PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 17, 2018 OFFICIAL STATEMENT

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1 PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 17, 2018 THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT IN A FINAL OFFICIAL STATEMENT. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities offered hereby in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction. NEW ISSUE BOOK-ENTRY FORM ONLY Ratings: Moody s: Aa1 S&P: AAA See RATINGS herein. In the opinion of Bricker & Eckler LLP, Bond Counsel, under existing law, (a) assuming continuing compliance with certain covenants and the accuracy of certain representations, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum income tax imposed on individuals; however, interest on the Bonds is included in the adjusted current earnings of corporations subject to the corporate minimum tax for tax years beginning prior to January 1, 2018, under the Internal Revenue Code of 1986, as amended (the Code ), and (b) interest on and any profit made on the sale, exchange or other disposition of the Bonds is exempt from certain taxes levied by the State of Ohio and its political subdivisions. The School District has not designated the Bonds as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. Interest on the Bonds may be subject to certain federal income taxes imposed on certain corporations, and certain taxpayers may have certain other adverse federal income tax consequences as a result of owning the Bonds. For a more complete discussion of the tax aspects, see TAX MATTERS. Dated: Date of Delivery OFFICIAL STATEMENT $220,500,000 * UPPER ARLINGTON CITY SCHOOL DISTRICT Franklin County, Ohio School Facilities Construction and Improvement Bonds, Series 2018A (General Obligation - Unlimited Tax) Voted November 7, 2017 Due: December 1, as shown on the inside cover The School Facilities Construction and Improvement Bonds, Series 2018A (the Bonds ) are voted general obligation debt of the Upper Arlington City School District, Franklin County, Ohio (the School District ), and the full faith, credit and revenue of the School District are irrevocably pledged for the prompt payment of the principal of and interest on the Bonds. (See SECURITY AND SOURCE OF PAYMENT FOR THE SCHOOL DISTRICT S GENERAL OBLIGATION DEBT. ) Terms used herein with initial capitalization where the rules of grammar would not otherwise so require and not defined have the meanings given to them under DEFINITIONS. Interest on the Bonds will be payable at the respective rates shown on the inside cover herein on June 1 and December 1 of each year beginning June 1, 2018 *, to the Bondholders of record as of the record dates described in the Bond Resolution (as defined herein). Principal of the Bonds will be payable at the designated corporate trust office of The Bank of New York Mellon Trust Company, N.A., as registrar, paying agent and transfer agent for the Bonds. The Bonds will be issuable as fully registered bonds without coupons in the denominations set forth herein. The Bonds will be issuable under a book-entry only method and registered in the name of The Depository Trust Company ( DTC ) or its nominee. There will be no physical delivery of the Bonds to the ultimate purchasers. The Underwriters have satisfied the requirements of DTC for the Bonds to be eligible for its book-entry services. (See BOOK-ENTRY ONLY SYSTEM. ) The Bonds maturing after December 1, 20 * will be subject to optional redemption prior to stated maturity, as set forth herein. The Bonds maturing on December 1, 2042 *, December 1, 2047 *, and December 1, 2055 * will be subject to mandatory sinking fund redemption prior to stated maturity as set forth herein. (See THE BONDS Redemption Provisions. ) The Bonds are offered when, as and if issued and received by the Underwriters identified herein (see UNDERWRITING ), subject to prior sale and to withdrawal or modification of the offer without notice. Certain legal matters relating to the issuance of the Bonds are subject to the approving opinion of Bricker & Eckler LLP, Bond Counsel. (See LEGAL MATTERS and TAX MATTERS. ) Certain other legal matters will be passed upon for the Underwriters by Dinsmore & Shohl LLP. H.J. Umbaugh & Associates, Certified Public Accountants, LLP has acted as Municipal Advisor to the School District in connection with the issuance of the Bonds. (See MUNICIPAL ADVISOR. ) This cover page contains certain information for general reference only. It is not a summary of the provisions of the Bonds. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. This Official Statement has been prepared by the School District in connection with the original offering for sale by it of the Bonds. It is expected that delivery of the Bonds in definitive form will be made through DTC on or about February 27, 2018 *. The date of this Official Statement is January 30, 2018 *, and the information herein speaks only as of that date. BofA Merrill Lynch Fifth Third Securities Stifel, Nicolaus & Company KeyBanc Capital Markets * Preliminary, subject to change

2 $220,500,000 * UPPER ARLINGTON CITY SCHOOL DISTRICT Franklin County, Ohio School Facilities Construction and Improvement Bonds, Series 2018A (General Obligation Unlimited Tax) Voted November 7, 2017 Principal Year * Maturing * 2018 $9,650, ,255, ,735, ,745, ,210, ,115, ,835, ,125, ,435, ,955, ,300, ,035, ,235, ,450, ,670, ,860, , ,220, ,130, ,545,000 $99,305,000 * SERIAL BONDS Interest Rate Price CUSIP 1 $25,595,000 * % TERM BONDS MATURING DECEMBER 1, 2042 *, PRICE %, CUSIP 1 $31,145,000 * % TERM BONDS MATURING DECEMBER 1, 2047 *, PRICE %, CUSIP 1 $64,455,000 * % TERM BONDS MATURING DECEMBER 1, 2055 *, PRICE %, CUSIP 1 * Preliminary, subject to change 1 Copyright 2018 CUSIP Global Services.

3 $220,500,000 * UPPER ARLINGTON CITY SCHOOL DISTRICT Franklin County, Ohio School Facilities Construction and Improvement Bonds, Series 2018A (General Obligation Unlimited Tax) Voted November 7, 2017 BOARD OF EDUCATION Carol Mohr President Stacey Royer Vice President Robin H. Comfort Member Nancy Drees Member Scott McKenzie Member SCHOOL DISTRICT ADMINISTRATION Paul W. Imhoff Superintendent Andrew L. Geistfeld Treasurer Christopher Potts Chief Operating Officer PROFESSIONAL SERVICES Merrill Lynch, Pierce, Fenner & Smith Incorporated, Stifel, Nicolaus & Company, Incorporated, Fifth Third Securities, Inc., and KeyBanc Capital Markets Inc. Underwriters Bricker & Eckler LLP Bond Counsel H.J. Umbaugh & Associates Municipal Advisor Dinsmore & Shohl LLP Underwriters Counsel The Bank of New York Mellon Trust Company, N.A. Paying Agent/Bond Registrar * Preliminary, subject to change

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5 REGARDING THIS OFFICIAL STATEMENT This Official Statement does not constitute an offering of any security other than the original offering of the School Facilities Construction and Improvement Bonds, Series 2018A (the Bonds ) of the Upper Arlington City School District, Franklin County, Ohio (the School District ) identified on the Cover. No person has been authorized by the School District to give any information or to make any representations other than those contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been given or authorized by the School District. Statements contained in this Official Statement that involve estimates, forecasts, or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as representations of facts. The information set forth herein has been obtained from the School District and other sources that are believed to be reliable for purposes of this Official Statement. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions or that they will be realized. The information and expressions of opinions herein are subject to change without notice and neither the 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 School District since the date hereof. In accordance with Section (f)(3) of the Rule, the School District may provide additional or updated financial information and/or operating data about the School District in a document or documents filed on the Municipal Securities Rulemaking Board's Electronic Municipal Market Access ( EMMA ) website, and any such documents are hereby included by specific reference through the date that the Bonds are delivered to DTC. Certain information located at websites referred to herein has been prepared by the respective entities responsible for maintaining such websites. The School District takes no responsibility for the continued accuracy of any internet address or the accuracy, completeness, or timeliness of any information posted at any such address. In the absence of an express statement to the contrary, none of such information is incorporated herein by reference. CUSIP data on the Cover has been provided by CUSIP Global Services, which is managed on behalf of the American Bankers Association ( ABA ) by S&P Global Market Intelligence, a division of S&P Global Inc. CUSIP is a registered trademark of the ABA. The CUSIP data is being provided solely for the convenience of the owners of the Bonds and only at the time of issuance of the Bonds. The School District, Bond Counsel, and the Underwriters are not responsible for the selection or use of these CUSIP numbers and make no representation with respect to such data or undertake any responsibility for its accuracy now or at any time in the future. CUSIP numbers are subject to being changed after the issuance of the Bonds as a result of subsequent actions and events. Certain information in this Official Statement is attributed to the Ohio Municipal Advisory Council ( OMAC ). OMAC compiles information from official and other sources. OMAC believes the information it compiles is accurate and reliable, but OMAC does not independently confirm or verify the information and does not guarantee its accuracy. OMAC has not reviewed this Official Statement to confirm that the information attributed to it is information provided by OMAC or for any other purpose. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. i

6 UPON ISSUANCE, THE BONDS WILL NOT BE REGISTERED BY THE SCHOOL DISTRICT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND WILL NOT BE LISTED ON ANY STOCK OR OTHER SECURITIES EXCHANGE. THE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS ANY OTHER FEDERAL, STATE, MUNICIPAL OR OTHER GOVERNMENTAL ENTITY OR AGENCY, EXCEPT THE BOARD OF EDUCATION OF THE SCHOOL DISTRICT, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT OR APPROVED THE BONDS FOR SALE. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, AND THERE SHALL NOT BE ANY SALE OF, THE BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT 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 UNDERWRITERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. General INVESTMENT CONSIDERATIONS The Bonds, like all obligations of state and local governments, are subject to changes in value due to changes in the condition of the market for tax-exempt obligations or changes in the financial position of the School District. It is possible under certain market conditions, or if the financial condition of the School District should change, that the market price of the Bonds could be adversely affected. With regard to the risk involved in a downward revision or withdrawal of one or more of the ratings on the Bonds shown on the Cover, see RATINGS. With regard to the risk involved in a loss of the exclusion from gross income for purposes of federal income taxation of interest payable on the Bonds, see TAX MATTERS. Prospective purchasers of the Bonds should consult their own tax advisors prior to any purchase of the Bonds as to the impact of the Code, upon their acquisition, holding or disposition of the Bonds. Investment Suitability of Tax-Exempt Bonds A primary test of the suitability of a tax-exempt obligation for an individual investor is a comparison of the yield the investor would have to earn on a taxable obligation to equal a tax-exempt yield in his or her income tax bracket. Individuals should consult with brokers or qualified financial or tax advisors to determine the taxable equivalent yield they could expect given their particular tax circumstances. ii

7 Prepayments of Principal The School District may prepay certain maturities of the principal of the Bonds without penalty. (See THE BONDS Redemption Provisions Optional Redemption. ) If such Bonds were to be prepaid before scheduled maturity, the investor would not receive the anticipated yield through the scheduled maturity date. In such a prepayment situation there is no guarantee that the investor could reinvest the proceeds and receive a comparable yield for the period remaining until the scheduled maturity of such Bonds. The investor, therefore, may receive a lower total return for the period beginning on the date of purchase through the scheduled date of maturity than anticipated. [Balance of Page Intentionally Left Blank] iii

8 BOND ISSUE SUMMARY The information contained in this Bond Issue Summary is qualified in its entirety by the entire Official Statement, which should be reviewed in its entirety by potential investors. Issuer: Issue: Dated Date: Interest Payment Dates: Principal Payment Dates: Redemption: Purpose: Security: Credit Ratings: Tax Matters: Upper Arlington City School District, Franklin County, Ohio $220,500,000 * School Facilities Construction and Improvement Bonds, Series 2018A Date of Delivery Interest on the Bonds will be paid each June 1 and December 1, beginning June 1, 2018 *. Serial Bonds: December 1, 2018 * through December 1, 2037 *, inclusive; Term Bonds: December 1, 2042 *, December 1, 2047 *, and December 1, 2055 *. The Bonds maturing after December 1, 20 * are subject to redemption at the option of the School District, either in whole or in part, in such order of maturity as the School District shall determine, on any date on or after December 1, 20 *, at a redemption price equal to 100% of the principal amount redeemed plus, in each case, accrued interest to the date fixed for redemption. (See THE BONDS Redemption Provisions Optional Redemption. ) The Bonds maturing on December 1, 2042 *, December 1, 2047 *, and December 1, 2055 * are subject to mandatory sinking fund redemption prior to stated maturity. (See THE BONDS Redemption Provisions Mandatory Sinking Fund Redemption. ) The Bonds are being issued for the purpose of constructing, furnishing, and equipping a new high school, with related site improvements and appurtenances thereto; constructing, furnishing, and equipping new elementary schools, with related site improvements and appurtenances thereto; renovating, repairing, improving, furnishing, equipping, and constructing improvements and additions to existing school facilities, buildings, and infrastructure; and replacing existing equipment and constructing various permanent improvements and constructing and improving various athletic facilities. (See THE BONDS Authorization and Purpose. ) The Bonds will be voted general obligations of the School District and will contain a pledge of the full faith, credit and revenue of the School District for the payment of the principal of and interest on the Bonds when due. (See SECURITY AND SOURCE OF PAYMENT FOR THE SCHOOL DISTRICT S GENERAL OBLIGATION DEBT. ) The School District has received ratings on the Bonds of Aa1 and AAA from Moody s Investors Service, Inc. ( Moody s ) and S&P Global Ratings ( S&P ), a division of S&P Global Inc., respectively. (See RATINGS. ) In the opinion of Bond Counsel, under existing law and assuming compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes, is not treated as an item of tax preference for purposes of the alternative minimum income tax imposed on individuals, however, interest on the Bonds is included in the adjusted current earnings of corporations subject to the corporate minimum tax for tax years beginning prior to January 1, 2018, under the Internal Revenue Code of 1986, as amended (the Code ), and is exempt from certain taxes imposed by the State and its political subdivisions. Interest on the Bonds may be subject to certain federal income taxes imposed on certain corporations, and certain taxpayers may have certain other adverse federal income tax consequences as a result of owning the Bonds. (See TAX MATTERS. ) * Preliminary, subject to change iv

