44

142 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, General Obligation Bonds In June 2011, the District issued $52,998,238 in Tax-Exempt General Obligation Bonds, 2011 Series C, and $25,000,000 in Taxable General Obligation Bonds, 2011 Series D, under authorization of the 2006 election conducted within the Carlsbad Unified School District. The Bonds are being issued to finance the construction, acquisition, furnishing and equipping of District facilities in addition to paying certain costs associated with the bonds issuance. The Bonds are the third and fourth series of bonds issued under the 2006 election authorization and are on parity with all other general obligation bonds of the District. The Tax-Exempt General Obligation Bonds consist of current interest bonds, capital appreciation bonds, and convertible capital appreciation bonds. The Bonds will mature through various dates and will bear or accrete interest at variable rates ranging from 4.00% to 6.63% up to August 1, Interest on the current interest bonds is payable commencing February 1, 2012, and semiannually thereafter on February 1 and August 1 of each year. The capital appreciation bonds and convertible capital appreciation bonds will increase in value by the accumulation of earned interest from their initial principal amounts on the date of delivery to their respective accreted values at maturity. Interest on the capital appreciation bonds and convertible capital appreciation bonds will be compounded on each February 1 and August 1, commencing August 1, 2011, and will be payable solely at maturity as part of the maturity value. Principal payments on the bonds are due August 1 of each year commencing August 1, 2012 and annually thereafter through the maturity date of August 1, The Taxable General Obligation Bonds are issued as current interest bonds with interest payable commencing February 1, 2012 and semiannually thereafter on February 1 and August 1 of each year through the maturity date of August 1, The bonds bear interest at variable rates ranging from 4.58% to 5.23% with principal payments due in two equal installments of $12,500,000 on August 1, 2021 and August 1, Bond Premium Bond premium arises when the market rate of interest is higher than the stated interest rate on the bond. Generally Accepted Accounting Principles (GAAP) require that the premium increase the face value of the bond and then amortize the premium over the life of the bond. The premiums are amortized over the life of the bond using the straight line method. The following bonds were issued at a premium resulting in effective interest as follows: 2006 Series A 2006 Series B 2006 Series C 2006 Series D 2014 Bonds Total Interest $ 28,622,113 $ 91,617,432 $ 95,703,430 $ 15,680,111 $ 5,324,322 Less Bond Premium (1,352,207) (2,315,200) (1,465,217) (1,134,927) (1,671,542) Net Interest 27,269,906 89,302,232 94,238,213 14,545,184 3,652,780 Par Amount of Bonds $ 40,000,000 $ 79,998,017 $ 52,998,238 $ 25,000,000 $ 16,495,000 Periods Effective Interest Rate 2.73% 4.29% 7.41% 3.88% 1.58% 2016 Bonds Total Interest $ 17,088,022 Less Bond Premium (8,393,700) Net Interest 8,694,322 Par Amount of Bonds $ 38,305,000 Periods 17 Effective Interest Rate 1.34% 45

143 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, COPs Premium COPs premium arises when the market rate of interest is higher than the stated interest rate on the COPs. Generally Accepted Accounting Principles (GAAP) require that the premium increase the face value of the COPs and then be amortized over the life of the COPs. The premium is being amortized over the life of the COPs using the straight line method. The following COPs were issued at a premium resulting in effective interest as follows: 2009 COPs Total Interest $ 39,200,335 Less COPs Premium (468,544) Net Interest 38,731,791 Par Amount of COPs $ 50,710,000 Periods 32 Effective Interest Rate 2.39% 10. Economic Gain on 2016 Refunding Bond On January 21, 2016 the District issued $38,305,000 of Refunding Bonds. The refunding bonds bear fixed interest rates ranging from % with annual maturities from August 2016 through August The net proceeds (including premium of $8,393,700) were used to refund a portion of 2006 Election Series A and a portion of 2006 Election Series B General Obligation Bonds in addition to paying the costs of issuance of the refunding bonds. Economic Gain on the refunding is as follows: Prior Debt Service Payments Remaining $ 63,288,238 New Debt Service Payments (55,393,022) Savings in Total Debt Service Payments 7,895,216 Discount to Present Value at issue date ( %) (1,068,339) Economic Gain (Present Value of Savings) $ 6,826,877 46

144 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 M. Joint Ventures (Joint Powers Agreements) The District participates in one joint powers agreement (JPA) entity, the San Diego County Schools Risk Management (SDCSRM). The relationship between the District and the JPA is such that the JPA is not a component unit of the District. The JPA arranges for and provides for various types of insurances for its member districts as requested. The JPA is governed by a board consisting of a representative from each member district. The board controls the operations of the JPA, including selection of management and approval of operating budgets, independent of any influence by the member districts beyond their representation on the board. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in the JPA. Combined condensed unaudited financial information for the year ended June 30, 2016 is as follows: Workers Property & Miscellaneous Combined Compensation Liability Property SDCSRM Fund Fund Fund Total Total Assets $ 2,325,892 $ 349 $ 41,738 $ 2,367,979 Total Liabilities 2,241, , ,424,032 Total Fund Balance $ 84,413 $ (181,997) $ 41,531 $ (56,053) Total Cash Receipts $ 1,303,822 $ 427,548 $ 44,151 $ 1,775,521 Total Cash Disbursements 1,229, ,011 33,067 1,614,229 Net Change in Fund Balance $ 74,671 $ 75,537 $ 11,084 $ 161,292 The district has a deficit ending fund balances in one fund within the SDCSRM. The district is working with the JPA to establish a plan to repay the deficit. As of June 30, 2016 a repayment plan is not yet in place. N. Pension Plans 1. General Information About the Pension Plans a. Plan Descriptions Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). Benefit provisions under the Plans are established by State statute and Local Government resolution. Support by the State for the CalSTRS plan is such that the plan has a special funding situation as defined by GASB Statement No. 68. CalSTRS and CalPERS issue publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on their respective websites. b. Benefits Paid CalSTRS and CalPERS provide service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 62 for normal benefits or at age 55 with statutorily reduced benefits. Employees hired prior to January 1, 2013 are eligible to retire at age 60 for normal benefits or at age 55 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. All members are eligible for death benefits after one year of total service. 47

145 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 The Plans' provisions and benefits in effect at June 30, 2016 are summarized as follows: CalSTRS Before On or After Hire Date Jan. 1, 2013 Jan. 1, 2013 Benefit Formula 2% at 60 2% at 62 Benefit Vesting Schedule 5 Years 5 Years Benefit Payments Monthly for Life Monthly for Life Retirement Age Monthly benefits, as a % of eligible compensation % %* Required employee contribution rates (at June 30, 2015) 8.150% 8.150% Required employer contribution rates (at June 30, 2015) 8.880% 8.880% Required state contribution rates (at June 30, 2015) 5.679% 5.679% Required employee contribution rates (at June 30, 2016) 9.200% 8.56%** Required employer contribution rates (at June 30, 2016) 10.73% 10.73% Required state contribution rates (at June 30, 2016) 7.126% 7.126% *Amounts are limited to 120% of Social Security Wage Base. **The rate imposed on CalSTRS 2% at 62 members is based on the normal cost of benefits. CalPERS Before On or After Hire Date Jan. 1, 2013 Jan. 1, 2013 Benefit Formula 2% at 55 2% at 62 Benefit Vesting Schedule 5 Years 5 Years Benefit Payments Monthly for Life Monthly for Life Retirement Age Monthly benefits, as a % of eligible compensation % % Required employee contribution rates (at June 30, 2015) 7.00% 6.00% Required employer contribution rates (at June 30, 2015) % % Required employee contribution rates (at June 30, 2016) 7.00% 6.00% Required employer contribution rates (at June 30, 2016) % % *Amounts are limited to 120% of Social Security Wage Base. c. Contributions - CalPERS Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The CalPERS Board retains the authority to amend contribution rates. The total plan contributions are determined through CalPERS' annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2015 (measurement date), the average active employee contribution rate is 6.974% of annual pay, and the employer's contribution rate is % of annual payroll. For the fiscal year ending June 30, 2016, the average active employee contribution rate is 6.974%, and the employer's contribution rate is %. 48

146 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 d. Contributions - CalSTRS For the measurement period ended June 30, 2015 (measurement date), Section of the California Education code requires members to contribute monthly to the system 8.15% of the creditable compensation upon which members' contributions under this part are based. In addition the employer required rates established by the CalSTRS Board have been established at 8.88% of creditable compensation. Rates are defined in Section through measurement period ending June 30, Beginning in the fiscal year and for each fiscal year thereafter, the CalSTRS Board has the authority to increase or decrease percentages paid specific to reflect the contribution required to eliminate by June 30, 2046, the remaining unfunded actuarial obligation with respect to service credited to members before July 1, 2014, as determined by the Board based upon a recommendation from its actuary. For the fiscal year ended June 30, 2016 required employee rate is 9.20% if the employee started before January 1, 2013 and 8.56% if the employee started on or after January 1, For the fiscal year ended June 30, 2016 the required employer contribution rate is %. e. On Behalf Payments Consistent with Section of the California Education Code, the State of California makes contributions to CalSTRS on behalf of employees working for the District. For the measurement period ended June 30, 2015 (measurement date) the State contributed % of salaries creditable to CalSTRS. For the fiscal year ended June 30, 2016 the State contribution rate was 7.126% of salaries creditable to CalSTRS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budgeted amounts reported in the General Fund Budgetary Comparison Schedule. f. Contributions Recognized For the year ended June 30, 2016, the contributions recognized as part of pension expense for each Plan were as follows: CalSTRS CalPERS Total Contributions - Employer $ 3,908,910 $ 1,413,885 $ 5,322,795 Contributions - Employee 3,701, ,762 4,551,902 Contributions - State On Behalf Payments 2,142,795-2,142,795 Total Contributions $ 9,752,845 $ 2,264,647 $ 12,017,492 g. Pension Expense CalSTRS CalPERS Total Change in Net Pension Liability 12,395,503 3,547,044 15,942,547 Increases/(Decreases) Resulting from Changes in Deferred Outflows and Deferred Inflows of Resources for: Contributions made subsequent to measurement date (1,177,514) (93,927) (1,271,441) Difference between actual and expected experience (12,496) (978,937) (991,433) Changes in assumptions - 1,052,442 1,052,442 Changes in proportionate share (3,267,442) 89,621 (3,177,821) Net Difference between projected and actual experience 17,461 (3,677,817) (3,660,356) Total Pension Expense $ 7,955,512 (61,574) 7,893,938 49