9 Legal Opinion: Municipal Advisor: Underwriters: Underwriters Counsel: Bond Registrar and Paying Agent: Book-Entry Only System: Delivery and Payment: School District Official: Bricker & Eckler LLP H.J. Umbaugh & Associates, Certified Public Accountants, LLP Merrill Lynch, Pierce, Fenner & Smith Incorporated, Stifel, Nicolaus & Company, Incorporated, Fifth Third Securities, Inc., and KeyBanc Capital Markets Inc. Dinsmore & Shohl LLP The Bank of New York Mellon Trust Company, N.A. The Bonds are being issued as fully registered Bonds in book-entry form only and bookentry interests therein will be available for purchase in amounts of $5,000 and integral multiples thereof. Owners of book-entry interests will not receive physical delivery of bond certificates. DTC or its nominee will receive all payments with respect to the Bonds from the Bond Registrar. DTC is required by its rules and procedures to remit such payments to its participants for subsequent disbursement to owners of the book-entry interests. It is expected that delivery of the Bonds in definitive form will be made through DTC on or about February 27, 2018 *. The Bonds will be released to the Underwriters against payment in federal funds. Questions concerning the Official Statement should be directed to Andrew L. Geistfeld, Treasurer, Upper Arlington City School District, 1950 North Mallway Drive, Upper Arlington, Telephone: (614) * Preliminary, subject to change v

10 TABLE OF CONTENTS REGARDING THIS OFFICIAL STATEMENT... i INVESTMENT CONSIDERATIONS... ii General... ii Investment Suitability of Tax-Exempt Bonds... ii Prepayments of Principal... iii BOND ISSUE SUMMARY... iv TABLE OF CONTENTS... vi INTRODUCTORY STATEMENT... 1 DEFINITIONS... 2 THE BONDS... 3 Authorization and Purpose... 3 Form and Terms... 4 Redemption Provisions... 4 ESTIMATED SOURCES AND USES OF FUNDS... 6 SECURITY AND SOURCE OF PAYMENT FOR THE SCHOOL DISTRICT S GENERAL OBLIGATION DEBT... 6 Security for the Bonds... 6 School District Bankruptcy... 7 RATINGS... 7 UNDERWRITING... 8 MUNICIPAL ADVISOR... 8 LITIGATION... 9 Litigation Generally... 9 School Funding Litigation... 9 LEGAL MATTERS... 9 TAX MATTERS General Original Issue Discount Amortizable Bond Premium BOOK-ENTRY ONLY SYSTEM Revision of Book-Entry Only System Replacement Bonds TRANSCRIPT AND CLOSING DOCUMENTS CONTINUING DISCLOSURE CONCLUDING STATEMENT APPENDIX A UPPER ARLINGTON CITY SCHOOL DISTRICT... A-1 GENERAL INFORMATION... A-1 Introduction... A-1 Map of Geographic Area... A-3 School District Officials... A-4 School District Employees... A-4 Pension Obligations... A-5 School District Facilities... A-6 Enrollment... A-7 Community School... A-7 Scholarship... A-8 STEM School... A-8 Open Enrollment... A-8 Page vi

11 Advanced Standing Programs... A-8 Educational Program... A-9 State Performance Standards... A-11 Comparative Position of the School District... A-12 ECONOMY AND EMPLOYMENT... A-13 Economic Development... A-13 Labor Force Statistics... A-14 Largest Employers... A-15 SCHOOL DISTRICT PROPERTY TAX BASE... A-17 Ad Valorem Taxes and Assessed Valuation... A-17 Tax Abatements and Economic Development Incentives... A-18 Assessed Valuation... A-19 Largest Taxpayers... A-20 History of Voted Taxes... A-21 Property Tax Rates and Collections... A-21 Property Tax Rate Calculations... A-22 Ad Valorem Tax Levies... A-23 Repeal of Property Tax Levies... A-24 Total Property Tax Burden... A-24 State Reimbursement of Property Tax Revenues... A-24 OTHER SOURCES OF SCHOOL DISTRICT FUNDING... A-25 School Foundation Program... A-25 State Classroom Facilities Assistance... A-26 School District Income Tax... A-26 SCHOOL DISTRICT DEBT AND DEBT LIMITATIONS... A-26 Statutory Debt Limitations Generally... A-26 Bond Anticipation Notes... A-29 School District Debt Currently Outstanding... A-29 Debt Service Requirements... A-30 Overlapping Subdivision Indebtedness... A-31 Debt Capacity Analysis... A-32 Lease Obligations... A-33 Lease-Purchase Financings... A-33 Future Financings... A-33 FINANCES OF THE SCHOOL DISTRICT... A-33 Budgeting, Tax Levy and Appropriations Procedures... A-33 Financial Reports and Audits... A-34 Five-Year Projection... A-34 Fiscal Oversight System... A-35 General Fund Operations... A-35 General Fund Set-Aside... A-36 Investment of Funds... A-36 School District Insurance... A-37 APPENDIX B Financial Statements for the Fiscal Year Ended June 30, B-1 APPENDIX C Five-Year Projection of Operational Revenues and Expenditures... C-1 APPENDIX D Form of Approving Legal Opinion of Bricker & Eckler LLP... D-1 APPENDIX E Form of Closing Certificate... E-1 APPENDIX F Form of Continuing Disclosure Certificate... F-1 vii

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13 $220,500,000 * UPPER ARLINGTON CITY SCHOOL DISTRICT Franklin County, Ohio School Facilities Construction and Improvement Bonds, Series 2018A (General Obligation Unlimited Tax) Voted November 7, 2017 INTRODUCTORY STATEMENT This Official Statement has been prepared by the Board of Education (the Board ) of the School District in connection with the original issuance and sale by the School District of the Bonds identified on the Cover. All financial and other information presented herein has been provided by the School District from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the School District. No representation is made that past experience, as might be shown by such financial and other information, will necessarily continue or be repeated in the future. Certain statements contained in this Official Statement, including, without limitation, statements containing the words believes, anticipates, expects and words of similar import, involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the School District to be materially different from any future results, performance or achievements expressed or implied by such statements. Such factors include, among others, general economic conditions, demographic changes, and existing government regulations and changes in, or the failure to comply with, government regulations. Certain of these factors are discussed in more detail elsewhere in this Official Statement. Given these uncertainties, readers of this Official Statement and investors are cautioned not to place undue reliance on such forward-looking statements. This Official Statement should be considered in its entirety and no subject discussed should be considered less important than any other subject by reason of its location in the text. Reference should be made to laws, reports or documents referred to for more complete information regarding their contents. References herein to provisions of Ohio law (whether codified in the Ohio Revised Code or uncodified, the Ohio Constitution, or federal law) are references to such provisions as they presently exist. Provisions of Ohio law, the Ohio Constitution and federal law may in the future, and from time to time, be amended, repealed or supplemented. Additional information relating to the financial condition of the School District may be obtained by contacting Andrew L. Geistfeld, Treasurer, Upper Arlington City School District, 1950 North Mallway Drive, Upper Arlington, 43221, telephone (614) , and from the Ohio Department of Education s website: The School District makes no representation as to the accuracy of the information appearing at such website. * Preliminary, subject to change 1

14 DEFINITIONS The following capitalized terms, as used in this Official Statement and the Appendices attached hereto, have the following meanings unless otherwise indicated: Annual Report means any annual report provided by the School District referred to in this Official Statement and any appendix hereto, which Annual Reports are intended to satisfy the annual financial information requirements of the Rule and Section (b)(5)(i)(a) therein. Bankruptcy Code means Title 11 of the United States Code. Board means the Board of Education of the School District. Bond Counsel means Bricker & Eckler LLP. Bond Registrar means The Bank of New York Mellon Trust Company, N.A. Bonds means the School District s $220,500,000 * School Facilities Construction and Improvement Bonds, Series 2018A (Unlimited Tax General Obligation), dated February 27, 2018 *. City means the City of Upper Arlington, Ohio. Code means the Internal Revenue Code of 1986, as amended. County means Franklin County. County Auditor means the County Auditor of the County. County Treasurer means the County Treasurer of the County. Cover means the cover page and the inside cover of this Official Statement. Department means the State Department of Education. Fiscal Year means the 12-month period ending June 30, and reference to a particular Fiscal Year (such as Fiscal Year 2018 ) means the Fiscal Year ending on June 30 in that year. MSA or Columbus MSA means the Columbus Metropolitan Statistical Area, as defined by the United States Office of Management and Budget, including Delaware, Fairfield, Franklin, Licking, Madison, Morrow, Pickaway, and Union Counties. Municipal Advisor means H.J. Umbaugh & Associates, Certified Public Accountants, LLP. OMAC means the Ohio Municipal Advisory Council. Project means constructing, furnishing, and equipping a new high school, with related site improvements and appurtenances thereto; constructing, furnishing, and equipping new elementary schools, with related site improvements and appurtenances thereto; renovating, repairing, improving, furnishing, equipping, and constructing improvements and additions to existing school facilities, buildings, and infrastructure; and replacing existing equipment and constructing various permanent improvements and constructing and improving various athletic facilities. * Preliminary, subject to change 2

15 Revised Code means the Ohio Revised Code, as amended. Rule means Rule 15c2-12, and particularly Section (b)(5) therein, adopted by the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. School District means the Upper Arlington City School District, Franklin County, Ohio. Series 2018B Bonds means the School District s $9,500,000 School Facilities Construction and Improvement Bonds, Series 2018B, dated March 15, 2018 *. State or Ohio means the State of Ohio. State Auditor means the Auditor of the State. State Superintendent means the State Superintendent of Public Instruction. Tax Commissioner means the Tax Commissioner of the State. Treasurer means the Treasurer of the School District. Underwriters means, collectively, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Stifel, Nicolaus & Company, Incorporated, Fifth Third Securities, Inc., and KeyBanc Capital Markets Inc. Authorization and Purpose THE BONDS The Bonds are authorized by a resolution of the Board passed on December 11, 2017 (the Bond Resolution ). The electors of the School District approved the issuance of bonds in the amount of $230,000,000 at the election held on November 7, 2017, and the Bonds are issued pursuant to such voted authority. The Bonds are unlimited tax general obligation bonds issued for the purpose of constructing the Project. The Bonds are issued in conformity with Revised Code Chapter 133, and are, therefore, lawful investments for banks, savings and loan associations, credit union share guaranty corporations, trust companies, trustees, fiduciaries, insurance companies, including domestic for life and domestic not for life, trustees or other officers having charge of sinking and bond retirement or other funds of the State, subdivisions and taxing districts, the Commissioners of the Sinking Fund of the State, the Administrator of Workers Compensation, the State teachers, public employees, and school employees retirement systems, and the police and firemen s disability and pension fund, and are eligible as security for the repayment of the deposit of public moneys. Under Ohio law, the maximum maturity of the Bonds is 38 years. Issuance of the Series 2018B Bonds The School District anticipates issuing the Series 2018B Bonds for the purpose of retiring $9,500,000 * in aggregate principal amount of the School District s School Facilities Construction and Preliminary, subject to change 3

16 Improvement Notes, Series 2017, dated December 28, 2017 (the Series 2017 Notes ). It is expected that the Series 2018B Bonds will be offered for sale to investors on February 15, 2018 *. The Series 2018B Bonds are not being offered pursuant to this Official Statement. The School District reserves the right to use proceeds from the sale of the Series 2018A Bonds to retire the Series 2017 Notes in lieu of issuing the Series 2018B Bonds if market conditions warrant. Form and Terms The Bonds will be issued in fully registered form and the Bonds (as shown on the Cover) will bear interest from their dated date until maturity or earlier redemption, at the rates per annum as set forth on the Cover, payable on June 1 and December 1 of each year, commencing June 1, 2018 * and will mature on December 1 in the years as indicated on the Cover. The Bonds will be issued in denominations of $5,000 or any integral multiple thereof, provided that, so long as the Bonds shall be in book-entry form and held by a depository, each Bond will be of a single maturity, and will be numbered as determined by the Treasurer. Principal of the Bonds (as shown on the Cover) will be payable at maturity, in lawful money of the United States of America, at the designated corporate trust office of The Bank of New York Mellon Trust Company, N.A., which has been designated by the Board as the bond registrar, paying agent, and transfer agent for the Bonds (the Bond Registrar ). Interest on the Bonds will be payable to the person whose name appears as the registered holder thereof on the registration records maintained by the Bond Registrar, on the respective Record Date (15 th day next preceding an interest payment date) by check mailed to such registered holder at the address of such registered holder as it appears on the registration records. No deduction shall be made for exchange, collection, or service charges. Redemption Provisions * Mandatory Sinking Fund Redemption The Term Bonds maturing on December 1, 2042 * are subject to mandatory sinking fund redemption at a redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption, on December 1 in the years and in the respective principal amounts as follows: Principal Amount Year to be Redeemed * 2038 $4,725, ,915, ,110, ,315,000 The remaining principal amount of such Term Bonds ($5,530,000 * ) will mature at stated maturity on December 1, 2042 *. * Preliminary, subject to change 4

17 The Term Bonds maturing on December 1, 2047 * are subject to mandatory sinking fund redemption at a redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption, on December 1 in the years and in the respective principal amounts as follows: Year Principal Amount to be Redeemed * 2043 $5,750, ,980, ,220, ,470,000 The remaining principal amount of such Term Bonds ($6,725,000 * ) will mature at stated maturity on December 1, 2047 *. The Term Bonds maturing on December 1, 2055 * are subject to mandatory sinking fund redemption at a redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption, on December 1 in the years and in the respective principal amounts as follows: Principal Amount Year to be Redeemed * 2048 $6,995, ,275, ,565, ,870, ,185, ,510, ,850,000 The remaining principal amount of such Term Bonds ($9,205,000 * ) will mature at stated maturity on December 1, 2055 *. Optional Redemption The Bonds maturing after December 1, 20 are subject to redemption at the option of the School District, either in whole or in part, in such order of maturity as the School District shall determine, on any date on or after 1, 20, at a redemption price equal to 100% of the principal amount redeemed plus, in each case, accrued interest to the date fixed for redemption. When partial redemption is authorized, the Bonds or portions thereof will be selected by lot within a maturity in such manner as the Bond Registrar may determine, provided, however, that the portion of any such Bond so selected will be in the amount of $5,000 or any integral multiple thereof. The notice of the call for redemption of Bonds shall identify (a) by designation, letters, numbers or other distinguishing marks, such Bonds or portions thereof to be redeemed, (b) the redemption price to be paid, (c) the date fixed for redemption, and (d) the place or places where the amounts due upon redemption are payable. From and after the specified redemption date, interest on such Bonds (or portions thereof) called for redemption shall cease to accrue. Such notice shall be sent by first class mail to each such registered holder at the address shown in the Bond registration records at least 30 days prior to the redemption date. Failure to receive such notice or any defect therein shall not affect the validity of the proceedings for the redemption of any such Bond. 5

18 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Bonds will be applied as follows: Sources Par Value of the Bonds $220,500, * Net Original Issue Premium Total Sources $ Uses Deposit to Project Fund Costs of Issuance 1 Deposit to Bond Retirement Fund Total Uses $ Security for the Bonds SECURITY AND SOURCE OF PAYMENT FOR THE SCHOOL DISTRICT S GENERAL OBLIGATION DEBT The Bonds are voted general obligation debt of the School District, payable from the sources described herein, subject to Chapter 9 of the Bankruptcy Code and other laws affecting creditors rights. The basic security for payment of the Bonds is the requirement that the School District levy ad valorem property taxes outside the ten-mill limitation (which limitation is further described in APPENDIX A under SCHOOL DISTRICT DEBT AND DEBT LIMITATIONS ), which taxes are unlimited as to rate and amount, to the extent necessary to pay the anticipated debt service on the Bonds as the same becomes due, and to the extent that such debt service on the Bonds is not paid from other sources. Such taxes can be expended only for the purpose of paying the anticipated debt service on the Bonds (together with costs of issuing the Bonds) and since such taxes are unlimited as to rate or amount, the rate of millage actually levied in each year while the Bonds are outstanding will be such as is determined to be necessary by the County Auditor to produce the amount necessary to pay debt service on the Bonds due in that year, giving due consideration to the School District s assessed valuation and previous tax collection experience. The Bonds are also secured by a pledge of the full faith and credit of the School District. This pledge includes all of the funds of the School District, except those prohibited from use by the Ohio Constitution, State or federal law, or specifically limited to another use. (See SCHOOL DISTRICT DEBT AND DEBT LIMITATIONS Statutory Debt Limitations Generally in APPENDIX A.) In addition to the right of individual bondholders to sue upon their particular Bonds, State law authorizes the holders of not less than 10% in principal amount of the Bonds to bring mandamus or other actions to enforce all contractual or other rights of the bondholders, including the right to require the * Preliminary, subject to change 1 Includes Underwriters compensation, rating fees, Bond Registrar fees, Municipal Advisor fees, printing and distribution costs, legal fees, and other miscellaneous expenses. 6

19 School District to levy, collect and apply the taxes to pay debt service on the Bonds, and in the case of any default in payment of debt service on the Bonds, to bring an action to require the School District to account as if it were the trustee of an express trust for the bondholders or to enjoin any acts that may be unlawful or in violation of bondholder rights. School District Bankruptcy An Ohio school district may file for bankruptcy under Chapter 9 of the Bankruptcy Code if it meets certain prerequisites under both federal and State law. Section 109(c) of the Bankruptcy Code sets forth the requirements for a State political subdivision to file for bankruptcy protection. In addition to requiring the school district to be insolvent 1, the school district must be specifically authorized, in its capacity as a school district or by name, to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter. 2 With regard to State law, Revised Code Section requires that a political subdivision which desires to file bankruptcy seek and obtain permission of the Tax Commissioner. Moreover, Revised Code Section (E)(5) provides that a school district may not file for bankruptcy if it owes money to the State. The foregoing federal and State laws also permit an Ohio county to initiate Chapter 9 proceedings which, because a county collects certain revenues on behalf of a school district (particularly ad valorem property taxes), may adversely affect the financial condition of such school district. RATINGS As noted on the Cover, the School District has applied for a rating of the Bonds from Moody s Investors Service, Inc. ( Moody s ), and S&P Global Ratings ( S&P ), a division of S&P Global Inc., which have rated the Bonds Aa1 and AAA, respectively. No application for a rating has been made to any other rating agency. Each such rating reflects only the views of such rating agency. Any explanation of the significance of the rating may only be obtained from such rating agency at Moody s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, telephone (212) ; website: and S&P Global Ratings, a division of S&P Global Inc., 55 Water Street, New York, New York 10041, telephone (212) ; website: respectively. The School District furnished to the rating agencies certain information and materials, some of which may not have been included in this Official Statement, relating to the Bonds and the School District. Generally, rating agencies base their ratings on such information and materials, as well as investigation, studies and assumptions by the rating agencies. Such ratings are not recommendations to buy, sell or hold the Bonds. There can be no assurance that a rating, when assigned, will continue for any given period of time or that it will not be lowered or withdrawn entirely by a rating agency if, in the rating agency s judgment, circumstances so warrant. In addition, the School District currently expects to provide to the rating agencies (but assumes no obligation to furnish to the Underwriters or the holders of the Bonds) further information and materials that it or they may request. However, the School District does not obligate itself hereby to furnish such information and materials to the rating agencies, and the School District may 1 11 U.S.C. Section 101(32)(C) requires that in order to be insolvent a school district must not be paying its debts as they come due. 2 See 11 U.S.C. Section 109(c)(2). 7

20 issue unrated bonds and notes from time to time. Failure by the School District to furnish such information and materials, or the issuance of unrated bonds or notes, may result in the suspension or withdrawal of a rating agency s rating on the Bonds. Any lowering, suspension or withdrawal of such rating may have an adverse effect on the marketability or market price of the Bonds. UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated, as senior manager, and on behalf of itself and Stifel, Nicolaus & Company, Incorporated, Fifth Third Securities, Inc., and KeyBanc Capital Markets Inc. (collectively, the Underwriters ) has agreed, pursuant to the Bond Purchase Agreement with the School District dated January 30, 2018 * (the Purchase Agreement ), to purchase all, but not less than all, of the Bonds at a purchase price of $ (the Purchase Price ), which is equal to the par amount of the Bonds ($220,500,000.00) *, plus net original issue premium ($ ), less Underwriters discount ($ ). The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Under certain circumstances, the Underwriters and their affiliates may have certain creditor and/or other rights against School District in connection with such activities. In the various course of their various business activities, the Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of School District (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the School District. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. The obligation of the Underwriters to accept delivery of the Bonds is subject to the various conditions set forth in the Purchase Agreement. The Underwriters are obligated to purchase all of the Bonds if any of the Bonds are purchased. MUNICIPAL ADVISOR The School District has retained H.J. Umbaugh & Associates, Certified Public Accountants, LLP as municipal advisor (the Municipal Advisor ) to provide financial advice in connection with the School District s issuance of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. * Preliminary, subject to change 8

21 LITIGATION Litigation Generally To the knowledge of the appropriate officials of the School District, no litigation or administrative action or proceeding is pending or threatened restraining or enjoining, or seeking to restrain or enjoin, the issuance and delivery of the Bonds, or the levy and collection of taxes to pay the debt service on the Bonds, or contesting or questioning the proceedings and authority under which the Bonds are to be authorized and are to be issued, sold, executed or delivered, or the validity of the Bonds. A no-litigation certificate to such effect will be delivered to the Underwriters at the time of original delivery of the Bonds to the Underwriters. The School District is not a party to any legal proceedings seeking damages or injunctive relief. School Funding Litigation In 1997, the Ohio Supreme Court determined in the case of DeRolph v. State of Ohio, that Ohio s elementary and secondary public school financing system violated the Ohio Constitution. Included in the DeRolph decision was a ruling that property taxes may be used as a part of a school funding solution, but could no longer be the primary means of financing schools. In 2003, the Ohio Supreme Court effectively prohibited further judicial review of the DeRolph case and the United States Supreme Court denied the plaintiffs Petition for Writ of Certiorari, without opinion. Throughout its rulings the Ohio Supreme Court did not specifically address, and did not hold as invalid: Voted securities issues (bonds and notes previously issued and bond issues that may be placed on the ballot in the future) and the debt service levy included within such voted authority. Unvoted securities issues (bonds and notes previously issued and future bond and note issues), issued for the purpose of constructing permanent improvements or capital facilities, and the debt service levy included within such authority. Voted levies (property taxes or income taxes). The decisions did not address the current authority of school districts to levy and collect operating levies, and the decisions do not prevent school districts from approving additional levies. LEGAL MATTERS Legal matters incident to the issuance of the Bonds and about the excludability of the interest on the Bonds from gross income for federal income tax purposes (see TAX MATTERS herein) are subject to the approving opinion of Bricker & Eckler LLP, Bond Counsel to the School District. A signed copy of that opinion will be delivered to the Underwriters at the time of original delivery. Assuming no change in applicable law prior to the date of delivery of such opinion, the opinion will be substantially in the form attached hereto as APPENDIX D. The opinion will speak only as of its date, and subsequent distribution of it by recirculation of the Official Statement or otherwise shall create no implication that Bond Counsel has reviewed or expresses any opinion concerning any of the matters referred to in the opinion subsequent to the date thereof. Certain legal matters will be passed upon for the Underwriters by their counsel, Dinsmore & Shohl LLP. While Bond Counsel has participated in the preparation of portions of this Official Statement, it has not been engaged to confirm or verify, and expresses and will express no opinion as to the accuracy, 9

22 completeness or fairness of any of the statements in this Official Statement, including its appendices (other than APPENDIX D), or in any other reports, financial information, offering or disclosure documents or other information pertaining to the School District or the Bonds that may be prepared or made available by the School District or others to the holders of the Bonds or others. General TAX MATTERS In the opinion of Bricker & Eckler LLP, Bond Counsel, under existing law interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103(a) of the Code, and is not treated as an item of tax preference under Section 57 of the Code for purposes of the alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings (applicable only to tax years beginning before January 1, 2018). Further, the Bonds are not private activity bonds as defined in Section 141(a) of the Code. Interest on the Bonds, the transfer thereof, and any profit made on their sale, exchange or other disposition, are exempt from the Ohio personal income tax, the Ohio commercial activity tax, the net income base of the Ohio corporate franchise tax, and municipal, school district, and joint economic development district income taxes in Ohio. The opinion on tax matters will be based on and will assume the accuracy of certain representations and certifications made by the Board and others, and the compliance with certain covenants of the School District, to be contained in the transcript of proceedings and which are intended to evidence and assure the foregoing, including that the Bonds are and will remain obligations the interest on which is excluded from gross income for federal income tax purposes. Bond Counsel has not and will not independently verify the accuracy of such certifications and representations. The School District has not designated the Bonds as qualified tax-exempt obligations as defined in Section 265(b)(3) of the Code. The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and remain excluded from gross income for federal income tax purposes, some of which require future or continued compliance after issuance of the obligations in order for the interest to be and continue to be so excluded from the date of issuance. Noncompliance with these requirements could cause the interest on the Bonds to be included in gross income for federal income tax purposes and thus to be subject to regular federal income tax retroactively to the date of their issuance. The School District has covenanted to take such actions that may be required of it for the interest on the Bonds to be and remain excluded from gross income for federal income tax purposes, and not to take any actions which would adversely affect that exclusion. Under the Code, interest on the Bonds may be subject to a branch profits tax imposed on certain foreign corporations doing business in the United States of America and a tax imposed on excess net passive income of certain S corporations. Under the Code, the exclusion of interest from gross income for federal income tax purposes can have certain adverse federal income tax consequences on items of income or deductions for certain taxpayers, including among them financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, and those that are deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations and individuals otherwise eligible for the earned income tax credit. The applicability and extent of these or other tax consequences 10