147 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2016, the District reported net pension liabilities for its proportionate shares of the net pension liability of each plan as follows: Proportionate Share of Net Pension Liability CalSTRS $ 64,298,731 CalPERS 15,921,015 Total Net Pension Liability $ 80,219,746 The District's net pension liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2015, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2014 rolled forward to June 30, 2015 using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The District's proportionate share of the net pension liability for each Plan as of June 30, 2014 and 2015 was as follows: CalSTRS District's State's Total for Proportionate Proportionate District Share Share Employees CalPERS Proportion - June 30, % % % % Proportion - June 30, % % % % Change - Increase (Decrease) % % % % For the year ended June 30, 2016, the District recognized pension expense of $7,893,938. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Pension contributions subsequent to measurement date $ 6,594,236 $ - Differences between actual and expected experience 991,433 - Changes in assumptions - (1,052,442) Change in employer's proportion and differences between the employer's contributions and the employer's proportionate share of contributions 3,267,442 (89,621) Net difference between projected and actual earnings on plan investments 2,614,858 (3,219,038) Total $ 13,467,969 $ (4,361,101) 50

148 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 $6,594,236 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, The other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Year Ended Deferred Deferred Net Effect June 30 Outflows Inflows on Expenses 2017 $ 1,718,433 (1,356,809) 361, ,718,433 (1,356,809) 361, ,718,433 (1,356,809) 361, ,718,434 (290,674) 1,427,760 Total 6,873,733 (4,361,101) 2,512,632 a. Actuarial Assumptions The total pension liabilities in the June 30, 2014 actuarial valuations were determined using the following actuarial assumptions: b. Discount Rate CalSTRS CalPERS Valuation Date June 30, 2014 June 30, 2014 Measurement Date June 30, 2015 June 30, 2015 Actuarial Cost Method Entry Age - Normal Cost Method for both CalSTRS & CalPERS Actuarial Assumptions: Discount Rate 7.60% 7.65% Inflation 3.0% 2.75% Payroll Growth 3.75% 3.00% Projected Salary Increase 0.05%-5.6% (1) 3.20%-10.80% (1) Investment Rate of Return 7.60% (2) 7.65% (2) Mortality.013%-0.435% (3) % (3) (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation (3) Industry standard published by the Society of Actuaries The discount rate used to measure the total pension liability was % for CalSTRS and % for CalPERS. The projection of cash flows used to determine the discount rate assumed thecontributions from plan members, employers, and state contributing agencies will be made at statutory contribution rates. To determine whether the District bond rate should be used in the calculation of a discount rate for each plan, CalSTRS and CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current discount rates are adequate and the use of the District bond rate calculation is not necessary for either plan. The stress test results are presented in a detailed report that can be obtained from the CalPERS and CalSTRS websites. The CalPERS discount rate was increased from 7.50% in 2015 to correct for an adjustment to exclude administrative expenses. According to Paragraph 30 of GASB Statement No. 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The investment return assumption used in the accounting valuations is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalSTRS and CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. 51

149 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 CalSTRS and CalPERS are scheduled to review all actuarial assumptions as part of their regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February Any changes to the discount rate will require board action and proper stakeholder outreach. For these reasons, CalSTRS and CalPERS expect to continue using a discount rate net of administrative expenses for GASB 67 and GASB 68 calculations through at least the fiscal year. CalSTRS and CalPERS will continue to check the materiality of the difference in calculation until such time as they have changed their methodology. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalSTRS and CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. CalSTRS Long Term Allocation Expected Asset Class 06/30/15 Return* Global Equity 57.40% 4.50% Private Equity 10.10% 6.20% Real Estate 12.70% 4.35% Inflation Sensitive 0.80% 3.20% Fixed Income 15.70% 0.20% Absolute Return 1.50% - Liquidity 1.80% - *10 year geometric average used for long term expected real rate of return CalPERS Allocation Real Return Real Return Asset Class 06/30/15 (Years 1-10)(1) (Years 11+)(2) Global Equity 53.80% 5.25% 5.71% Global Fixed Income 17.60% 0.99% 2.43% Inflation Sensitive 5.20% 0.45% 3.36% Private Equity 9.60% 6.83% 6.95% Real Estate 10.50% 4.50% 5.13% Absolute Return 0.40% - - Plan Level 0.40% - - Liquidity 2.50% -0.55% -1.05% (1) An expected inflation of 2.5% used for this period (2) An expected inflation of 3.0% used for this period 52

150 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 c. Sensititivity to Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following represents the District's proportionate share of the net pension liability for each Plan, calculated using the discount rate for each Plan, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: CalSTRS CalPERS 1% Decrease 6.60% 6.65% Net Pension Liability $ 96,830,771 $ 25,912,779 Current Discount Rate 7.60% 7.65% Net Pension Liability $ 64,298,731 $ 15,921,015 1% Increase 8.60% 8.65% Net Pension Liability $ 36,952,369 $ 7,612,196 d. Total Pension Liability, Pension Plan Fiduciary Net Position and Net Pension Liability CalSTRS Increase (Decrease) Total Plan Net State's Share District's Share Pension Fiduciary Pension of Net Pension of Net Pension Liability Net Position Liability Liability Liability (a) (b) (a) - (b) (c) (a) - (b) - (c) Balance at June 30, 2015 (Previously Reported) $ 361,130,556 $ 276,347,893 $ 84,782,663 $ 33,202,747 $ 51,579,916 Adjustment for CalSTRS Audit Adjustments - (238,769) 238,769 (84,543) 323,312 Balance at June 30, 2015 (As Adjusted) 361,130, ,109,124 85,021,432 33,118,204 51,903,228 Changes for the year: Change in proportionate share 5,944,946 4,549,249 1,395,697 (2,688,608) 4,084,305 Service cost 8,193,582-8,193,582 2,901,194 5,292,388 Interest 27,365,031-27,365,031 9,689,444 17,675,587 Differences between expected and actual experience (1,934,842) - (1,934,842) (685,091) (1,249,751) Contributions: Employer - 3,908,910 (3,908,910) (1,398,283) (2,510,627) Employee - 3,701,140 (3,701,140) (1,310,504) (2,390,636) State On Behalf - 2,142,795 (2,142,795) (744,512) (1,398,283) Net investment income - 11,225,096 (11,225,096) (3,974,596) (7,250,500) Other income - 5,803 (5,803) (2,055) (3,748) Benefit payments, including refunds of employee contributions (18,529,347) (18,529,347) Administrative expenses - (227,224) 227,224 80, ,768 Net Changes 21,039,370 6,776,422 14,262,948 1,867,445 12,395,503 Balance at June 30, 2016 $ 382,169,926 $ 282,885,546 $ 99,284,380 $ 34,985,649 $ 64,298,731 53

151 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 CalPERS Increase (Decrease) Total Plan Net Pension Fiduciary Pension Liability Net Position Liability (a) (b) (a) - (b) Balance at June 30, 2015 (Previously Reported) $ 74,438,051 $ 62,064,080 $ 12,373,971 Changes for the year: Adjustment for Change in Proportionate Share (673,910) (561,884) (112,026) Service cost 1,755,182-1,755,182 Interest 5,565,318-5,565,318 Differences between expected and actual experience 1,223,671-1,223,671 Changes in assumptions (1,315,553) - (1,315,553) Contributions - Employer - 1,413,885 (1,413,885) Contributions - Employee - 850,762 (850,762) Net plan to plan resource movement - (140) 140 Net investment income - 1,374,303 (1,374,303) Benefit payments, including refunds of employee contributions (3,601,195) (3,601,195) - Administrative expenses - (69,262) 69,262 Net Changes 2,953,513 (593,531) 3,547,044 Balance at June 30, 2016 $ 77,391,564 $ 61,470,549 $ 15,921,015 Detailed information about each pension plan's fiduciary net position is available in the separately issued CalSTRS and CalPERS financial reports. O. Postemployment Benefits Other Than Pension Benefits Plan Description The Carlsbad Unified School District (District) administers a single-employer healthcare plan (Plan). The plan provides medical benefits to eligible retirees and their eligible dependents to age 65. Eligibility for retiree health benefits requires retirement from the District with at least 10 years of eligible service (15 years for Classified employees and for Certificated employees hired on or after November 1, 2008). The retirees are required to contribute to the cost of the health care coverage based on an active employee contribution schedule. Membership of the plan consists of approximately 905 eligible active employees and 83 eligible retirees. Contribution Information The contribution requirements of Plan members and the District are established and amended by the District and the Teachers Association (CEA) and the local California Service Employees Association (CSEA). The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $774,854 to the Plan, all of which was used for current premiums. 54

152 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Annual OPEB Cost and Net OPEB Obligation The District's annual other post employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed thirty years. The following table shows the components of the Districts annual OPEB cost of the year, the amount actually contributed to the plan and changes in the District's net obligation to the Plan: Annual required contribution $ 3,581,869 Interest on net OPEB obligation 75,890 Adjustment to annual required contribution (908,924) Annual OPEB cost (expense) 2,748,835 Contribution made (774,854) Increase in net OPEB obligation 1,973,981 Net OPEB obligation, beginning of year 13,175,288 Net OPEB obligation, end of year $ 15,149,269 The annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for 2014, 2015 and 2016 was as follows: Funding Status and Funding Progress Year Ended Annual OPEB Percentage Net OPEB June 30, Cost Contributed Obligation 2014 $ 2,650, % $ 11,697, ,822, % 13,175, ,748, % 15,149,269 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the Plan as understood by the employer and the Plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and Plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2014 actuarial valuation, the actuarial cost method used was Projected Unit Credit with service prorate. Under this method, the Actuarial Accrued Liability is the present value of projected benefits multiplied by the ratio of benefit service as of the valuation date to the projected benefit service at retirement, termination, disability or death. The Normal Cost for a plan year is the expected increase in the Accrued Liability during the plan year. All employees eligible as of the measurement date in accordance with the provisions of the Plan listed in the data provided by the Employer were included in the valuation. 55