23 will depend upon the particular tax status or other items of income and expenses of the holders of the Bonds. Bond Counsel will express no opinion and make no representation regarding such consequences. Original Issue Discount Certain of the Bonds may be sold to the public at a price of less than 100% of their face amount (the Discount Bonds ). The following information, which has not been included in the opinion of Bond Counsel, may be helpful to prospective purchasers of the Discount Bonds. Under present federal income tax law, original issue discount (i.e., the difference between the issue price, as hereinafter defined, of a Discount Bond and the stated redemption price at maturity of such Discount Bond), is treated as accruing ( accreted ) over the term of such Discount Bond. The issue price is the price at which a substantial amount of the Discount Bonds is sold to the public (excluding bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers). In general, the amount of original issue discount that is to be accreted in each accretion period will equal (a) the issue price of that Discount Bond, increased by the amount of original issue discount that has been accreted in all prior accretion periods, multiplied by (b) the initial offering yield of that Discount Bond reflected on the Cover of this Official Statement (determined on the basis of compounding at the close of each accretion period and properly adjusted for the length of the accretion period), minus, with respect to the Bonds, interest actually paid during such accretion period. For these purposes, accretion period means a six-month period (or shorter period from the date the Discount Bond was issued) which ends on a day in the calendar year corresponding to the maturity date of that Discount Bond or the date six months before such maturity date. The amount of original issue discount so accreted in a particular accretion period will be considered to accrete ratably on each day of the accretion period. Such accreted amount is used for purposes of determining the adjusted basis for federal income tax purposes of the holder of such Discount Bond but is not included in such holder s gross income for federal income tax purposes. Consequently, a purchaser who buys a Discount Bond in the initial offering at the issue price and holds such Discount Bond to its maturity would not realize any gain or loss for federal income tax purposes upon payment of the stated redemption price of that Discount Bond at maturity. Amortizable Bond Premium Certain of the Bonds may be sold at issue prices greater than the principal amount payable at maturity or earlier call date (the Premium Bonds ). The following information, which has not been included in the opinion of Bond Counsel, may be helpful to prospective purchasers of the Premium Bonds. Premium Bonds will be considered to be issuable with amortizable bond premium (the Bond Premium ). A taxpayer who acquires a Premium Bond in the initial public offering will be required to adjust his or her basis in the Premium Bond downward as a result of the amortization of the Bond Premium, pursuant to Section 1016(a)(5) of the Code. The amount of amortizable Bond Premium will be computed on the basis of the taxpayer s yield to maturity with compounding at the end of each accrual period. Rules for determining (a) the amount of amortizable Bond Premium and (b) the amount amortizable in a particular year are set forth at Section 171(b) of the Code. No income tax deduction for the amount of amortizable Bond Premium will be allowed to a holder pursuant in Section 171(a)(2) of the Code. The amortization of Bond Premium may be taken into account as a reduction in the amount of taxexempt income for purposes of determining other tax consequences of owning the Premium Bonds. A purchaser of a Premium Bond at its issue price in the initial public offering who holds that Premium Bond to maturity will realize no gain or loss upon the retirement of such Premium Bond. 11

24 PROSPECTIVE PURCHASERS OF THE DISCOUNT OR PREMIUM BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE PURCHASE, SALE, TRANSFER, REDEMPTION, PAYMENT, OR OTHER DISPOSITION OF THE DISCOUNT OR PREMIUM BONDS, INCLUDING, WITHOUT LIMITATION, MODIFICATIONS TO THE METHOD FOR ACCRETING ORIGINAL ISSUE DISCOUNT OR AMORTIZING PREMIUM FOR CERTAIN SUBSEQUENT PURCHASERS, AND INCLUDING THE EFFECT OF ANY APPLICABLE STATE OR LOCAL INCOME TAX LAWS. BOOK-ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC s book-entry only system has been obtained from DTC and the School District takes no responsibility for the completeness or accuracy thereof. The School District cannot and does not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners (each as hereinafter defined) (a) payments of interest, principal, or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation of ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its partnership 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 DTC Participants are on file with DTC. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered Bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has an S&P rating of AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual 12

25 purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 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 in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bonds. 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 Bond Registrar and request that copies of the 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 the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the School District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). All payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the School District or the Bond Registrar, 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 Bond Registrar, or the School District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment on the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the School District or the Bond Registrar, 13

26 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. DTC may discontinue providing its services as a depository with respect to the Bonds at any time by giving reasonable notice to the School District or the Bond Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed (or otherwise produced) and delivered. The School District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed (or otherwise produced) and delivered to DTC. (See also BOOK-ENTRY ONLY SYSTEM Revision of Book-Entry Only System Replacement Bonds ) The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the School District believes to be reliable, but the School District takes no responsibility for the accuracy thereof. Revision of Book-Entry Only System Replacement Bonds The Bond Resolution provides for issuance of fully registered Bonds (the Replacement Bonds ) directly to owners other than DTC or its nominee only if DTC determines not to continue to act as security depository of the Bonds. In such event, the School District may in its discretion establish a securities depository/book-entry relationship with another qualified securities depository. If the School District does not or is unable to do so, and after appropriate notice to DTC, the School District s Bond Registrar will authenticate and deliver fully registered Replacement Bonds, in the denominations of $5,000 or any multiple thereof, to or at the direction of and, if the event is not the result of School District action or inaction, at the expense (including printing costs) of, any persons requesting such issuance. Replacement Bonds may be transferred, registered and assigned only in the registration books of the School District s Bond Registrar. TRANSCRIPT AND CLOSING DOCUMENTS A complete transcript of proceedings for the Bonds, including an appropriate no-litigation certificate (described above under LITIGATION ), will be delivered by the School District when the Bonds are delivered by the School District to the Underwriters. The School District will at that time also provide to the Underwriters a certificate of the Treasurer, in the form attached hereto as APPENDIX E, addressed to the Underwriters relating to the accuracy and completeness of this Official Statement. CONTINUING DISCLOSURE The School District has agreed for the benefit of the holders and beneficial owners of the Bonds to provide annual financial and operating information in its Annual Report, not later than March 31 of each year, and to provide notices of certain significant events, as listed in the Disclosure Certificate defined below. Concurrently with the delivery of the Bonds, the School District will deliver a certificate of the Treasurer of the School District (the Disclosure Certificate ), in the form attached hereto as APPENDIX F, describing the nature of the information to be provided, the persons and entities to whom such information will be provided and the times at which such information will be provided. The School District s failure to comply with any undertaking contained in the Disclosure Certificate will not constitute an event of default under the Bonds. The Disclosure Certificate is being signed by the School District to assist the Underwriters in complying with Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission. Specifically, 14

27 the School District agrees to provide the Annual Report to the Municipal Securities Rulemaking Board (the MSRB ) in an electronic format, if required, and to provide notice of the enumerated events to the MSRB in an electronic format, if required. The School District has had two continuing disclosure undertakings (collectively, the Undertakings ) that were in effect for all or part of the previous five years. During the previous five years, the School District filed its Annual Reports with the MSRB on a timely basis as required pursuant to the Undertakings. CONCLUDING STATEMENT To the extent that any statements made in this Official Statement involve matters of opinion or estimates, whether or not expressly stated to be such, they are made as such and not as representations of fact or certainty, and no representation is made that any of such statements will be realized. Information herein has been derived by the School District from official and other sources and is believed by the School District to be reliable, but information other than that obtained from official records of the School District has not been independently confirmed or verified by the School District and its accuracy is not guaranteed. Neither this Official Statement nor any statement which may have been made orally or in writing is to be construed as or as part of a contract with the original purchasers or holders of the Bonds. This Official Statement has been duly prepared and delivered by the School District, and executed for and on behalf of the School District by the President and the Treasurer of the Board. UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO By: President, Board of Education By: Treasurer, Board of Education 15

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29 APPENDIX A UPPER ARLINGTON CITY SCHOOL DISTRICT GENERAL INFORMATION Introduction The Upper Arlington City School District (the School District ) was organized in 1918, and is located in Franklin County (the County ) in central Ohio, approximately five miles northwest of the City of Columbus, the state capital. Its boundaries include virtually all of the City of Upper Arlington (the City ) as well as small portions of the City of Columbus and Perry Township. The City is approximately 9.67 square miles, and is one of Columbus first ring suburbs. City residents have easy access to downtown Columbus and to the entire central Ohio area via State Route 315 to the east and U.S. Route 33 to the west. Interstate 670, State Route 23, Interstate 71, Interstate 70, and Interstate 270 are all easily accessible from the area s highway system. Commercial passenger air service is available at John Glenn Columbus International Airport in Columbus, while nearby Don Scott Field, The Ohio State University s airport, provides private commuter service. Both airports are located within twenty minutes of the City. The School District is an independent political subdivision of the State of Ohio and operates subject to the provisions of the Ohio Constitution and various sections of the Revised Code. Under such laws, there is no authority for the School District to have a charter or adopt local laws. The School District is not a part of, nor under the control of, the County or the City, or any other political subdivision. [Balance of Page Intentionally Left Blank] A-1

30 According to information supplied by OMAC, the School District contains portions of the assessed valuation of other subdivisions, as shown below: Overlapping Subdivisions Upper Arlington City School District Percent of Subdivision s Assessed Valuation within the School District Percent of School District s Assessed Valuation within the Subdivision Subdivision County Franklin County 6.38% % Other Political Subdivisions Columbus City 0.15% 1.30% Upper Arlington City Perry Township Solid Waste Authority of Central Ohio Misc Source: OMAC According to the U.S. Census Bureau, the estimated population of the School District in 2015 was 35,165. [Balance of Page Intentionally Left Blank] A-2

31 Map of Geographic Area Upper Arlington City School District A-3

32 School District Officials The legislative power of the School District is vested in the Board of Education (the Board ), consisting of five members elected at large for staggered four-year terms. The Board meets regularly on the second Tuesday of each month unless scheduled otherwise. At the first meeting of each year, the Board elects a president and a vice president from its membership, each to serve a one-year term. The Board employs a Superintendent who serves as the executive officer for the Board and a Treasurer who serves as the chief fiscal officer for the Board. School District Officials Upper Arlington City School District Expiration of Beginning of Official Office Current Term Tenure Carol Mohr President 12/31/2021 1/1/2014 Stacey Royer Vice President 12/31/2019 1/1/2012 Robin H. Comfort Member 12/31/2019 1/1/2008 Nancy Drees Member 12/31/2019 1/1/2012 Scott McKenzie Member 12/31/2021 1/1/2018 Paul W. Imhoff Superintendent Contract 7/1/2013 Andrew L. Geistfeld Treasurer Contract 11/14/2005 Christopher Potts COO Contract 8/1/2009 Source: School District School District Employees The School District currently has 572 licensed employees (including 342 teachers) and 320 classified employees. In Fiscal Year 2017, salaries accounted for 60.5% of the School District s operating expenditures, while fringe benefits accounted for 21.9% of the School District s operating expenditures. In the opinion of the School District s officials, labor relations are good. Licensed Staff The licensed teaching staff has been represented by the Upper Arlington Education Association (the U.A.E.A. ) in labor negotiations with the School District since The U.A.E.A. is affiliated with the Ohio Education Association and the National Education Association. In April 2015, the Board and U.A.E.A. signed a three-year agreement (with a six-month extension) effective January 1, 2015 through June 30, The agreement provided for a 0% salary increase for calendar years 2015 and 2016, and a 2% salary schedule increase effective August The licensed staff is entitled to step increases in each year of the agreement. The agreement also provided for a one-time payment of $1,000 to licensed staff in March 2015, and for licensed staff over step 18, payments of $1,500 in each of October 2015 and The School District s health insurance is considered a high deductible health plan with a health savings account component. Negotiations for a new agreement will begin in March A-4

33 Classified Staff Classified staff includes secretarial, clerical, custodial and cafeteria workers, as well as bus drivers and other non-teaching, non-administrative personnel. The classified staff is represented by Chapter 201 of the Ohio Association of Public School Employees ( O.A.P.S.E. ) in labor negotiations with the School District. In January 2017, the Board and O.A.P.S.E. signed a three-year agreement (with a six-month extension) effective January 1, 2017 through June 30, The agreement provided for salary increases of 2.5% in the 18-month period ending June 20, 2018, 2.0% in fiscal year 2019, and 1.75% in fiscal year The School District s health insurance is considered a high deductible health plan with a health savings account component. Negotiations for a new agreement are anticipated to begin in March Pension Obligations Present and retired employees of the School District are covered under two statewide public retirement (including disability retirement) systems. The State Teachers Retirement System (the STRS ) is applicable to all teachers, principals, supervisors and administrators employed by the School District who are required to hold a license issued by the Department pursuant to the Revised Code. Other eligible employees are covered by the School Employees Retirement System (the SERS ). Pursuant to federal law, all School District employees hired after March 31, 1986 are required to participate in the federal Medicare program which currently requires employee and employer contributions each equal to 1.45% of the employee s wages subject to the Federal Insurance Contribution Act ( FICA ) wage limit. Otherwise, School District employees are not presently covered under the Federal Social Security Act. STRS and SERS are not presently subject to the funding and vesting requirements of the Federal Employee Retirement Income Security Act of Both STRS and SERS were created by and operate pursuant to Ohio law. The General Assembly could determine to amend the format of either system and could revise rates or methods of contribution to be made by the School District into the pension funds and revise benefits or benefits levels. For more information on the School District s net pension liability, see the audited financial statements for Fiscal Year ended June 30, 2017, in APPENDIX B hereto. [Balance of Page Intentionally Left Blank] A-5

34 School District Facilities The School District presently operates the following school buildings: Name of Building Group/ Grades Housed School District Facilities Upper Arlington City School District Enrollment ( ) Number of Teachers Pupil/ Teacher Ratio Year Building Completed Year(s) of Additions/ Renovations Burbank Early Childhood School Pre K : Barrington Elementary School K : , 1958, 2009 Greensview Elementary School K : , 2009 Tremont Elementary School K : , 1991, 2016, 2017 Wickliffe Progressive School K : Windermere Elementary K : , 1966 Hastings Middle School : , 1978 Jones Middle School : , 1967, 1971, 1996 Upper Arlington High School , : , 1964, 1965, 1971, 1983 Total - 6, Source: School District After completion of the Project, the School District will operate the following facilities: School District Facilities Upon Completion of the Project Upper Arlington City School District Buildings Group/Grades Housed New Construction Greensview Elementary School K 5 Wickliffe Progressive School K 5 Windermere Elementary K 5 Upper Arlington High School 9 12 Renovated Facilities Barrington Elementary School K 5 Tremont Elementary School K 5 Existing Facilities 1 Burbank Early Childhood School Pre K Hastings Middle School 6 8 Jones Middle School 6 8 Source: School District 1 The Project does not include the buildings listed as Existing Facilities After completion of the Project, School District s facilities are expected to meet the School District s capacity needs based on ten-year enrollment projections. A-6

35 Enrollment The School District s daily average enrollments based on the October count for past and current school years, together with projected enrollments for future school years, are shown below. Actual and Projected Enrollment Upper Arlington City School District Grade K Totals 2 5,809 5,918 5,988 6,125 6,182 6,273 6,411 6,499 Source: School District Community School The School District does not serve as a sponsor for a community school established under Revised Code Chapter During the school year, there are students residing in the School District enrolled in community schools, which is a decrease of 7.31 students from the prior school year. The absence of these students enrollment will result in a deduction from the State aid revenue funds of $282,037. The School District anticipates community school enrollment will impact the School District s future operations in a similar manner. 1 Projected enrollment numbers as determined by Planning Advocates, Inc. 2 Does not include Pre K enrollment. A-7

36 Scholarship The School District s scholarship transfer will result in a deduction from the State aid revenue funds of $619,329. The following chart shows the numbers of students residing in the School District who receive scholarships. The School District anticipates scholarship transfers will impact the School District s future operations in a similar manner. Scholarships Upper Arlington City School District Number of Students Total Transfer Amount Scholarship Type Receiving Scholarship Autism Scholarship $432,000 Jon Peterson Scholarship ,329 EdChoice Scholarship Source: Ohio Department of Education STEM School During the school year, there are students residing in the School District who attend STEM schools not operated by the School District, which is an increase of 1.35 students from the prior school year. The absence of these students enrollment will result in a deduction from the State aid revenue funds of $141,100. The School District anticipates STEM school enrollment will impact the School District s future operations in a similar manner. Open Enrollment The School District does not allow students to open-enroll into the School District. During the school year, there are 2.11 students residing in the School District and open-enrolling into another school district, which is an (increase/decrease) of 0.5 students from the prior school year. The absence of these students enrollment will result in a deduction from the State aid revenue funds of $10,958. The School District anticipates open enrollment will impact the School District s future operations in a similar manner. Advanced Standing Programs The School District is required by State law to offer its students the opportunity to participate in an advanced standing program. The School District offers the options shown in the table below. Advanced Standing Programs Upper Arlington City School District Program Students Participating College Credit Plus 60 Advanced Placement 797 International Baccalaureate Diploma 354 Source: School District A-8

37 Educational Program For nearly 100 years, the School District has been building a tradition of excellence. The School District s educators provide students with the instruction, support, guidance and inspiration to fulfill their academic potential and to explore their interests and passions. As the School District enters its second century, it s clear that the community feels strongly about providing children the highest quality education possible. It s also clear that swiftly changing economic, social and technological conditions are shaping the future for students. For the School District to stay on the leading edge, the School District must have a keen focus on what matters most for students and the community. The Strategic Plan provides that focus with five measurable goals and new mission and vision statements to reflect the School District s commitment. Mission statement: Challenge and support every student, every step of the way. Vision statement: Uniquely accomplished students prepared to serve, lead and succeed. Goals: 1. PERFORMANCE All School District students attain academic excellence. 2. PERSONALIZATION All School District students experience a personalized learning environment to support their success. 3. ACCOUNTABILITY The School District Quality Profile provides a transparent, sensible and reliable accountability framework. 4. EFFICIENCY The School District manages resources efficiently and effectively. 5. OWNERSHIP The School District uses clear, honest, open and interactive communication to build ownership of the strategic plan. As the School District has implemented the Strategic Plan, great strides have been made in all goal areas. For example, as a part of the Efficiency Goal, the community went through a twoand-a-half-year master planning process to collaboratively develop a financially sound plan to care for the School District s aging school buildings. As part of the Personalization Goal, the School District has become one of the first districts in the state to implement a one-to-one technology program that extends from kindergarten through 12th grade. As a part of the Performance Goal, the School District s average composite ACT score continues to rise and is well above the state and national averages at 26.8 with all juniors participating. The School District provides many academic options not available in other public school districts. The offerings begin with the School District s youngest learners at the tuition-funded Burbank Early Childhood School. As students progress into elementary school, families may select either the informal or contemporary instructional delivery model. The middle schools offer students meaningful servicelearning and real-world instructional opportunities, helping to instill a lifelong commitment to community and an early understanding of the skills needed to be successful in a fast-changing world. At the high school level, students may return to the informal learning style in the Community School. They may also select from more than 60 Advanced Placement and International Baccalaureate classes and take part in one of the School District s 32 varsity sports and more than 80 student clubs and activities. A-9

38 In addition to being fully committed to academic excellence, the School District has a legacy of excellence in the arts and athletics. The School District s student athletes have earned 141 state titles, with 21 of those since The School District s student artists are frequently recognized on both the state and national levels. Upper Arlington High School is a four-year comprehensive public high school with an enrollment in excess of 1,800. The school is fully accredited by the Ohio Department of Education. More than 91% of the professional staff holds a master s degree or higher: 125 have earned one or more master s degrees, 4 have earned PhDs, and 11 are Nationally Board Certified. School is in session 180 days from August to June each year. The Class of 2018 currently has 14 National Merit Semifinalists and 17 Commended Scholars. The Class of 2017 had 11 National Merit Finalists and 21 Commended Scholars. Upper Arlington High School students have been Presidential Scholars, Intel Science Award winners, and members of the USA Today All-USA Academic Team. One graduate won a Nobel Prize in Physics. The curriculum at Upper Arlington High School is diverse and comprehensive, designed to prepare students for learning beyond high school by emphasizing 21st century skills such as collaboration, creativity, self-direction and complex thinking. Seniors demonstrate their mastery of these skills through a required Capstone graduation project and presentation. The curriculum at Upper Arlington High School includes Advanced Placement, International Baccalaureate, honors, and vocational courses, supported by a full continuum of intervention services. Additionally, the following programs are offered: Global Language: The School District s proficiency-based global language curriculum establishes specific performance standards of language ability. Students language level is measured and categorized into three language modes: Interpretive, Interpersonal, and Presentational. In order to maximize student growth along the proficiency continuum, these three language modes form a crucial part of the School District s curriculum, with one end goal: communication. As students progress through the global language program, we use the modes of communication as proficiency standards for assessing students language ability. Students will earn credit and progress through each language level when they successfully demonstrate proficiency in these modes. Upper Arlington High School Community School (the CS ) is a three period program, offering courses in Language Arts, Science, and Social Studies. Students opt to join CS during their sophomore, junior or senior year. The strong democratic structure of CS encourages students to take ownership of their learning and work as equals with their teachers. The program also promotes experiential education, facilitated via extensive use of technology in the classroom, inviting students to extend learning outside the classroom through a strong service learning component, and a senior Odyssey project, where students learn through internship experiences. International Baccalaureate Diploma Program: Upper Arlington High School offers juniors and seniors courses through the International Baccalaureate Organization (the IBO ) for either an IBO Diploma (which includes successful completion of Theory of Knowledge, Extended Essay, Community, Activity and Service, and the required course distribution) or an IBO Certificate in any individual International Baccalaureate course. The School District s high school received a gold medal from U.S. News and World Report in 2017 based on its performance on State-required tests and how well students are prepared for college. A-10

39 State Performance Standards The Department issues annual report cards for all school districts and each of their individual schools, and the report cards assign letter grades to the school districts and their individual schools in up to six categories of performance components. The performance components include achievement, progress, gap closing, graduation rate, K-3 literacy and prepared for success. The School District s complete report card and information about the State s report card methodology more generally can be obtained from the Department at [Balance of Page Intentionally Left Blank] A-11

40 Comparative Position of the School District The following tables compare the School District with its similar district cohort (as defined by the Department) and the State average in the areas of sources of revenue, expenditures by category, and teacher statistics. Sources of Revenue, Upper Arlington City School District School District Similar Districts State Local Revenue 76.75% 65.17% 41.58% State Revenue Other Non-Tax Revenue Federal Revenue Source: Ohio Department of Education Expenditures by Category, Upper Arlington City School District (Dollars per Pupil) School District Similar Districts State Administration $1,667 $1,322 $1,514 Building Operations 1,769 1,878 2,111 Instruction 9,779 6,936 6,469 Pupil Support 1, Staff Support Total Spending Per Pupil $14,957 $11,192 $11,164 Source: Ohio Department of Education Teachers Salaries Teacher Statistics, Upper Arlington City School District School District Similar Districts State Average teacher salary $78,954 $67,688 $58,690 Teaching experience 0-4 years 15.86% 23.38% 29.08% 4-10 years years Source: Ohio Department of Education 1 Figures may not sum to total due to rounding. A-12

41 ECONOMY AND EMPLOYMENT Economic Development The Columbus metropolitan area is characterized by its diverse economy and economic growth. A strong residential, commercial and industrial tax base, a very diverse labor force, and an unemployment rate below the State average have resulted in strong growth throughout the area. The School District s specific economic and jurisdictional territory is comprised primarily of the City of Upper Arlington (the City ), with 98% of the School District s assessed valuation within the City. The Upper Arlington Community Improvement Corporation (the Upper Arlington CIC ) was formed on December 13, 1993 in order to advance, encourage, and promote the industrial, economic, commercial and civic development within the City. The Upper Arlington CIC has been designated as the City s agent for economic development. Multiple economic development projects have been completed or are still ongoing within the School District over the past few years. Following is a discussion of significant projects recently completed or currently in process in the School District. Lane Avenue Mixed-Use Project The Lane Avenue Mixed-Use Project is currently open and operating within the School District. This mixed-use project includes 13,000 square feet of retail space (100% occupied), 13,000 square feet of office space (75% occupied), a hotel and an apartment complex. The Hilton Homewood Suites, which opened in the fall of 2013, has increased City income and bed-tax revenues while offering new amenities for residents of the School District. Similarly, the apartment component of this project brings a new style of housing to the School District. This upscale, for-rent housing expands the attractiveness of the School District to young professionals, which is a target market for long-term economic gain. The retail component includes a high-end restaurant and a financial service organization. The office component provided office space for a former Upper Arlington business to return to the City. Kingsdale Shopping Center Redevelopment The Kingsdale Shopping Center redevelopment project has resulted in desired amenities and services being available in the Five Points area, and has served as an economic generator for the community. Giant Eagle s Market District, as a premier grocery and lifestyle store, continues to draw patrons from surrounding communities who are seeking specialty food items. Further, Giant Eagle has recently added new services at the location and invested approximately $680,000 in new interior improvements. Existing storefront renovations on site have proved successful at bringing new life to the center. A Houlihan s Restaurant was completed in 2013 and is providing an additional dining option to the residents of the School District. In August 2016, The Ohio State University completed construction on a five-story, 103,000 square foot medical office building on the office parcel located along Zollinger Road, which cost over $22 million to construct. Finally, the Kroger Company has recently purchased 3180 Kingsdale Shopping Center, a standalone Macy s Department store. The Kroger Company has shared plans to redevelop the site as a mixed-use development, although formal plans have yet to be submitted. This project would further the trend of new significant investments within the Five Points area. A-13