153 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Medical cost trend rates ranged from an initial rate of 8.0% reduced to a rate of 5.0% after ten years. The UAAL is being amortized at a level dollar method with the remaining amortization period at July 1, 2014 of 24 years. The actuarial value of assets was not determined in this actuarial valuation; however, any assets of the plan to be determined will be on a market basis. P. Deferred Outflows of Resources In 2009 the District issued refunding certificates of participation (COPs) to repay the 1997 COPs, 2000 COPs, and 2001 COPs. The refunding resulted in a loss on refunding of $1,416,476 which is recorded as a deferred outflow of resources and amortized over 32 years (the life of the COPs). In 2014 the District issued refunding bonds as a partial refunding of 2006 Series A General Obligation Bonds. The refunding resulted in a loss on refunding of $2,002,998 which is recorded as a deferred outflow of resources and amortized over 14 years (the life of the bonds). In 2016 the District issued refunding bonds as a partial refunding of 2006 Series A General Obligation Bonds and 2006 Series B General Obligation Bonds. The refunding resulted in a loss on refunding of $4,179,757 which is recorded as a deferred outflow of resources and amortized over the life of the bonds. GASB Statement No. 68 requires certain items related to net pension liability be recorded as deferred outflows of resources and amortized over five years. Further detail on the items accumulated as pension related deferred outflows of resources is avaialbe in the pension note disclosure. GASB Statement No. 71 requires that contributions ot pension plans subsequent to the measurement date be recorded as deferred outflows of resources. Pension related deferred outflows of resources as of year end are representative of contributions made after the measurement date. A summary of the deferred outflow of resources as of June 30, 2016 is as follows: Amortization Beginning Current Year Current Year Ending Description Term Balance Additions Amortization Balance 2009 Loss on Refunding COPs 32 Years $ 1,195,151 $ - $ 44,265 $ 1,150, Loss on Refunding Bonds 14 Years 1,859, ,071 1,716, Loss on Refunding Bonds 17 Years - 4,179,757-4,179,757 Pension Related Varies 5,322,795 15,186,402 7,041,228 13,467,969 Total Deferred Outflows of Resources $ 8,377,873 $ 19,366,159 $ 7,228,564 $ 20,515,468 Future amortization of deferred outflows of resources is as follows Year Ending Refunding Refunding Refunding Pension June 30 Loss Loss Loss Related Total 2017 $ 44,265 $ 143,071 $ 343,513 $ 8,312,669 $ 8,843, , , ,518 1,718,433 2,249, , , ,518 1,718,433 2,249, , , ,518 1,718,434 2,249, , , , , , ,355 1,717,590-2,654, , , ,894-1,118, , , , , , , ,261 Total $ 1,150,886 $ 1,716,856 $ 4,179,757 $ 13,467,969 $ 20,515,468 56

154 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Q. Deferred Inflows of Resources GASB Statement No. 68 requires that the net difference between projected and actual earnings on pension plan investments be recorded as a deferred outflow or deferred inflow of resources and amortized over four years. For the year ended June 30, 2016 amounts recorded as deferred inflows of resources are pension related. Amortization is detailed in note N. R. Adjustment to Beginning Net Position With the implementation of GASB Statement No 68 & 71 the District relied upon information provided by CalSTRS and CalPERS in order to calculate their proportion of the net pension liability, deferred outflows of resources - pension related, and deferred inflows of resources - pension related. Proportionate share was determined based on the calculated proportionate share provided by CalSTRS and CalPERS. During the current year the district calculated proportionate share by taking contributions to the CalSTRS and CalPERS plans and dividing by plan total contributions. The result was a small change to proportionate share based on rounding variances in the proportionate share. Additionally, CalSTRS auditors made audit adjustments to CalSTRS records which affected beginning net position for the District and is also being adjusted. In addition, the District noted an error in prior year removal of capital assets that needed to be corrected in order to balance capital asset schedules. Beginning net position was adjusted as follows: Net Position, Beginning (As Originally Stated) $ 24,904,851 Adjustments for: Net Pension Liability Corrections 1,551,035 Deferred Outflows of Resources - Pension Related Corrections (6,169,249) Deferred Inflows of Resources - Pension Related Corrections 12,658,365 Net Position, Beginning (As Restated) $ 32,945,002 S. Commitments and Contingencies Litigation The District is involved in various litigation. In the opinion of management and legal counsel, the disposition of all litigation pending will not have a material effect on the financial statements. State and Federal Allowances, Awards, and Grants The District has received state and federal funds for specific purposes that are subject to view and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material. 57

155 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 T. 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 has one self-insurance fund (Internal Service Fund) to account for and finance its uninsured risks of loss. The Internal Service Fund provides dental and vision coverage to employees. All funds of the District participate in the program, but only the General Fund makes payments to the Self Insurance Fund based on actuarial estimates of the amounts needed to pay prior and current year claims and to establish a liability for open claims and Incurred But Not Reported (IBNR) claims. The claims and liability of $164,208 is included in the liabilities under accounts payable and is reported in accordance with Financial Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated at the end of the fiscal year. Changes in the Internal Service Fund's claim liability in the fiscal year ended June 30, 2016 are indicated below: Current Year Beginning Claims and Ending Fiscal Year Changes in Claim Fiscal Year Internal Service Fund: Liability Estimates Payments Liability U. Subsequent Events Year $ 140,710 $ 1,115,971 $ 1,092,473 $ 164,208 New Accounting Pronouncements GASB Statement No. 74 In June 2015, the Governmental Accounting Standards Board (GASB) issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. The District has adopted the provisions of GASB Statement No. 74 effective for the fiscal year. 58

156 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 GASB Statement No. 77 In August 2015, the Governmental Accounting Standards Board issued Statement No. 77, Tax Abatement Disclosures. Financial statements prepared by state and local governments in conformity with generally accepted accounting principles provide citizens and taxpayers, legislative and oversight bodies, municipal bond analysts, and others with information they need to evaluate the financial health of governments, make decisions, and assess accountability. This information is intended, among other things, to assist these users of financial statements in assessing (1) whether a government s current-year revenues were sufficient to pay for current-year services (known as interperiod equity), (2) whether a government complied with finance-related legal and contractual obligations, (3) where a government's financial resources come from and how it uses them, and (4) a government s financial position and economic condition and how they have changed over time. Financial statement users need information about certain limitations on a government s ability to raise resources. This includes limitations on revenue-raising capacity resulting from government programs that use tax abatements to induce behavior by individuals and entities that is beneficial to the government or its citizens. Tax abatements are widely used by state and local governments, particularly to encourage economic development. For financial reporting purposes, this Statement defines a tax abatement as resulting from an agreement between a government and an individual or entity in which the government promises to forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic development or otherwise benefits the government or its citizens. Although many governments offer tax abatements and provide information to the public about them, they do not always provide the information necessary to assess how tax abatements affect their financial position and results of operations, including their ability to raise resources in the future. This Statement requires disclosure of tax abatement information about (1) a reporting government s own tax abatement agreements and (2) those that are entered into by other governments and that reduce the reporting government's tax revenues. This Statement requires governments that enter into tax abatement agreements to disclose the about the agreements: following information Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients. The gross dollar amount of taxes abated during the period. Commitments made by a government, other than to abate taxes, as a part of a tax abatement agreement. Governments should organize those disclosures by major tax abatement program and may disclose individual tax abatement agreements within those programs. information for Tax abatement agreements of other governments should be organized by the government that entered into the tax abatement agreement and the specific tax being abated. Governments may disclose information for individual tax abatement agreements of other governments within the specific tax being abated. For those tax abatement agreements, a reporting government should disclose: The names of the governments that entered into the agreements The specific taxes being abated The gross dollar amount of taxes abated during the period The District has adopted the provisions of GASB Statement No. 77 effective for the fiscal year. 59

157 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 GASB Statement No. 78 In December 2015 the Governmental Accounting Standards Board (GASB) issued Statement No. 78 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. Prior to the issuance of this Statement, the requirements of Statement 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. This Statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The District has adopted the provisions of GASB Statement No. 78 effective for the fiscal year. GASB Statement No. 79 In December 2015 the Governmental Accounting Standards Board (GASB) issued Statement No. 79 Certain External Investment Pools and Pool Participants This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from meaqsuring all of its investments at amortized cost for financial reporting purposes. Professional judgment is required to determine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant. If an external investment pool does not meet the criteria established by this Statement, that pool should apply the provisions in paragraph 16 of Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, as amended. If an external investment pool meets the criteria in this Statement and measures all of its investments at amortized cost, the pool s participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this Statement, the pool s participants should measure their investments in that pool at fair value, as provided in paragraph 11 of Statement 31, as amended. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. The District has adopted the provisions of GASB Statement No. 79 effective for the fiscal year. 60

158 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 GASB Statement No. 80 In January 2016 the Governmental Accounting Standards Board (GASB) issued Statement No. 80 Blending Requirements for Certain Component Units an amendment of GASB Statement No. 14. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. The District has adopted the provisions of GASB Statement No. 80 effective for the fiscal year. 61

159 Required Supplementary Information Required supplementary information includes financial information and disclosures required by the Governmental Accounting Standards Board but not considered a part of the basic financial statements.

160 CARLSBAD UNIFIED SCHOOL DISTRICT EXHIBIT B-1 GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2016 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: LCFF Sources: State Apportionment or State Aid $ 8,103,660 $ 5,373,170 $ 4,954,477 $ (418,693) Education Protection Account Funds 2,119,598 2,126,746 2,127,834 1,088 Local Sources 69,618,964 72,509,829 73,077, ,813 Federal Revenue 3,128,234 3,541,595 3,461,789 (79,806) Other State Revenue 9,246,872 13,657,391 13,741,120 83,729 Other Local Revenue 6,647,450 8,588,979 8,802, ,965 Total Revenues 98,864, ,797, ,165, ,096 Expenditures: Current: Certificated Salaries 43,151,959 46,610,553 46,938,907 (328,354) Classified Salaries 12,196,683 13,391,120 13,381,099 10,021 Employee Benefits 19,795,687 23,380,739 22,827, ,757 Books And Supplies 3,589,511 5,075,911 4,415, ,582 Services And Other Operating Expenditures 11,906,740 11,608,465 11,518,835 89,630 Other Outgo 460, , ,005 (11,637) Capital Outlay 271, , ,052 (184,372) Total Expenditures 91,372, ,555, ,767, ,627 Excess (Deficiency) of Revenues Over (Under) Expenditures 7,492,353 4,241,874 5,398,597 1,156,723 Other Financing Sources (Uses): Total Other Financing Sources (Uses) Net Change in Fund Balance 7,492,353 4,241,874 5,398,597 1,156,723 Fund Balance, July 1 15,225,224 15,225,224 15,225,224 - Fund Balance, June 30 $ 22,717,577 $ 19,467,098 $ 20,623,821 $ 1,156,723 See Accompanying Notes to Required Supplementary Information 62

161 CARLSBAD UNIFIED SCHOOL DISTRICT EXHIBIT B-2 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS - OTHER POST EMPLOYMENT BENEFITS YEAR ENDED JUNE 30, 2016 Actuarial Acturial Accrued Unfunded UAAL as a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage of Valuation Assets - Entry Age (UAAL) Ratio Payroll Covered Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) 07/01/08 $ - $ 23,978,144 $ 23,978,144 - $ 54,949, % 07/01/10-21,311,881 21,311,881-54,966, % 07/01/12-22,476,207 22,476,207-43,482, % 07/01/14-26,048,296 26,048,296-46,812, % 63

162 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM LAST TEN FISCAL YEARS * EXHIBIT B-3 Fiscal Year District's proportion of the net pension liability (asset) % % N/A N/A N/A N/A N/A N/A N/A N/A District's proportionate share of the net pension liability (asset) $ 64,298,731 $ 51,903,028 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A State's proportionate share of the net pension liability (asset) associated with the District 34,985,648 33,118,203 N/A N/A N/A N/A N/A N/A N/A N/A Total $ 99,284,379 $ 85,021,231 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A District's covered-employee payroll $ 47,403,765 $ 44,019,257 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A District's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll % % N/A N/A N/A N/A N/A N/A N/A N/A Plan fiduciary net position as a percentage of the total pension liability 74.02% 76.52% N/A N/A N/A N/A N/A N/A N/A N/A * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides the information only for those years for which information is available. See accompanying notes to required supplementary information. 64

163 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM LAST TEN FISCAL YEARS * EXHIBIT B- Fiscal Year Contractually required contribution $ 5,086,424 $ 3,908,910 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A Contributions in relation to the contractually required contribution (5,086,424) (3,908,910) N/A N/A N/A N/A N/A N/A N/A N/A Contribution deficiency (excess) $ - $ - $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A District's covered-employee payroll $ 47,403,765 $ 44,019,257 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A Contributions as a percentage of covered-employee payroll 10.73% 8.88% N/A N/A N/A N/A N/A N/A N/A N/A * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides the information for those years for which information is available. See accompanying notes to required supplementary information. 6

164 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY CALIFORNIA PUBLIC EMPLOYEE'S RETIREMENT SYSTEM LAST TEN FISCAL YEARS * EXHIBIT B- Fiscal Year District's proportion of the net pension liability (asset) % % N/A N/A N/A N/A N/A N/A N/A N/A District's proportionate share of the net pension liability (asset) $ 15,921,015 $ 12,373,971 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A District's covered-employee payroll $ 12,727,374 $ 12,011,596 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A District's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll % % N/A N/A N/A N/A N/A N/A N/A N/A Plan fiduciary net position as a percentage of the total pension liability 79.43% 83.38% N/A N/A N/A N/A N/A N/A N/A N/A * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides the information only for those years for which information is available. See accompanying notes to required supplementary information.

165 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS CALIFORNIA PUBLIC EMPLOYEE'S RETIREMENT SYSTEM LAST TEN FISCAL YEARS * EXHIBIT B- Fiscal Year Contractually required contribution $ 1,507,812 $ 1,413,885 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A Contributions in relation to the contractually required contribution (1,507,812) (1,413,885) N/A N/A N/A N/A N/A N/A N/A N/A Contribution deficiency (excess) $ - $ - $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A District's covered-employee payroll $ 12,727,374 $ 12,011,596 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A Contributions as a percentage of covered-employee payroll % % N/A N/A N/A N/A N/A N/A N/A N/A * This schedule is presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compiled, this schedule provides the information for those years for which information is available. See accompanying notes to required supplementary information.

166 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2016 Excess of Expenditures Over Appropriations As of June 30, 2016, expenditures exceeded appropriations in individual budgeted funds as follows: Excess Appropriations Category Expenditures Reason for Excess Expenditures General Fund: Certificated Salaries $ 328,354 The District underestimated salary increases for certificated personnel. Other Outgo 11,637 The District underestimated costs for transfers of apportionment. Capital Outlay 184,372 The District underestimated the costs for equipment replacement. Schedule of District's Proportionate Share - California State Teachers Retirement System (CalSTRS) Benefit Changes: In 2015 & 2016 there were no changes to benefits Changes in Assumptions: In 2015 & 2016 there were no changes in assumptions Schedule of District's Contributions - California State Teachers Retirement System (CalSTRS) The total pension liability was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2014, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2014 & June 30, 2015 used the following actuarial methods and assumptions: Year Ended June 30, 2015 Year Ended June 30, 2016 Valuation Date June 30, 2014 June 30, 2015 Experience Study July 1, 2006 through June 30, 2010 July 1, 2007 through June 30, 2011 Actuarial Cost Method Entry Age Normal Entry Age Normal Investment Rate of Return 7.60% 7.60% Consumer Price Inflation 3.00% 3.00% Wage Growth (Average) 3.75% 3.75% Post Retirement Benefit Increases 2.00% Simple 2.00% Simple CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members using the RP2000 series tables adjusted to fit CalSTRS experience. RP2000 series tables are industry standarde of mortality rates published by the Society of Actuaries. See CalSTRS experience analysis published on the CalSTRS website for more information.

167 Schedule of District's Proportionate Share - California Public Employee's Retirement System (CalPERS) Benefit Changes: In 2015 & 2016 there were no changes to benefits. Changes in Assumptions: In 2015 there were no changes in assumptions. In 2016 the discount rate was changed from 7.5% to 7.65% to correct for an adjustment to exclude administrative expense. Schedule of District Contributions - California Public Employee's Retirement System (CalPERS) The total pension liability was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2014, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2014 & June 30, 2015 used the following actuarial methods and assumptions: Year Ended June 30, 2015 Year Ended June 30, 2016 Valuation Date June 30, 2014 June 30, 2015 Experience Study July 1, 1996 through June 30, 2010 July 1, 1997 through June 30, 2011 Actuarial Cost Method Entry Age Normal Entry Age Normal Investment Rate of Return 7.50% 7.65% Consumer Price Inflation 2.75% 2.75% Wage Growth (Average) 3.00% 3.00% Post Retirement Benefit Increases 2.00% Simple 2.00% % The mortality table used was developed based on CalPERS specified data. The table includes 20 years of mortality improvements using the Society of Actuaries Scale BB. For more details on this table, please refer to the experience studies available on the CalPERS website. 9

168 Combining Statements and Budget Comparisons as Supplementary Information This supplementary information includes financial statements and schedules not required by the Governmental Accounting Standards Board, nor a part of the basic financial statements, but are presented for purposes of additional analysis.

169 CARLSBAD UNIFIED SCHOOL DISTRICT COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2016 EXHIBIT C-1 Special Debt Capital Revenue Service Projects Total Fund Fund Fund Nonmajor Blended Capital Governmental Cafeteria Component Facilities Funds (See Fund Unit Fund Exhibit A-3) ASSETS: Cash in County Treasury $ 251,908 $ - $ 1,450,134 $ 1,702,042 Accounts Receivable 115,793-2, ,806 Stores Inventories 71, ,054 Prepaid Expenditures 42, ,406 Total Assets 481,161-1,452,147 1,933,308 LIABILITIES AND FUND BALANCE: Liabilities: Accounts Payable $ 71,779 $ - $ 49,588 $ 121,367 Due to Other Funds 39, ,079 Unearned Revenue 11, ,853 Total Liabilities 122,711-49, ,299 Fund Balance: Nonspendable Fund Balances: Stores Inventories 71, ,054 Prepaid Items 42, ,406 Restricted Fund Balances 244,990-1,402,559 1,647,549 Total Fund Balance 358,450-1,402,559 1,761,009 Total Liabilities and Fund Balances $ 481,161 $ - $ 1,452,147 $ 1,933,308

170 EXHIBIT C-2 CARLSBAD UNIFIED SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2016 Special Debt Capital Revenue Service Projects Total Fund Fund Fund Nonmajor Blended Capital Governmental Cafeteria Component Facilities Funds (See Fund Unit Fund Exhibit A-5) Revenues: Federal Revenue $ 1,139,811 $ - $ - $ 1,139,811 Other State Revenue 96, ,330 Other Local Revenue 1,360,032-1,137,940 2,497,972 Total Revenues 2,596,173-1,137,940 3,734,113 Expenditures: Current: Pupil Services 2,620, ,620,950 General Administration ,855 33,855 Plant Services ,344 16,344 Capital Outlay - - 1,103,141 1,103,141 Debt Service: Principal - 1,325,000-1,325,000 Interest - 2,161,191-2,161,191 Total Expenditures 2,620,950 3,486,191 1,153,340 7,260,481 Excess (Deficiency) of Revenues Over (Under) Expenditures (24,777) (3,486,191) (15,400) (3,526,368) Other Financing Sources (Uses): Transfers In - 3,486,191-3,486,191 Total Other Financing Sources (Uses) - 3,486,191-3,486,191 Net Change in Fund Balance (24,777) - (15,400) (40,177) Fund Balance, July 1 383,227-1,417,959 1,801,186 Fund Balance, June 30 $ 358,450 $ - $ 1,402,559 $ 1,761,009

171 Other Supplementary Information This section includes financial information and disclosures not required by the Governmental Accounting Standards Board and not considered a part of the basic financial statements. It may, however, include information which is required by other entities.

172 Supplementary Information Section

173 CARLSBAD UNIFIED SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2016 The Carlsbad Unified School District was established in 1921, and encompasses approximately 30 square miles and includes most of the City of Carlsbad and a small part of the City of Oceanside in San Diego County. The Carlsbad Unified School District provides a quality educational program for approximately 11,000 students in grades K-12 plus preschool. The District is currently operating nine elementary schools, three middle schools, two high schools, one continuation school, and one alternative school that includes an opportunity program, full-time independent study, and adult education. Governing Board Name Office Term and Term Expiration Veronica Williams President Four year term Expires December 2018 Claudine Jones Vice President Four year term Expires December 2018 Elisa Williamson Clerk Four year term Expires December 2016 Ray Pearson Member Four year term Expires December 2016 Kathy Rallings Member Four year term Expires December 2018 Administration Suzette Lovely, Ed.D. Superintendent Suzanne O'Connell Deputy Superintendent Administrative Services Richard Grove Assistant Superintendent Personnel Services Robert Nye, Ed.D. Assistant Superintendent Instructional Services

174 CARLSBAD UNIFIED SCHOOL DISTRICT TABLE D-1 SCHEDULE OF AVERAGE DAILY ATTENDANCE YEAR ENDED JUNE 30, 2016 Second Period Report Annual Report Original Revised Original Revised TK/K-3: Regular ADA 3, N/A 3, N/A Extended Year Special Education 4.93 N/A 4.93 N/A Nonpublic, Nonsectarian Schools 1.88 N/A 1.88 N/A Extended Year - Nonpublic 0.11 N/A 0.11 N/A TK/K-3 Totals 3, N/A 3, N/A Grades 4-6: Regular ADA 2, N/A 2, N/A Extended Year Special Education 4.77 N/A 4.77 N/A Nonpublic, Nonsectarian Schools 5.02 N/A 5.08 N/A Extended Year - Nonpublic 0.82 N/A 0.82 N/A Grades 4-6 Totals 2, N/A 2, N/A Grades 7-8: Regular ADA 1, N/A 1, N/A Extended Year Special Education 2.63 N/A 2.63 N/A Nonpublic, Nonsectarian Schools 2.93 N/A 3.22 N/A Extended Year - Nonpublic 0.53 N/A 0.53 N/A Grades 7-8 Totals 1, N/A 1, N/A Grades 9-12: Regular ADA 3, N/A 3, N/A Extended Year Special Education 7.03 N/A 7.03 N/A Nonpublic, Nonsectarian Schools 9.76 N/A 9.79 N/A Extended Year - Nonpublic 2.90 N/A 2.90 N/A Grades 9-12 Totals 3, N/A 3, N/A ADA totals 10, N/A 10, N/A Average daily attendance is a measurement of the number of pupils attending classes of the district. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs.