42 Columbus Aesthetic & Plastic Surgery Columbus Aesthetic & Plastic Surgery purchased a 5,000 square foot vacant private recreation building at 5000 Arlington Centre Blvd. just to the north of their existing facility. The site was demolished and they constructed a new 20,000 square foot medical office building (5005 Arlington Centre Blvd.) where they intend to expand their practice and consolidate offices from around Central Ohio. Their existing facility is expected to be backfilled with other medical office users. The new medical office building was constructed at a cost of $3.5 million. The building is expected to generate an estimated $8 million in annual payroll. OhioHealth Neurological Surgery Rehabilitation Center OhioHealth Neurological Surgery Rehabilitation Center is open at 3363 Tremont Road just north of the Five Points intersection. An existing older office building was demolished and the lot was combined with two adjacent parcels to create room for the new 25,000 square foot two-story medical office building. The estimated cost for the project is $4.3 million. Labor Force Statistics Labor force statistics specific to the School District are not available. The County and the Columbus MSA information presented in this section is included for informational purposes only. It should not be implied from the inclusion of such data in this Official Statement that the School District is representative of the County or the MSA, or vice versa. The following statistics are not seasonally adjusted. Area Unemployment Rates (annual percentages) Franklin County MSA State Labor Force (in thousands) Franklin Year County Year United States % 4.6% Source: Ohio Department of Job and Family Services, Bureau of Labor Market Information 1 Preliminary average through September A-14

43 Largest Employers The following table lists the largest employers in the City as of December It should not be implied from the inclusion of such data in this Official Statement that the School District is representative of the City, or vice versa. Largest Employers City of Upper Arlington, Ohio Rank Firm Number of Employees 1 Industry 1 Upper Arlington City Schools 860 Education 2 First Community Village 352 Retirement community 3 The Ohio State University 325 Education 4 City of Upper Arlington 241 Municipality 5 Giant Eagle 201 Grocery 6 National Church Residences 194 Retirement community 7 CBC Companies 175 Credit reporting agency 8 Scioto Country Club 173 Country club 9 Wellington School 160 Education 10 Ohio Orthopedic Center 158 Health care Source: City of Upper Arlington Finance Department 1 Includes employees within the City of Upper Arlington only. [Balance of Page Intentionally Left Blank] A-15

44 The following table lists the 50 largest employers in the Columbus MSA as of July It should not be implied from the inclusion of such data in this Official Statement that the MSA is representative of the School District, or vice versa. Largest Employers Columbus MSA Rank Firm Number of Employees Industry 1 The Ohio State University 30,804 Education 2 State of Ohio 24,067 Government 3 Kroger Co. 22,821 Retail grocery 4 Ohio Health Corp. 21,117 Healthcare 5 JPMorgan Chase & Co. 18,600 Banking & financial services 6 Nationwide Mutual Insurance Company 14,100 Insurance & financial services 7 Nationwide Children's Hospital 10,032 Healthcare 8 Mount Carmel Health System 8,852 Healthcare 9 City of Columbus 8,815 Government 10 Columbus City School District 8,004 Education 11 L Brands Inc. 7,800 Retail clothing 12 Honda North America, Inc. 7,700 Auto manufacturing 13 Wal-Mart Stores Inc. 7,572 Retail grocery/department store 14 Franklin County 7,040 Government 15 Huntington Bancshares Inc. 5,848 Banking & financial services 16 Cardinal Health Inc. 5,197 Medical products & services 17 American Electric Power Company Inc. 4,015 Electric power utility 18 U.S. Postal Service 3,598 Federal mail service 19 Giant Eagle Inc. 3,540 Retail grocery 20 Alliance Data Systems Corp. 3,057 Marketing/credit card transaction services 21 Abercrombie & Fitch Company 2,895 Retail clothing 22 South-Western City School District 2,553 Education 23 YMCA of Central Ohio 2,518 Youth development/social outreach 24 DLA Land and Maritime 2,500 Defense systems manufacturer 25 Verizon 2,406 Telecommunications 26 Discover Financial Services LLC 2,394 Financial services 27 Gap Inc. 2,200 Retail clothing 28 DHL Supply Chain 2,190 Contract logistics provider 29 Amazon.com, Inc. 2,120 Online retailer/cloud computing 30 Abbott Laboratories/Abbott Nutrition 2,055 Nutrition research and products 31 Fairfield Medical Center 2,032 Healthcare 32 Battelle Memorial Institute 1,984 Technology & research development 33 Licking Memorial Health Systems 1,953 Healthcare 34 United Parcel Service 1,949 Package delivery & supply chain management 35 Donatos Pizzeria LLC 1,932 Restaurant 36 Safelite Group Inc. 1,920 Vehicle glass repair 37 XPO Logistics, Inc. 1,907 Transportation and logistics services 38 Express Scripts Holding Co. 1,891 Pharmacy benefits management 39 Dublin City School District 1,868 Education 40 Wendy's Co. 1,800 Restaurant 41 Time Warner Cable Inc. 1,779 Telecommunications 42 TS Tech Americas Inc. 1,772 Auto seat manufacturing 43 Vertiy Co. 1,720 Networking & information systems 44 Worthington Industries Inc. 1,680 Steel manufacturing 45 Worthington City School District 1,669 Education 46 Ascena Retail Group, Inc. 1,615 Retail clothing 46 Big Lots Inc. 1,615 Discount retail 48 Roosters Inc. 1,501 Restaurant 50 PNC Financial Services Group Inc. 1,500 Banking & financial services 50 Teleperformance USA 1,500 Call center, customer service, tech support Source: Columbus Business First. Data as of July A-16

45 Ad Valorem Taxes and Assessed Valuation Overview SCHOOL DISTRICT PROPERTY TAX BASE For property taxation purposes, assessment of real property is performed on a calendar year basis by the elected County Auditor subject to supervision by the Tax Commissioner, and assessment of public utility tangible personal property is performed by the Tax Commissioner. Property taxes are billed and collected by the County Treasurer. Taxes collected from real property in one calendar year are levied in the preceding calendar year on assessed values as of January 1 of that preceding year. Public utility tangible personal property taxes collected in one calendar year are levied in the preceding calendar year on assessed values determined as of December 31 of that second year preceding the tax collection year. Beginning with the 2009 tax year, general business tangible personal property is no longer subject to tax. Real Property The assessed valuation of real property is fixed at 35% of true value and is determined pursuant to rules of the Tax Commissioner, except that real property devoted exclusively to agricultural use is assessed at not more than 35% of its current agricultural use value. Beginning in 2009, certain elderly or disabled resident homeowners receive a flat $25,000 property tax exemption on the market value of their homestead. Ohio law requires the County Auditor, subject to supervision by the Tax Commissioner, to adjust the true value of taxable real property every six years to reflect current fair market values. This sexennial reappraisal is done by individual appraisal of properties. In the third year following a sexennial reappraisal, the County Auditor, again subject to supervision by the Tax Commissioner, performs a triennial update to adjust the value of taxable real property to reflect true values. The triennial update is done without individual appraisal of properties, but with reference to a salesassessment ratio over the three-year period. Personal Property In 2005, the State accelerated its phase-out of the tangible personal property tax. Since 2008, general business tangible personal property has not been subject to tax. Public utility tangible personal property including tangible personal property of electric utilities not used for transmission and distribution and all tangible personal property of gas utilities was not included in the phase-out created by the State. All public utility tangible personal property is assessed at varying percentages of its true value depending on the type of property and the type of utility. The State currently reimburses School Districts for tax losses resulting from the phase-out of the tangible personal property tax. However, recent legislation will reduce and eliminate the amount of such payments. (See SCHOOL DISTRICT PROPERTY TAX BASE Property Tax Rate Calculations. ) State. The School District no longer receives any reimbursement payments described above from the A-17

46 Tax Abatements and Economic Development Incentives Tax abatements are temporary property tax exemptions designed to stimulate economic growth or to promote other activities deemed by the State to be in the public interest. Under Ohio law, tax abatements may be granted for urban renewal projects, community redevelopment corporations, community reinvestment areas, property acquired by municipal corporations engaged in urban redevelopment, enterprise zones, railroad property, and for any improvements declared to serve a public purpose in municipalities, townships, and counties. Because the burden of tax abatements falls disproportionately on school districts due to their reliance on property taxes, the State has created safeguards that allow school districts to protect their interests. First, a school district must be given advance notice of a planned abatement, and it must be allowed to comment on the abatement prior to its granting. Under certain circumstances, a board of education may veto a proposed tax abatement and/or negotiate an annual compensation payment. Second, school district representatives sit on tax incentive review councils to monitor compliance with tax abatement agreements and make recommendations on abatements to the governmental entity involved. Finally, municipalities with an income tax in place must negotiate a compensation agreement with a school district if a tax abatement is expected to generate a significant amount of increased payroll to the area. The table below summarizes the tax abated real property within the School District: Property Owner Summary of Real Property Tax Abatements Upper Arlington City School District (2017 Tax Year) Abatement Type Tax Year Beginning End After Tax Year Abatement Percentage Assessed Valuation of Property Kingsdale West 1 TIF % $1,735,690 Arlington Crossing 1 TIF ,479,180 Lane Avenue 1 TIF ,297,900 Kingsdale Core 2 TIF ,757,080 ECHO Continental Kingsdale LLC EPA ,550 City of Upper Arlington EPA Riverside North 1 TIF ,840 Riverside South 1 TIF ,680 Lane Avenue 3 TIF ,626,430 Lane Avenue 3 TIF ,075,000 Total $31,076,350 Source: Franklin County Auditor 1 The School District receives service payments in lieu of taxes from the County Treasurer in an amount equal to the property tax payments the School District would have received without the exemption. 2 The School District receives 75% of the amount of the property tax payments the School District would have received without the exemption, pursuant to a compensation agreement with the City. 3 The School District receives 75% with respect to residential property, and 50% with respect to commercial property, of the amount of the property tax payments the School District would have received without the exemption, pursuant to a compensation agreement with the City. In tax year 2016 the School District received approximately $1,170,000 in payments in connection with tax abatements referenced in the table above. A-18

47 Assessed Valuation The following table classifies the School District s assessed valuation of taxable property according to use: Assessed Valuation Upper Arlington City School District (2018 Collection Year) Property Classification Amount Percent of Total Assessed Valuation Real Estate 1 Residential/Agricultural $1,770,534, % Commercial/Industrial/Mineral 146,465, Public Utility Real 4, Total Real Estate $1,917,004, % Personal Property Public Utility Personal $26,117, % Total Assessed Valuation $1,943,122, % Source: Franklin County Auditor Historic Change in Assessed Valuation Upper Arlington City School District Tax Collection Year Assessed Valuation Percent Change Over Prior Year 2011 $1,596,760, % ,587,795,420 (0.56) ,577,192,520 (0.67) ,574,668,070 (0.16) ,719,665, ,719,170,040 (0.03) ,728,251, ,943,122, Source: Franklin County Auditor 1 Property taxes collected in a calendar year are levied in the preceding calendar year on assessed values as of January 1 of that preceding year. Real property is assessed at 35% of market value and reappraised every six years, with triennial updates every three years. 2 Year of sexennial reappraisal. The County s next sexennial reappraisal occurs in tax year 2023, collection year Year of triennial update. The County s next triennial update occurs in tax year 2020, collection year A-19

48 Name Largest Taxpayers The following tables list the largest real estate and public utility taxpayers in the School District. Percentages of total assessed valuation are based on a total assessed valuation of $1,943,122,330 for collection year Real Estate Taxpayers Largest Taxpayers Upper Arlington City School District (2018 Collection Year) Type of Business Assessed Valuation Percent of School District s Total Assessed Valuation First Community Village Retirement Community $8,428, % Medstone Realty Company LLC Medical Offices 6,408, Lane Avenue 450 LLC Shopping Center 5,526, GGRE Son Central II Arlington LLC Shopping Center 4,753, Scioto Country Club Inc. Country Club 3,873, Echo/Continental Kingsdale LLC Shopping Center 3,609, Centro NP Greentree SC LLC Shopping Center 3,447, Kenbrook Village Co. Apartments 3,405, National Church Residences Retirement Community 2,681, Tremont Center Company Shopping Center 2,336, Lane Avenue Office Building LLC Shopping Center 2,153, Name Public Utility Taxpayers Type of Business Assessed Valuation Percent of School District s Total Assessed Valuation Ohio Power Company Electric Utility $13,026, % AEP Ohio Transmission Company Inc. Electric Utility 8,067, Columbia Gas of Ohio Inc. Gas Utility 5,095, Source: Franklin County Auditor A-20