175 CARLSBAD UNIFIED SCHOOL DISTRICT TABLE D-2 SCHEDULE OF INSTRUCTIONAL TIME YEAR ENDED JUNE 30, 2016 Ed. Code Number Number of Days of Days Minutes Actual Traditional Multitrack Grade Level Requirement Minutes Calendar Calendar Status Transitional Kindergarten 36,000 36, Complied Kindergarten 36,000 36, Complied Grade 1 50,400 54, Complied Grade 2 50,400 54, Complied Grade 3 50,400 54, Complied Grade 4 54,000 54, Complied Grade 5 54,000 54, Complied Grade 6 54,000 58, Complied Grade 7 54,000 58, Complied Grade 8 54,000 58, Complied Grade 9 64,800 65, Complied Grade 10 64,800 65, Complied Grade 11 64,800 65, Complied Grade 12 64,800 71, Complied School districts, including basic aid districts, must maintain their instructional minutes as defined in Education Code Section This schedule is required of all districts, including basic aid districts. The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the District and whether the District complied with the provisions of Education Code Sections through The District neither met nor exceeded its target funding. 4

176 CARLSBAD UNIFIED SCHOOL DISTRICT TABLE D-3 SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS YEAR ENDED JUNE 30, 2016 Budget 2017 General Fund (Note 1) Revenues and other financial sources $ 104,596,160 $ 106,165,806 $ 89,931,145 $ 85,625,087 Expenditures, other uses and transfers out 105,057, ,767,209 91,081,020 83,989,022 Change in fund balance (deficit) (461,144) 5,398,597 (1,149,875) 1,636,065 Ending fund balance $ 20,162,677 $ 20,623,821 $ 15,225,224 $ 16,375,099 Available reserves (Note 2) $ 14,952,020 $ 14,508,567 $ 10,107,047 $ 13,374,788 Available reserves as a percentage of total outgo (Note 3) 14.2% 14.8% 11.4% 16.3% Total long-term debt $ 363,614,154 $ 375,624,977 $ 358,209,068 $ 295,854,203 Average daily attendance at P-2 10,632 10,634 10,596 10,561 This schedule discloses the district's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the district's ability to continue as a going concern for a reasonable period of time. The general fund balance has increased by $4,248,722 (25.95%) over the past two years. The fiscal year budget projects a decrease of $461,144 (2.24%). For a district of this size, the State recommends available reserves of at least 3% of total general fund expenditures, transfers out and other uses (total outgo). Total long-term debt has increased by $79,770,774 over the past two years. (Note 4) Average daily attendance has increased by 73 over the past two years. Notes: 1 Budget 2017 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all assigned fund balances, all unassigned fund balances, and all funds reserved for economic uncertainties contained within the General Fund. 3 On behalf payments of $2,835,848, $2,140,349, and $2,077,065, have been excluded from the calculation of available reserves for the fiscal years ending June 30, 2016, 2015 and As a result of implementation of GASB Statement No. 68, long term liabilities for the year ended June 30, 2015 include net pension liabilities which were not previously accounted for. As such, total long term debt for the year ended June 30, 2015 and June 30, 2016 are not comparable to previous years represented in this table.

177 CARLSBAD UNIFIED SCHOOL DISTRICT TABLE D-4 RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2016 Fund balances as reported in the District's Annual Financial and Budget Report were in agreement with fund balances as reported in the Audied Financial Statements for all funds. This schedule provides the information necessary to reconcile the fund balances of all funds and the total liabilities balance of the general long-term debt account group as reported on the SACS report to the audited financial statements. Funds that required no adjustment are not presented.

178 CARLSBAD UNIFIED SCHOOL DISTRICT TABLE D-5 SCHEDULE OF CHARTER SCHOOLS YEAR ENDED JUNE 30, 2016 No charter schools are chartered by Carlsbad Unified School District. Charter Schools None Included In Audit? N/A 77

179 CARLSBAD UNIFIED SCHOOL DISTRICT TABLE D-6 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 Federal Grantor/ Federal Pass-Through Pass-Through Grantor/ CFDA Entity Identifying Federal Program Title Number Number Expenditures U. S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Direct Programs: Medi-Cal ,360 Total Direct Programs 95,360 Total U. S. Department of Health and Human Services 95,360 U. S. DEPARTMENT OF THE INTERIOR Direct Programs: Wildlife Restoration ,391 Total U. S. Department of The Interior 4,391 U. S. DEPARTMENT OF EDUCATION Passed Through State Department of Education: Title I Part A ,163,465 Special Education Cluster: Special Education: IDEA Mental Health ,167 Special Education: IDEA Local Section ,394 Special Education: IDEA Basic ,461,330 Special Education: IDEA Preschool Local A ,261 Special Education: IDEA Preschool ,415 Special Education: IDEA Preschool Staff Development Total Special Education Cluster 1,754,494 Carl D. Perkins Career & Technical Education ,352 Title III Cluster: Title III Immigrant Education Program ,948 Title III Limited English Proficiency ,115 Total Title III Cluster 109,063 Title II Teacher Quality ,814 Total Passed Through State Department of Education 3,363,188 Total U. S. Department of Education 3,363,188 U. S. DEPARTMENT OF AGRICULTURE Passed Through State Department of Education: Child Nutrition Cluster: School Breakfast Program ,092 National School Lunch Program Section ,137 National School Lunch Meal Supplement ,879 Commodity Supplemental Food Program * ,690 National School Lunch Program Section ,687 Total Child Nutrition Cluster 1,278,485 Team Nutrition Grant Total Passed Through State Department of Education 1,278,872 Total U. S. Department of Agriculture 1,278,872 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 4,741,811 * Indicates noncash expenditures The accompanying notes are an integral part of this schedule. 78

180 CARLSBAD UNIFIED SCHOOL DISTRICT NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2016 Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of Carlsbad Unified School District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Indirect Cost Rate Indirect costs were calculated in accordance with 2 CFR Direct and Indirect Costs. The District used an indirect cost rate of 7.73% based on the rate approved by the California Department of Education for each program which did not have a pre-defined allowable indirect cost rate. The School did not elect to use the 10% de minimis cost rate as covered in 2 CFR Indirect Costs. The following programs utilized a lower indirect cost rate based on program restrictions or other factors determined by the District: Indirect Cost Program CFDA # Rate Carl D. Perkins Career & Technical Education % Title III Limited English Proficiency % Medi-Cal % School Breakfast Program % National School Lunch Section % National School Lunch Section % National School Lunch Meal Supplement % Commoditity Supplemental Food Program % Team Nutrition Grant % Schoolwide Program The District operates "schoolwide programs" at all school sites. Using federal funding, schoolwide programs are designed to upgrade an entire educational program within a school for all students, rather than limiting services to certain targeted students. The following federal program amounts were expended by the School in it's schoolwide program: Amount Program CFDA # Expended Title I $306,462 79

181 Other Independent Auditor's Reports

182 Independent Auditor's Report on Internal Control over Financial Reporting and On Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance With Government Auditing Standards Board of Trustees Carlsbad Unified School District Carlsbad, California Members of the Board of Trustees: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Carlsbad Unified School District, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Carlsbad Unified School District's basic financial statements, and have issued our report thereon dated November 30, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Carlsbad Unified School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Carlsbad Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the Carlsbad Unified School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Carlsbad Unified School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings and questioned costs as item(s)

183 Carlsbad Unified School District's Response to Findings Carlsbad Unified School District's response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Carlsbad Unified School District's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. El Cajon, California November 30,

184 Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Board of Trustees Carlsbad Unified School District Carlsbad, California Members of the Board of Trustees: Report on Compliance for Each Major Federal Program We have audited the Carlsbad Unified School District's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Carlsbad Unified School District's major federal programs for the year ended June 30, Carlsbad Unified School District's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of Carlsbad Unified School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Carlsbad Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Carlsbad Unified School District's compliance. Opinion on Each Major Federal Program In our opinion, the Carlsbad Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,

185 Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as item Our opinion on each major federal program is not modified with respect to these matters. Carlsbad Unified School District's response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Carlsbad Unified School District's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of the Carlsbad Unified School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Carlsbad Unified School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Carlsbad Unified School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we considered to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. El Cajon, California November 30,

186 Independent Auditor's Report on State Compliance Board of Trustees Carlsbad Unified School District Carlsbad, California Members of the Board of Trustees: Report on State Compliance We have audited the District's compliance with the types of compliance requirements described in the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, prescribed in Title 5, California Code of Regulations, Section that could have a direct and material effect on each of the District's state programs identified below for the fiscal year ended June 30, Management's Responsibility for State Compliance Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each applicable program as identified in the State's audit guide, Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting prescribed in Title 5, California Code of Regulations, Section We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the State's audit guide, Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, prescribed in Title 5, California Code of Regulations, Section Those standards and audit guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on the state programs noted below occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the District's compliance with those requirements. 84

187 In connection with the audit referred to above, we selected and tested transactions and records to determine the District's compliance with the state laws and regulations applicable to the following items: Compliance Requirements Procedures in Audit Guide Performed? LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS: Attendance Accounting: Attendance Reporting... Yes Teacher Certification and Misassignments... Yes Kindergarten Continuance... Yes Independent Study... No Continuation Education... No Instructional Time... Yes Instructional Materials... Yes Ratio of Administrative Employees to Teachers... Yes Classroom Teacher Salaries... Yes Early Retirement Incentive... N/A GANN Limit Calculation... Yes School Accountability Report Card... Yes Juvenile Court Schools... N/A Middle or Early College High Schools... N/A K-3 Grade Span Adjustment... Yes Transportation Maintenance of Effort... Yes SCHOOL DISTRICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS: Educator Effectiveness... California Clean Energy Jobs Act... After School Education and Safety Program: After School... Before School... General Requirements... Proper Expenditure of Education Protection Account Funds... Unduplicated Local Control Funding Formula Pupil Counts... Local Control and Accountability Plan... Independent Study-Course Based... Immunizations... CHARTER SCHOOLS: Attendance... Mode of Instruction... Nonclassroom-Based Instruction/Independent Study... Determination of Funding for Nonclassroom-Based Instruction... Annual Instructional Minutes - Classroom Based... Charter School Facility Grant Program... Yes Yes Yes N/A Yes Yes Yes Yes N/A Yes N/A N/A N/A N/A N/A N/A The term "N/A" is used above to mean either the District did not offer the program during the current fiscal year or the program applies to a different type of local education agency. We did not perform testing for Independent Study or Continuation Education because the ADA generated by these programs was below the level which required testing. 85

188 Opinion on State Compliance In our opinion, Carlsbad Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the statutory requirements listed in the schedule above for the year ended June 30, Purpose of This Report The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion of the effectiveness of the entity's internal control or on compliance outside of the items tested as noted above. This report is an integral part of an audit performed in accordance with the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting prescribed in Title 5, California Code of Regulations, Section in considering the entity's compliance. Accordingly, this communication is not suitable for any other purpose. El Cajon, California November 30,

189 Findings and Recommendations Section

190 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2016 A. Summary of Auditor's Results 1. Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: One or more material weaknesses identified? Yes X No One or more significant deficiencies identified that are not considered to be material weaknesses? Yes X None Reported Noncompliance material to financial statements noted? Yes X No 2. Federal Awards Internal control over major programs: One or more material weaknesses identified? Yes X No One or more significant deficiencies identified that are not considered to be material weaknesses? Yes X None Reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200? X Yes No Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster Title I , Special Education Cluster Title II Teacher Quality Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes X No 3. State Awards Any audit findings disclosed that are required to be reported in accordance with the state's Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting? Yes X No Type of auditor's report issued on compliance for state programs: Unmodified 87

191 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2016 B. Financial Statement Findings None C. Federal Award Findings and Questioned Costs Finding (50000) Special Tests & Provisions School Wide Plan Federal Program Information Title I, Grant Federal Grantor U.S. Department of Education Pass-Through Grantor California Department of Education Criteria or Specific Requirement Verify that the schoolwide plan included the required core elements and components as identified in the Code of Federal Regulations (CFR) 34 Sections and Condition In our review of schoolwide plans we noted that one of the five required components were not present in the plans. The plans were missing component 5, transition plans for assisting preschool children in the successful transition to the school wide program. Questioned Costs Program expenditures under the program were: Questioned CFDA # Program Costs Title I $ 196,737 Context To operate a schoolwide program, a school must include in their plan the following three core elements: 1. Comprehensive needs assessment of the entire school (34 CFR section (a)). 2. Comprehensive plan based on data from the needs assessment (34 CFR section (b)). 3. Annual evaluation of the results achieved by the schoolwide program and revision of the schoolwide plan based on that evaluation (34 CFR section (c)). 88

192 CARLSBAD UNIFIED SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2016 A schoolwide plan must also include the following five components: 1. Schoolwide reform strategies (34 CFR section (a)). 2. Instruction by highly qualified professional staff (34 CFR section (b)). 3. Strategies to increase parental involvement (34 CFR section (c)). 4. Additional support to students experiencing difficulty (34 CFR section (d)). 5. Transition plans for assisting preschool children in the successful transition to the schoolwide program (34 CFR (e)). The district has 3 schoolwide programs of which 1 school operates a kindergarten program. We reviewed the schoolwide plan for all 3 schools. This finding is not a repeat finding. Cause The District misunderstood the requirement outlined in 34 CFR (e) and did not include this section because the District does not operate a pre-school program. Effect 1 out of 5 required components were not included in the schoolwide plans. Recommendation Provide training to school site councils and school site personnel as to the requirements for schoolwide plans. Work with the school site councils to ensure all required core elements and components are included in the schoolwide plans. Establish the transition plans for assisting preschool children in the successful transition to the schoolwide program. LEA's Response The District currently has a comprehensive transition program for assisting preschool children and their families as they matriculate into District Kindergarten programs. Additionally, the District has an extensive training program for school site councils and site personnel regarding the requirements and development of schoolwide plans. While the Districtwide transition plan has always appeared on each school's website, we now recognize that it must always be included in the Site Schoolwide Plans (even if the site does not have a preschool feeder program). This component has been added to the existing training protocol for all site personnel and school site councils as part of the annual plan development. Our internal audit process has now been update to include this component as part of the yearly review process prior to submittal. D. State Award Findings and Questioned Costs None 89

193 CARLSBAD UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2016 Management's Explanation Finding/Recommendation Current Status If Not Implemented Finding (30000) Associated Student Body Deposits In our review of Associated Student Body (ASB) deposits at Valley Middle School we noted that three out of ten deposits tested did not contain documentation sufficient to support the amount of revenue collected. Two of the deposits in question were counted by and signed off by one individual and one deposit was missing a ticket reconciliation. We recommended that any individual filling a position that involves cash handling and deposits, such as substitutes for an ASB Clerk, be provided with a training on the Districts policies and procedures for deposits. In addition, we recommend that the district implement a review process to ensure policies and procedures are being followed. Implemented Finding (10000) Attendance Reporting During our testing of attendance at Jefferson Elementary School for school month seven, we noted that attendance records from the on-line system were not being printed out within one week of the attendance being taken. As such teacher verifications were not happening within one week of the attendance week. Establish procedures to ensure that all teachers at all sites are providing attendance verification reports weekly. Provide training to attendance staff and teacher to ensure they understand the district's approved attendance procedures. Implemented 90

194 CARLSBAD UNIFIED SCHOOL DISTRICT CORRECTIVE ACTION PLAN FOR THE YEAR ENDED JUNE 30, 2016 Fiscal Finding Year Number Finding and Corrective Action Plan Finding: Schoolwide plan for Jefferson Elementary School did not include component 5, plan for transition from a preschool program into kindergarten in the schoolwide program. Questioned CFDA # Amount Costs: $196,732 Status: Corrective Action: In Progress The District has updated training protocol for all site personnel and school site councils as part of the annual plan development. In Addition, the District has updated internal audit procedures to include this component as part of the yearly review process prior to submittal. Completion Date: November 29,

195 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Carlsbad Unified School District (the District ) in connection with the issuance of (i) $49,990,000 of the District s 2017 General Obligation Refunding Bonds, Series A (2024 Crossover) and (ii) $10,100,000 of the District s 2017 General Obligation Refunding Bonds, Series B (collectively, the Bonds ). The Bonds are being issued pursuant to a resolution of the Board of Trustees of the District adopted on October 18, 2017 (the Resolution ). The District covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Dissemination Agent shall mean initially Wildan Financial Services, or any successor Dissemination Agent designated in writing by the District (which may be the District) and which has filed with the District a written acceptance of such designation. Holders shall mean registered owners of the Bonds. Listed Events shall mean any of the events listed in Section 5(a) or 5(b) of this Disclosure Certificate. Official Statement shall mean the Official Statement dated as of November 8, 2017 and relating to the Bonds. Participating Underwriter shall mean the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean the Municipal Securities Rulemaking Board, which can be found at or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State shall mean the State of California. C-1

196 SECTION 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District s fiscal year (presently ending June 30), commencing with the report for the Fiscal Year, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). (b) Not later than 30 days (nor more than 60 days) prior to said date the Dissemination Agent shall give notice to the District that the Annual Report shall be required to be filed in accordance with the terms of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the District shall provide the Annual Report in a format suitable for reporting to the Repository to the Dissemination Agent (if other than the District). If the District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the District shall send a notice to the Repository in substantially the form attached as Exhibit A with a copy to the Dissemination Agent. The Dissemination Agent shall not be required to file a Notice to Repository of Failure to File an Annual Report. (c) The Dissemination Agent shall file a report with the District stating it has filed the Annual Report in accordance with its obligations hereunder, stating the date it was provided to the Repository. SECTION 4. Content and Form of Annual Reports. (a) The District s Annual Report shall contain or include by reference the following: 1. The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. 2. Material financial information and operating data with respect to the District of the type included in the Official Statement in the following categories (to the extent not included in the District s audited financial statements): (a) (b) (c) (d) State funding received by the District for the last completed fiscal year; average daily attendance of the District for the last completed fiscal year; outstanding District indebtedness; summary financial information on revenues, expenditures and fund balances for the District s general fund reflecting adopted budget for the current fiscal year; C-2

197 (e) (f) assessed valuation of taxable property within the District for the then fiscal year; and secured ad valorem tax charges and delinquencies within the District, to the extent that the County is no longer on the Teeter Plan. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. (b) The Annual Report shall be filed in an electronic format accompanied by identifying information prescribed by the Municipal Securities Rulemaking Board. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5(a), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not in excess of 10 business days after the occurrence of the event: 1. principal and interest payment delinquencies. 2. tender offers. 3. defeasances. 4. rating changes. 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, or Notices of Proposed Issue (IRS Form 5701-TEB). 6. unscheduled draws on the debt service reserves reflecting financial difficulties. 7. unscheduled draws on credit enhancement reflecting financial difficulties. 8. substitution of the credit or liquidity providers or their failure to perform. 9. bankruptcy, insolvency, receivership or similar event of the District. For the purposes of the event identified in this Section 5(a)(9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the District in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. C-3

198 (b) Pursuant to the provisions of this Section 5(b), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. non-payment related defaults. 2. modifications to rights of Bondholders. 3. optional, contingent or unscheduled Bond calls. 4. unless described under Section 5(a)(5) above, material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds. 5. release, substitution or sale of property securing repayment of the Bonds. 6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms. 7. Appointment of a successor or additional trustee or paying agent with respect to the Bonds or the change of name of such a trustee or paying agent. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event under Section 5(b) hereof, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) hereof would be material under applicable federal securities laws, the District shall (i) file a notice of such occurrence with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event or (ii) provide notice of such reportable event to the Dissemination Agent in format suitable for filing with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event. The Dissemination Agent shall have no duty to independently prepare or file any report of Listed Events. The Dissemination Agent may conclusively rely on the District s determination of materiality pursuant to Section 5(c). SECTION 6. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent (or substitute Dissemination Agent) to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign upon 15 days written notice to the District. Upon such resignation, the District shall act as its own Dissemination Agent until it appoints a successor. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate and shall not be responsible to verify the accuracy, completeness or materiality of any continuing disclosure information provided by the District. The District shall compensate the Dissemination Agent for its fees and expenses hereunder as agreed by the parties. Any entity succeeding to all or substantially all of the Dissemination Agent s corporate trust C-4