49 History of Voted Taxes The table below provides the history of voted taxes in the School District since Issues identified in bold were passed by the voters. History of Voted Taxes Upper Arlington City School District Election Date Levy or Bond Issue Description Voting For Voting Against November 7, 2017 $230,000,000 School Construction and Improvement Bond Issue 54.66% 45.34% November 7, Mill Current Expense Levy (New Continuing) November 5, Mill Current Expense Levy (New Continuing) November 6, Mill Current Expense Levy (New Continuing) November 6, Mill Current Expense Levy (New Continuing) November 6, Mill Permanent Improvement Levy (New Continuing) November 2, Mill Current Expense Levy (New Continuing) November 6, Mill Current Expense Levy (New Continuing) November 3, Mill Current Expense Levy (New Continuing) Source: OMAC The School District anticipates asking the voters to approve a current expense levy within the next three to four years. Property Tax Rates and Collections The following are the rates (in mills per $1.00 of assessed valuation) at which the School District levied ad valorem taxes for the general categories of purposes in recent years (without the reduction factor discussed below). Property Tax Rates Upper Arlington City School District Collection Debt Year Operating 1 Retirement Permanent Improvement Total Source: Ohio Department of Taxation The total School District operating millage of mills for collection year 2018 includes voted operating levies of mills, of which all were approved by the School District electorate for a continuing period of time and which do not require a renewal vote. The balance of 5.65 mills constitutes the School District s mandated share of the ten mills authorized to be levied without a vote of the electors 1 Includes inside millage and outside (voted) millage. A-21

50 of the School District. (See SCHOOL DISTRICT DEBT AND DEBT LIMITATIONS Statutory Debt Limitations Generally Indirect Debt Limitation. ) The following table identifies the historical tax collections for the School District: Property Tax Collections Upper Arlington City School District Collection Year Assessed Valuation Taxes Levied Taxes Collected (including delinquent taxes) Collection Rate 2011 $1,596,760,320 $77,694,098 $75,985, % ,587,795,420 77,829,186 75,966, ,577,192,520 78,810,052 75,797, ,574,668,070 83,988,247 83,526, ,719,665,510 86,610,462 85,275, ,719,170,040 86,161,728 85,725, ,728,251,930 86,743,754 87,042, ,943,122,330 N/A N/A N/A Source: Franklin County Auditor Property Tax Rate Calculations State law has a reduction factor mechanism that is intended to negate increases in taxes resulting from increases in the true value of real property due solely to inflation. Legislation implementing a 1980 constitutional amendment classifies real property as either (a) residential and agricultural or (b) all other real property, and provides for tax reduction factors to be separately computed for and applied to each class. Statutory procedures limit the amount realized by each taxing subdivision from real property taxation, by the application of a tax reduction factor, to the amount realized from those taxes in the preceding year plus: (a) the proceeds of any new taxes (other than renewals) approved by the electors, calculated to produce an amount equal to the amount that would have been realized if those taxes had been levied in the preceding year, and (b) amounts realized from new and existing taxes on the assessed valuation of real property added to the tax duplicate since the preceding year. Such limitations are expressly inapplicable to amounts realized from taxes levied at a rate required to produce a specified amount, such as for debt service charges or emergency school levies, and from taxes levied inside the ten-mill limitation or any applicable municipal charter tax rate limitation. Further, such limitations will not reduce operating millage for school districts below 20 mills or for joint vocational school districts below 2 mills. A reduction factor is computed for each separate levy that is subject to the limitation. A resulting effective tax rate reflects the aggregate of those reductions and is the rate at which real property taxes are, in fact, collected. Real property tax amounts from property devoted to residential and agricultural purposes are, in certain cases, further reduced by an additional 10% (12.5% in the case of certain owneroccupied residential property) or a flat, $25,000 reduction in taxable value applicable to certain elderly or disabled resident homeowners, when billed to the taxpayer. These reductions are reimbursed to the taxing subdivisions by the State. A phase out of these reductions began in The 10% reduction for residential and agricultural properties and 2.5% additional reduction for owner-occupied residential property do not apply to new levies and replacement levies approved by voters after the August 6, 2013 election. Additionally, starting in the 2014 tax year, the $25,000 reduction in taxable value for certain elderly homeowners and homeowners with disabilities is being grandfathered out, with new reductions A-22

51 limited to property owners with total income less than or equal to $30,000. This figure is adjusted for inflation annually by the Tax Commissioner. (See SCHOOL DISTRICT PROPERTY TAX BASE State Reimbursement of Property Tax Revenues for a discussion of reimbursement by the State for these reductions.) Ad Valorem Tax Levies levies: The following table presents certain information concerning the School District s ad valorem tax Year Voted Ad Valorem Tax Levies Upper Arlington City School District Current Millage Rates (2018 Collection Year) Rate Levied for Current Collection Year 1 Authorized Mills Residential/ Agricultural Commercial/ Industrial Total Voted Operating Millage Inside (Unvoted) Millage Voted Bond Retirement Millage Permanent Improvement Millage Total Rate Source: Ohio Department of Taxation 1 This is the effective rate. The effective tax rates may be less than the authorized rates listed in the first column. See FINANCES OF THE SCHOOL DISTRICT Property Tax Rate Calculations. 2 Ohio Department of Taxation does not report the years in which operating levies approved prior to 1976 were voted, thus operating levies approved prior to 1976 are aggregated in this line. A-23

52 Repeal of Property Tax Levies Each operating tax levy approved for a continuing period is subject to decrease through a statutory referendum procedure requiring (a) a petition signed by qualified electors of the School District equal in number to those who voted in the last governor s race (to be filed at least 90 days before the general election in any year) stating the amount of the proposed decrease and (b) the approval of the decrease by a majority vote at the general election with the decrease to commence at the expiration of the then current tax levy year. No petition has been filed with respect to any existing current expense tax levy of the School District. If such a petition is filed and subsequently approved by the electors of the School District, under Revised Code Section , the Board must continue to levy and collect such amount as will be sufficient to pay the principal of and interest on any notes in anticipation of an increased rate of levy approved for a continuing period of time. Total Property Tax Burden The following table displays the total effective tax rates levied on property located in the School District. In addition to the taxes levied by the School District, properties in the School District are subject to a county tax levy, a township tax and the taxes levied by other overlapping political subdivisions. Taxing District Ad Valorem Tax Levies Upper Arlington City School District (mills per $1.00 of assessed valuation; 2018 Collection Year) Taxing Authority School District County JVSD Township Other 1 Total Effective Rates Residential & Agricultural All Other City of Columbus Upper Arlington CSD City of Upper Arlington Perry Township Perry Township Columbus City Source: Ohio Department of Taxation State Reimbursement of Property Tax Revenues Rollback and Homestead Exemption Reimbursement The State reimburses taxing districts, including school districts, for decreased tax revenues due to (a) the 10% reduction or rollback in certain non-commercial property taxes related to qualifying levies in place for the 2013 tax year and subsequent renewals of those levies, (b) the 2.5% reduction applicable to certain owner-occupied housing, and (c) the flat, $25,000 reduction in taxable value applicable to certain elderly or disabled homeowners. Such reimbursements are subject to repeal or revision by the State. (See SCHOOL DISTRICT PROPERTY TAX BASE Property Tax Rate Calculations for a discussion of reimbursements by the State for these reductions.) Public Utility Property and Tangible Personal Property Tax Loss Reimbursement In tax year 2001, changes took effect which reduced the assessment percentages applicable to electric generation and natural gas tangible personal property, thereby reducing the amount of tangible 1 Includes any taxes levied by municipalities and other miscellaneous districts. A-24

53 public utility property tax revenue collected by taxing districts. In order to replace the taxes no longer received due to the lower assessment percentages, State consumption taxes on electricity and natural gas were enacted in 1999 and 2000, respectively. Beginning in 2006, the State began to phase out the tax on tangible personal property used in business. The State also reimburses certain taxing districts for the loss of tax revenues due to the phaseout of the tax on general business tangible personal property, and on the tangible personal property belonging to telephone, telegraph, and interexchange companies. In order to replace a portion of the lost revenue, a commercial activity tax was enacted in 2005 and is imposed on gross receipts, including receipts from services, in the State. The reimbursement of both types of tangible personal property tax revenues losses, although originally scheduled to end by calendar year 2018, had been frozen. State. The School District no longer receives any reimbursement payments described above from the School Foundation Program OTHER SOURCES OF SCHOOL DISTRICT FUNDING The State assists public school districts under a statutory program that includes the School Foundation Program. 1 School Foundation Program funds distributed to a school district are required to be used for current operating expenses, unless specifically allocated by the State for some other purpose. State reimbursement of property tax losses paid to school districts will be reduced by any increase in School Foundation Program receipts. (See SCHOOL DISTRICT PROPERTY TAX BASE State Reimbursement of Property Tax Revenues. ) Basic eligibility for School Foundation Program payments is based on a school district s compliance with State-mandated minimum standards. The School District is in compliance with those standards and has no reason to believe it will not remain in compliance. The State also assists school districts by funding the School District Solvency Assistance Fund (the Solvency Fund ). Created within the Solvency Fund are the School District Shared Resource Account and the Catastrophic Expenditures Account. A school district must be in a state of fiscal emergency to qualify for assistance and grants from the School District Shared Resource Account. A school district may qualify for assistance and grants from the Catastrophic Expenditures Account if the school district suffers an unforeseen catastrophic event that severely depletes the financial resources of the school district. School districts receiving assistance and grants from the Solvency Fund are required to repay such advances no later than the end of the second Fiscal Year following the Fiscal Year in which they received the assistance and grants, and if they fail to do so, the State will repay the Fund from amounts the school district would otherwise receive pursuant to the School Foundation Program. The School District does not have any outstanding advances from the Solvency Fund. The Solvency Fund, with the exception of the Catastrophic Expenditures Account, evolved from statutes declared unconstitutional in DeRolph. (See LITIGATION School Funding Litigation. ) 1 The Supreme Court of Ohio has declared the School Foundation Program unconstitutional. See LITIGATION School Funding Litigation. A-25

54 State Classroom Facilities Assistance The Ohio Facilities Construction Commission (the Commission ) administers the provision of financial assistance to Ohio school districts for the acquisition or construction of classroom facilities in accordance with Revised Code Chapter Revised Code Chapter 3318 provides for several different school facilities assistance programs involving financial assistance from the State. These programs include the Classroom Facilities Assistance Program, the Exceptional Needs School Facilities Assistance Program, and the Expedited Local Partnership Program. Each of these programs provides State funding for all or a portion of qualifying school facilities projects based on financial tests, inadequate facilities, or a combination of the two. Participation in these programs also requires the school district to commit to adhere to Commission requirements for project construction. The School District is not currently participating in the Classroom Facilities Assistance Program, the Exceptional Needs School Facilities Assistance Program, or the Expedited Local Partnership Program. School District Income Tax Under Ohio law, a school district, with the approval of the voters, may impose an income tax for the purpose of providing additional funds for the operation of the school district. The tax may be imposed upon the income of individuals residing in the school district and estates of decedents who at the time of their death were residents of the school district; or solely upon the earned income of individuals residing in the school district. Such selection must be made by the board of education prior to submission of the question of an income tax to the board of elections and be clearly stated on the election ballot. The tax may be imposed either for a specified number of years or for a continuing period of time. If the tax is imposed for a period in excess of five years, the voters of the school district may, by majority vote, repeal the tax, provided that a proposal to repeal the tax may not be initiated more than once in any five-year period. While the School District does not currently levy an income tax on its residents, this form of funding remains available to the School District. The Board does not, however, anticipate asking voters to approve an income tax in the near future. Statutory Debt Limitations Generally SCHOOL DISTRICT DEBT AND DEBT LIMITATIONS The School District may issue voted general obligation bonds (such as the Bonds), and notes issued in anticipation thereof, pursuant to a vote of the electors of the School District. Ad valorem taxes, without limitation as to amount or rate, assessed to pay debt service on voted bonds are authorized by the electors at the same time they authorize issuance of the bonds. Such voted debt is subject to the direct debt limitations but is not subject to the indirect debt limitation. Voted obligations may also be issued by certain overlapping subdivisions. General obligation bonds, such as the Bonds, and notes issued in anticipation thereof, may also be issued by the School District (and certain overlapping political subdivisions, such as the City and the County) without a vote of the electors. Unvoted debt is subject to both the direct and indirect debt limitations. A political subdivision s debt limitations are based on its tax valuation, which is the aggregate of the valuations of real property, personal property, and public utility property that is subject to ad valorem property taxation. For school districts, tax valuation is calculated in accordance with Revised Code Section (PP) and excludes the valuation of tangible personal property used in business, A-26