199 business shall be the successor Dissemination Agent without the execution or filing of any paper or further act. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; (c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds; and (d) No duties of the Dissemination Agent hereunder shall be amended without its written consent thereto. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(a), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. C-5

200 SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The Dissemination Agent acts hereunder solely for the benefit of the District; this Disclosure Certificate shall confer no duties on the Dissemination Agent to the Participating Underwriter, the Holders and the Beneficial Owners. The District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s gross negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall have no liability for the failure to report any event or any financial information as to which the District has not provided an information report in format suitable for filing with the Repository. The Dissemination Agent shall not be required to monitor or enforce the District s duty to comply with its continuing disclosure requirements hereunder. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: December 6, 2017 CARLSBAD UNIFIED SCHOOL DISTRICT By: Authorized Officer C-6

201 EXHIBIT A NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of District: CARLSBAD UNIFIED SCHOOL DISTRICT Name of Bond Issue: 2017 General Obligation Refunding Bonds, Series A (2024 Crossover) 2017 General Obligation Refunding Bonds, Series B Date of Issuance: December 6, 2017 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate relating to the Bonds. The District anticipates that the Annual Report will be filed by Wildan Financial Services. Dated: CARLSBAD UNIFIED SCHOOL DISTRICT By [form only; no signature required] C-A-1

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203 APPENDIX D ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF CARLSBAD AND SAN DIEGO COUNTY The following information regarding economic activity within San Diego County (the County ) and City of Carlsbad ( Carlsbad ), in which the District is located is provided as background information only, to describe the general economic health of the region. General San Diego County. The County is the southernmost major metropolitan area in the State of California. The County covers 4,255 square miles, extending 70 miles along the Pacific Coast from the border with Mexico to Orange County, and inland 75 miles to Imperial County. The County was incorporated on February 18, 1850 and functions under a charter adopted in 1933, and is amended from time to time. The County is governed by a five-member Board of Supervisors elected to four-year terms in district nonpartisan elections. The Board of Supervisors appoints the Chief Administrative Officer and the County Counsel. Elected officials include the Assessor/County Clerk/Recorder, District Attorney, Sheriff and Treasurer/Tax Collector. City of Carlsbad The City of Carlsbad (the City ) is located on the coast of Southern California in San Diego County about 35 miles north of San Diego and 86 miles south of Los Angeles. It is bordered by two lagoons, Buena Vista and Batiquitos, on the north and south respectively. City limits cover approximately 42 square miles. The City, a general law city with the council-manager form of government, was incorporated July 16, A five-member City Council is elected at large for fouryear alternating terms at elections held every two years. The mayor is the presiding officer of the council and also is elected to serve a four-year term. The city manager, appointed by the council for an indeterminate term, acts as chief executive officer in carrying out council policies. Population The table below shows historical population figures for the City, the County and the State for the last 10 years. (1) As of January 1. (2) Year (1) City of Carlsbad San Diego County State of California ,452 3,032,689 36,704, ,664 3,064,436 36,966, (2) 105,328 3,095,313 37,253, ,562 3,120,688 37,536, ,970 3,153,951 37,881, ,686 3,195,215 38,238, ,323 3,231,651 38,572, ,094 3,266,192 38,915, ,866 3,286,717 39,189, ,725 3,316,192 39,523,613 As of April 1. Source: 2010: U.S. Department of Commerce, Bureau of the Census, for April , (2000 and 2010 Demographic Research Unit Benchmark): California Department of Finance for January 1. D-1

204 Income The following table summarizes per capita personal income for the County, the State and the United States for the past 10 years that data is currently available. Note: Source: PER CAPITA PERSONAL INCOME 2006 through 2015 San Diego County, the State of California, and the United States Year San Diego County State of California United States 2006 $44,150 $42,334 $38, ,912 43,692 39, ,383 44,162 41, ,269 42,224 39, ,995 43,315 40, ,374 45,820 42, ,961 48,312 44, ,938 48,471 44, ,174 50,988 46, ,298 53,741 48,112 Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S. Bureau of the Census. Estimates for 2010 through 2015 reflect county population estimates available as of March All dollar estimates are in current dollars (not adjusted for inflation). U.S. Department of Commerce, Bureau of Economic Analysis. [REMAINDER OF PAGE LEFT BLANK] D-2

205 Employment The following table summarizes the labor force, employment and unemployment figures for the years 2012 through 2016 for the City, the County, the State, and the United States. CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT 2012 through 2016 (1) City of Carlsbad, San Diego County, State of California, and the United States Year and Area Labor Force Employment (2) Unemployment (3) Rate (%) Unemployment 2012 City of Carlsbad 52,900 48,500 4, San Diego County 1,540,400 1,399, , State of California 18,523,800 16,602,700 1,921, United States 154,975, ,469,000 12,506, City of Carlsbad 53,100 49,300 3, San Diego County 1,543,200 1,422, , State of California 18,624,300 16,958,700 1,665, United States 155,389, ,929,000 11,460, City of Carlsbad 53,200 50,100 3, San Diego County 1,543,700 1,444,500 99, State of California 18,755,000 17,348,600 1,406, United States 155,922, ,305,000 9,617, City of Carlsbad 53,600 51,100 2, San Diego County 1,554,800 1,474,400 80, State of California 18,893,200 17,723,300 1,169, United States 157,130, ,834,000 8,296, City of Carlsbad 54,200 51,900 2, San Diego County 1,570,400 1,497,000 73, State of California 19,102,700 18,065,000 1,037, United States 159,187, ,436,000 7,751, Note: Data is not seasonally adjusted. (1) Annual averages, unless otherwise specified. (2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: U.S. Department of Labor Bureau of Labor Statistics, California Employment Development Department. March 2016 Benchmark. D-3

206 Industry The County is included in the San Diego-Carlsbad Metropolitan Statistical Area (the MSA ). The distribution of employment is presented in the following table for the past five years. These figures may be multi county-wide statistics and may not necessarily accurately reflect employment trends in the County. INDUSTRY EMPLOYMENT & LABOR FORCE ANNUAL AVERAGES 2012 through 2016 San Diego County (San Diego-Carlsbad Metropolitan Statistical Area) Category Total Farm 9,800 9,800 9,400 9,100 9,000 Total Nonfarm 1,284,600 1,317,700 1,346,600 1,386,800 1,422,600 Total Private 1,056,700 1,088,300 1,114,600 1,150,700 1,180,500 Goods Producing 155, , , , ,200 Mining and Logging Construction 57,000 61,000 63,900 69,900 76,100 Manufacturing 98,200 99, , , ,800 Durable Goods 75,100 75,400 77,100 79,900 80,800 Nondurable Goods 23,100 24,100 25,100 26,300 27,000 Service Providing 1,129,000 1,157,000 1,180,100 1,210,400 1,238,400 Private Service Providing 901, , , , ,300 Trade, Transportation and Utilities 208, , , , ,600 Wholesale Trade 43,500 43,900 43,700 44,000 44,800 Retail Trade 137, , , , ,400 Transportation, Warehousing and 27,300 27,200 27,000 28,400 29,400 Utilities Information 24,500 24,300 24,400 23,800 23,600 Financial Activities 69,800 70,800 69,400 71,200 73,000 Professional and Business Services 213, , , , ,000 Educational and Health Services 174, , , , ,500 Leisure and Hospitality 161, , , , ,700 Other Services 49,200 49,300 52,000 53,200 54,900 Government 227, , , , ,100 Total, All Industries 1,294,400 1,327,500 1,355,900 1,395,900 1,431,600 Note: The Total, All Industries data is not directly comparable to the employment data found herein. Source: State of California, Employment Development Department, Labor Market Information Division, Average Labor Force and Industry Employment. March 2016 Benchmark. [REMAINDER OF PAGE LEFT BLANK] D-4

207 Largest Employers The following tables summarize the largest employers in the County and the City. LARGEST EMPLOYERS San Diego County 2016 Rank Employer Employees 1. University of California, San Diego 30, Sharp Healthcare 17, County of San Diego 17, Scripps Health 14, City of San Diego 11, Kaiser Permanente 8, UC San Diego Health 7, San Diego Community College District 5, General Atomics Aeronautical Systems Inc. 5, Rady Children s Hospital San Diego 5,129 Source: San Diego County Comprehensive Annual Financial Report for the year ending June 30, LARGEST EMPLOYERS (Manufacturing) City of Carlsbad 2016 Rank Employer Employees 1. Thermo Fisher Scientific, Inc. 1, Taylor Made Golf Company, Inc Genoptix Inc Zimmer Dental Inc Alphatec Spine, Inc Callaway Golf Company Nordson Asymtek Nortek Security and Control Titleist and Foot-Joy Worldwide Ionis Pharmaceuticals 313 Source: City of Carlsbad Comprehensive Annual Financial Report for the year ending June 30, [REMAINDER OF PAGE LEFT BLANK] D-5

208 LARGEST EMPLOYERS (Non-Manufacturing) City of Carlsbad 2016 Rank Employer Employees 1. Legoland California, Inc. 2, ViaSat, Inc. 1, Omni La Costa Resort & Spa 1, Carlsbad Unified School District Gemological Institute of America, Inc City of Carlsbad OptumRX, Inc Park Hyatt Aviara Resort Eastridge Workforce Solutions Glenbrook at Home, LLC 474 Source: City of Carlsbad Comprehensive Annual Financial Report for the year ending June 30, Commercial Activity The following tables show summaries of annual taxable sales for the City and the County from 2011 through Annual 2016 data is not yet available. TAXABLE SALES San Diego County 2011 through 2015 (Dollars in Thousands) Retail Stores Taxable Transactions Total Outlets Taxable Transactions Year Retail Permits Total Permits ,723 $31,985,292 83,971 $45,090, ,143 34,153,236 84,267 47,947, ,466 35,948,594 85,143 50,297, ,705 37,257,495 86,671 52,711, ,989, ,185,588 Note: Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that of prior years. Source: Taxable Sales in California (Sales & Use Tax), California State Board of Equalization. D-6

209 TAXABLE SALES City of Carlsbad 2011 through 2015 (Dollars in Thousands) Retail Stores Taxable Transactions Total Outlets Taxable Transactions Year Retail Permits Total Permits ,444 $1,785,316 3,915 $2,407, ,472 1,941,876 3,955 2,557, ,626 2,047,743 4,087 2,711, ,696 2,140,010 4,185 2,876, ,137, ,823,123 Note: Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that of prior years. Source: Taxable Sales in California (Sales & Use Tax), California State Board of Equalization. Building Activity The following tables show the annual building permit valuations and number of permits for new dwelling units issued from 2012 through 2016 for the City and the County. BUILDING PERMIT VALUATIONS San Diego County 2012 through 2016 (Dollars in Thousands) Valuation ($000 s) Residential $1,609,782 $2,060,249 $1,818,853 $2,447,042 $2,472,237 Non-residential 1,235,122 1,425,426 1,920,627 1,862,502 1,782,421 Total $2,844,904 $3,485,675 $3,739,480 $4,309,544 $4,254,658 New Housing Units Single Units 2,100 2,539 2,276 3,136 2,420 Multiple Units 4,319 5,803 4,327 6,869 7,680 Total 6,419 8,342 6,603 10,005 10,100 Note: Totals may not add to sum because of rounding. Source: Construction Industry Research Board. D-7

210 BUILDING PERMIT VALUATIONS City of Carlsbad 2012 through 2016 (Dollars in Thousands) Valuation (in $000s) Residential $127,935 $71,835 $102,726 $105,677 $189,782 Non-residential 61,711 60, ,546 81, ,805 Total $189,646 $132,527 $215,272 $187,173 $311,587 New Housing Units Single Units Multiple Units Total Note: Totals may not add to sum because of rounding. Source: Construction Industry Research Board. [REMAINDER OF PAGE LEFT BLANK] D-8

211 APPENDIX E SAN DIEGO COUNTY TREASURY POOL The following information concerning the San Diego County Treasury Pool (the Treasury Pool ) has been provided by the Treasurer-Tax Collector (the Treasurer ) of San Diego County (the County ), and has not been confirmed or verified by the District, the Financial Advisor or the Underwriter. The District and the Financial Advisor have not made an independent investigation of the investments in the Treasury Pool and have made no assessment of the current County investment policy. The value of the various investments in the Treasury Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the Treasurer, with the consent of the County Board of Supervisors, may change the County investment policy at any time. Therefore, there can be no assurance that the values of the various investments in the Treasury Pool will not vary significantly from the values described herein. Finally, neither the District nor the Financial Advisor make any representation as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained or incorporated hereby by reference is correct as of any time subsequent to its date. Additional information regarding the Treasury Pool may be obtained from the Treasurer at however, the information presented on such website is not incorporated herein by any reference. [REMAINDER OF PAGE LEFT BLANK] E-1

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213 COUNTY OF SAN DIEGO INVESTMENT POOL TREASURY INVESTMENT RESULTS SEPT 2017 County of San Diego Treasurer-Tax Collector 1600 Pacific Hwy, San Diego, CA

214 TABLE OF CONTENTS 03 Summary Portfolio Statistics 04 Cash Flow Analysis 05 Participant Cash Balances 06 Investment Fund Participants 07 Asset Allocation 07 Asset Credit Quality 08 Appendix 09 - Investment Policy Compliance Report 10 - Inventory With Market Value 19 - Transaction Activity Report Note: The information provided, including all charts, tables, graphs and numerical representations, are provided to readers solely as a general overview of the economic and market conditions which the Treasurer utilizes in making investment decisions. 2

215 SUMMARY PORTFOLIO STATISTICS County of San Diego Pooled Money Fund As of September 30, 2017 % of Market Accrued Unrealized Par Value Book Value Market Value Portfolio Price WAM WAC YTM YTW Interest Gain/Loss Asset Backed Securities 194,395, ,277, ,149, ,191 (128,137) Bank Deposit 36,795,416 36,795,416 36,795, ,389 0 Commercial Paper Disc 1,901,000,000 1,894,718,289 1,886,980, (7,737,609) FDIC CDs 250, , , Federal Agency - Step Up 357,077, ,011, ,758, , ,240,653 (3,253,479) Federal Agency Amer Callable 50,000,000 50,000,000 49,752, ,333 (247,750) Federal Agency Berm Callable 552,910, ,843, ,988, ,995,127 (1,855,713) Federal Agency Coupon Securities 866,000, ,521, ,498, ,572,476 (5,023,196) Federal Agency Euro Callable 560,120, ,145, ,397, ,526,643 (4,748,033) Money Market Accounts 280,000, ,000, ,000, ,232 - Negotiable CDs 1,495,900,000 1,495,903,704 1,495,900, ,356,786 (3,704) Supranational Callable 234,350, ,080, ,511, ,096,296 (1,568,736) Supranationals 494,500, ,781, ,976, ,809,678 (1,804,732) Treasury Coupon Securities 637,000, ,586, ,508, ,773,639 (3,078,619) Totals for September ,660,298,085 7,655,916,318 7,626,466, ,574,633 (29,449,708) Totals for August ,708,995,392 7,703,912,056 7,684,271, ,955,284 (19,640,978) Change From Prior Month (48,697,307) (47,995,737) (57,804,468) (0.121) ,619,350 (9,808,730) Portfolio Effective Duration 1.13 years Fiscal Year Calendar Year Monthly To Date To Date Return Annualized Return Annualized Return Annualized Book Value 0.110% 1.340% 0.330% 1.308% 0.925% 1.237% Market Value 0.111% 1.345% 0.331% 1.312% 0.928% 1.240% Note Yield to maturity (YTM) is the estimated rate of return on a bond given its purchase price, assuming all coupon payments are made on a timely basis and reinvested at this same rate of return to the maturity date. Yield to call (YTC) is the estimated rate of return on a bond given its purchase price, assuming all coupon payments are made on a timely basis and reinvested at this same rate of return to the call date. Yield to worst (YTW) is the lesser of yield to maturity or yield to call, reflecting the optionality of the bond issuer. Yields for the portfolio are aggregated based on the book value of each security. Monthly Investment Returns are reported gross of fees. Administration fees since January 2017 have averaged approximately 8 basis points per annum * All Investments held during the month of September 2017 were in compliance with the Investment Policy dated January 1,

216 CASH FLOW ANALYSIS County of San Diego Pooled Money Fund As of September 30, 2017 ($000) Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Beginning Pool Book Balance 7,703,912 7,655,916 7,612,538 8,511,189 9,961,677 9,216,234 8,799,286 CASH FLOW ITEMS INFLOWS: Investment Inflows 676, , , , , , ,000 Projected Credits/Deposits 1,024,875 1,106,689 2,037,151 3,021, , ,052 1,290,000 1,700,975 1,785,434 2,513,501 3,719,600 1,309,477 1,101,052 1,695,000 Outflows Investment Purchases 616, ,000 86, ,600 40,000 35,000 35,000 Projected Debits 1,072,871 1,150,067 1,138,500 1,570,512 1,520,920 1,238,000 1,149,000 1,688,871 1,348,067 1,224,850 1,679,112 1,560,920 1,273,000 1,184,000 Net Cash Flows (47,996) (43,378) 898,651 1,450,488 (745,443) (416,948) 141,000 MONTH END POOL BALANCE 7,655,916 7,612,538 8,511,189 9,961,677 9,216,234 8,799,286 8,940,286 PROJECTED MONTH END LIQUIDITY $ 230,000 $ 667,367 $ 1,956,018 $ 3,996,506 $ 3,745,063 $ 3,573,115 $ 4,084,115 Note: The above is not meant to be a complete Cash Flow Statement. The data represents a subset of the main cash flow items and does not include accrued interest or other adjustment items. The projected cash flows indicate sufficient liquidity to meet all scheduled expenditures for the next 6 months. 4

217 PARTICIPANT CASH BALANCES San Diego Pooled Money Fund As of September 30, 2017 ($000) FMV FMV FMV % of FMV FMV FMV % of PARTICIPANT 07/31/17 08/31/17 09/30/17 Total PARTICIPANT 07/31/17 08/31/17 09/30/17 Total COUNTY $ 737,847 $ 746,538 $ 772, % Lower Sweetwater FPD % COUNTY - SPECIAL TRUST FUNDS 2,120,858 2,050,987 2,089, % Metropolitan Transit System 6,596 6,299 8, % NON-COUNTY INVESTMENT FUNDS 175, , , % Mission Resource Conservation District % SCHOOLS - (K THRU 12) 3,609,906 3,236,661 3,021, % North County Cemetery District 1,401 1,406 1, % North County Cemetry Perpetual 1,544 1,556 1, % COMMUNITY COLLEGES North County Cemetery 997 1, % San Diego 323, , , % North County Dispatch 3,231 3,918 3, % Grossmont 103,757 79,830 80, % North County Fire 2,301 1,561 1, % Mira Costa 42,112 34, , % Otay Water District Investment 4,107 4,113 4, % Palomar 393, , , % Pine Valley FPD % Southwestern 161, , , % Pomerado Cemetery District 1,792 1,777 1, % Total Community Colleges 1,024, , , % Ramona Cemetery District % Ramona Cemetery Perpetual % SDCERA 5, % Rancho Santa Fe FPD 13,257 12,313 11, % SANCAL 8,036 8,046 8, % Rincon del Diablo Municipal Water District 3,045 3,049 3, % SANDAG 32,969 34,024 34, % San Diego Housing Commission 17,201 17,225 20, % San Diego Geographic Information Source % CITIES San Diego Law Library 3,030 3,049 3, % Chula Vista 149, , , % San Diego Local Agency Formation Comm 1,440 1,896 1, % Coronado , % San Diego Regional Training Center % Del Mar 3,083 2,590 2, % San Dieguito River 1,589 1,530 1, % Encinitas % San Marcos FPD % National City 8,101 8,112 8, % San Miguel FPD 8,036 8,684 8, % 0.11% Santa Fe Irrigation District 4,209 4,215 4, % INDEPENDENT AGENCIES Serra Cooperative Library System % Alpine FPD 1, % SDC Regional Airport Authority 153, , , % Bonita Sunnyside FPD 5,081 5,130 4, % Upper San Luis Rey Reservoir % Borrego Springs FPD 1,251 1,269 1, % Vallecitos Water District 5,169 5,177 5, % Canbrake County Water District % Valley Center FPD 3,399 3,060 2, % Deer Springs FPD 9,578 9,445 9, % Valley Cntr Cemetery % Fallbrook Public UTL % Valley Ctr Cem Perpetual % Grossmont Healthcare District 1,015 1,017 1, % Valley Ctr Water District 17,195 19,016 18, % Public Agency Self Insurance System 3,386 3,391 3, % Vista FPD 2,381 2,384 2, % Julian-Cuyamaca FPD % Total Independent Agencies 503, , , % Lake Cuyamaca Rec & Park % Lakeside Fire 5,919 5,211 5, % Pooled Money Fund Total $ 8,172,339 $ 7,684,271 $ 7,626, % Leucadia Water District 9,555 9,568 9, % 5

218 INVESTMENT FUND PARTICIPANTS 6

219 INVESTMENT FUND OVERVIEW As of September 30,

220 APPENDIX 8