55 telephone or telegraph property, interchange telecommunications company property, or personal property owned or leased by a railroad company and used in railroad operations. Direct Debt Limitations Revised Code Section provides that, exclusive of certain exempt debt (discussed below), the net principal amount of unvoted general obligation debt of a school district may not exceed the following percentages of a School District s tax valuation: (a) for permanent improvements generally, 0.10%; and (b) for qualified energy conservation projects under Revised Code Section , 0.90%. Revised Code Section also provides that the net principal amount of both voted and unvoted general obligation debt of the School District may not exceed 9% of a school district s tax valuation, except in the specific situations discussed below. These two limitations, referred to as the direct debt limitations, may be amended from time to time by the State. State Consents and Special Needs Status Revised Code Section further provides that bonds shall not be submitted to popular vote in an amount which will make the net indebtedness after the issuance of such bonds exceed 4% of a school district s tax valuation, unless the school district obtains the consent of the State Superintendent (acting under policies adopted by the State Board of Education) and the Tax Commissioner (acting under written policies of said Tax Commissioner). Revised Code Section (E) permits a school district to incur indebtedness in excess of the 9% direct debt limitation if, based on five-year projections showing annual property value growth of 1.5% or more, the State Superintendent determines that such school district is a special needs district. Revised Code Section (E) permits a school district to incur indebtedness in excess of the 9% direct debt limitation if, based on five-year projections showing annual property value growth of 1.5% or more, the State Superintendent determines that such school district is a special needs district. A school district which has been approved as a special needs district may incur indebtedness in an amount not exceeding an amount equal to the greater of the following: (a) (b) 12% of the sum of its tax valuation plus an amount that is the product of multiplying that tax valuation by the percentage by which the tax valuation has increased over the tax valuation on the first day of the sixtieth month preceding the month in which its board determines to submit to the electors the question of issuing the proposed securities; 12% of the sum of its tax valuation plus an amount that is the product of multiplying that tax valuation by the percentage, determined by the State Superintendent, by which that tax valuation is projected to increase during the next ten years. In order to become a special needs district, the board of education of a school district must pass a resolution stating that the student population is not adequately served by existing facilities, that insufficient capacity exists within the 9% limit to finance additional facilities, and that special needs classification is required. The Board passed such a resolution on June 6, A detailed application including a history of the extent of growth in the tax valuation of the School District is then submitted to the State Superintendent, who, upon finding that projected growth of the tax valuation during the next five years is likely to exceed 1.5% per year, may determine that the School District is an approved special needs district. This determination is conclusive. Such a determination was rendered with respect to the School District on August 2, A-27

56 Exempt Debt The Revised Code provides that certain debt a school district may issue is exempt from direct debt limitations ( exempt debt ). Exempt debt includes, among other things, bonds payable from school district income taxes under Revised Code Section (E); notes issued in anticipation of the collection of current revenues; notes issued for qualified energy savings projects under Revised Code Section ; and certain bonds issued for school construction purposes following declaration of an emergency. Notes issued in anticipation of exempt bonds also are exempt debt. In calculating debt subject to the direct debt limitations, the amount of money in a school district s bond retirement fund allocable to the principal amount of non-exempt debt is deducted from gross non-exempt debt. Indirect Debt Limitation Unvoted general obligation bonds and bond anticipation notes cannot be issued by the School District unless the tax required to be imposed on taxable property in the School District for the payment of the debt service on (a) such bonds (or the bonds in anticipation of which notes are issued), and (b) all outstanding unvoted general obligation bonds (including bonds in anticipation of which notes are issued) of the combination of overlapping taxing subdivisions in the School District resulting in the highest tax rate required for such debt service, in any one year, is ten mills or less per $1.00 of assessed valuation. This indirect debt limitation, the product of which is commonly referred to as the ten-mill limitation, is imposed by a combination of the provisions of Article XII, Sections 2 and 11 of the Ohio Constitution and Revised Code Section The ten-mill limitation is the maximum aggregate millage for all purposes that may be levied on any single piece of property by all overlapping taxing subdivisions without a vote of the electors. The ten mills which may be levied without a vote of the electors is in fact levied, collected and allocated among the School District and its overlapping taxing subdivisions for general fund purposes pursuant to a statutory formula. This inside millage allocated to each overlapping taxing subdivision is required by current Ohio law to be used first for the payment of debt service on unvoted general obligation debt of the subdivision, unless provision has been made for its payment from other sources. The balance of the millage is available for other purposes of the subdivision. Thus, to the extent that this inside millage is required for debt service of a taxing subdivision (which may exceed the formula allocation to that subdivision), the amount that would otherwise be available to that subdivision or to other such overlapping subdivisions for general fund purposes is reduced. A subdivision s allocation of inside millage can be exceeded only in the event that it is required for the payment of debt service on its unvoted general obligation debt and, in that case, the inside millage allocated to the other overlapping subdivisions would be reduced proportionally to bring the aggregate levies of inside millage down to ten mills. In case of notes issued in anticipation of the issuance of unvoted general obligation bonds, the highest annual debt service estimated for the bonds anticipated by the notes is used to calculate the millage required. The ten-mill limitation applies to all unvoted general obligation debt even if debt service on some of such debt is expected to be paid in fact from income taxes, special assessments, utility earnings or other sources. A-28

57 In calculating whether unvoted debt to be issued by the School District is within the ten-mill limitation, it is necessary to determine the total outstanding debt service requirements within the ten-mill limitation of all the taxing subdivisions overlapping the School District. Bond Anticipation Notes Under Ohio law, notes, including renewal notes, issued in anticipation of the issuance of general obligation bonds may be issued and outstanding from time to time up to a maximum of 20 years from the date of issuance of the original notes. Any period in excess of five years must be deducted from the permitted maximum maturity of the bonds anticipated, and portions of the principal amount of notes outstanding for more than five years must be retired in amounts at least equal to, and payable not later than, principal maturities that would have been required if bonds had been issued at the expiration of the initial five-year period. The last maturity of any bonds issued to refund general obligation bond anticipation notes may not be later than the year of last maturity permitted by law for the bonds anticipated. Bond anticipation notes may be retired at maturity from the proceeds of the sale of renewal notes, the proceeds of the sale of the bonds anticipated by such notes, from other available funds of the School District, or from a combination of these sources. The ability of the School District to retire its outstanding bond anticipation notes from the proceeds of the sale of either renewal notes or bonds will be dependent upon the marketability of such renewal notes or bonds under market conditions then prevailing. Under present Ohio law, there is no ceiling on the annual interest rate permitted on general obligation notes and bonds of school districts. $9,500,000 of the debt of the School District is currently in the form of general obligation bond anticipation notes. School District Debt Currently Outstanding Upon the issuance of the Bonds, the School District will have the following issues of general obligation bonds and notes outstanding, including the Bonds: Outstanding Debt Upper Arlington City School District Issue Dated Date Final Maturity Balance Outstanding February 27, 2018 * Refunding Bonds, Series /14/ /01/2022 $ 13,370,000 Permanent Improvement Levy TANs, Series /03/ /01/2021 3,025,000 School Facilities Construction and Improvement Notes, Series /28/ /01/2018 9,500,000 The Bonds 02/27/2018 * 12/01/2055 * 220,500,000 * Total $246,395,000 * Source: School District * Preliminary, subject to change A-29

58 Debt Service Requirements The following schedule presents the School District s actual debt service requirements for general obligation debt currently outstanding (excluding the Series 2017 Notes): Calendar Year Debt Service Requirements for General Obligation Debt Upper Arlington City School District Prior Obligations The Bonds Total Debt Service Principal * Interest * Principal Interest 2018 $3,190,000 $665, ,345, , ,535, , ,665, , ,660, , Total $16,395,00.00 $2,066, Source: School District * Does not include the School District's $9,500,000 School Facilities Construction and Improvement Notes, Series 2017, dated December 28, 2017, and maturing April 1, It is anticipated that the Series 2017 Notes will be currently refunded with proceeds from either, or a combination of, the Series 2018A Bonds or the Series 2018B Bonds. A-30

59 No bonds have been authorized by the electors that have not yet been issued. The School District is not and has not been in default in the payment of debt service on any of its general obligation bonds or notes. Overlapping Subdivision Indebtedness In addition to the School District, other political subdivisions have the power to issue bonds and to levy taxes or cause taxes to be levied on taxable real property in the School District. The estimated outstanding bonded indebtedness of such political subdivisions (excluding self-supporting debt and debt payable primarily from enterprise revenues) is as follows: Overlapping Units Overlapping Debt Upper Arlington City School District Estimated Outstanding Debt Percent Applicable to School District Estimated Amount of Overlapping Debt Franklin County $ 221,125, % $14,107,775 Columbus City 1,359,910, ,039,865 Upper Arlington City 59,165, ,750,845 Perry Township Solid Waste Authority of Central Ohio Misc. 49,545, ,017,291 Total $77,915,776 Source: OMAC as of December 29, 2017 The following table shows the per capita debt of the residents in the School District based upon the 2015 U.S. Bureau of the Census estimate of 35,165 people residing in the School District, the above overlapping indebtedness figures and the School District debt shown above, including the Bonds: Debt Per Capita Upper Arlington City School District School District Debt, per capita $7, * Overlapping Debt, per capita 2, Total Debt, per capita $9, * Source: OMAC and School District calculations * Preliminary, subject to change A-31

60 Debt Capacity Analysis The following table provides an analysis of the School District s debt capacity as of February 27, 2018 *, including the Bonds. The School District s tax valuation is calculated in accordance with Revised Code Section (PP) and is based on Collection Year 2018 data provided by the State Department of Taxation. Debt Capacity Upper Arlington City School District A. Tax valuation $1,943,122,330 B. Total debt, including the Bonds 246,395,000 *1 C. Exempt debt 3,025,000 2 D. Total non-exempt debt (B minus C) 243,370,000 * E. F. G. H. 1/10 of 1% direct debt limitation (1/10 of 1% of tax valuation) 1,943,122 Total limited tax non-exempt bonds and notes outstanding (not including Revised Code Section (G) debt) 0 Debt leeway within 1/10 of 1% unvoted debt limitation, but subject to indirect debt limitation (E minus F) 1,943,122 9/10 of 1% direct debt limitation (Section (G) debt) (9/10 of 1% of tax valuation) 17,488,100 I. Total Revised Code Section (G) debt 0 J. Debt leeway within 9/10 of 1% unvoted debt limitation, but subject to indirect debt limitation (H minus I) 17,488,100 K. 9% direct debt limitation 3 264,254,261 L. Debt leeway within the 9% direct debt limitation (K minus D) 4 20,884,261 * Source: Ohio Department of Taxation and School District calculations * Preliminary, subject to change 1 As of the February 27, 2018, total School District [non-exempt] debt is equal to % * of the most recent tax valuation for the School District. 2 Exempt debt includes the School District s Permanent Improvement Levy Notes, Series 2016, dated May 3, Based on a projected assessed valuation of $2,202,118,847 as derived from the 10-year growth in assessed valuation calculated by the special needs procedure outlined in Revised Code See Statutory Debt Limitations Generally State Consents and Special Needs Status above. 4 Debt leeway is determined without reference to applicable moneys in the School District s Bond Retirement Fund. A-32

61 Lease Obligations Under Ohio law, school districts have only the authority to lease or lease purchase any capital asset that is expressly granted by statute or necessarily implied from expressly granted authority. Express statutory authority exists for true leases (i.e., leases where no portion of the lease payment is applied toward the purchase of the capital asset) or lease-purchase or installment sale arrangements for the following: land, office equipment, school buses, administrative office facilities and buildings for any school district purpose. Except in cases where lease-purchase or installment sale arrangements include certain provisions providing that the obligations under such agreement may be terminated at the end of a Fiscal Year (e.g., a requirement of annual appropriation in order to extend the lease term beyond the current Fiscal Year), such agreements would constitute debt for purposes of the indirect debt limitation and the statutory direct debt limitations discussed more fully herein (see SCHOOL DISTRICT DEBT AND DEBT LIMITATIONS Statutory Debt Limitations Generally ). Lease-Purchase Financings The School District entered into a master lease agreement dated September 7, 2015, to finance various computer hardware. As part of that master lease agreement, the School District entered into two separate agreements in the amounts of $2,954,716 and $2,069,716, dated September 7, 2015 and May 26, 2016, respectively. The final payments under these agreements are due on September 7, 2018 and August 15, 2019, respectively. Future Financings Other than the Series 2018B Bonds, described above in THE BONDS Authorization and Purpose, the School District does not anticipate any additional capital financings in the next five years. FINANCES OF THE SCHOOL DISTRICT Budgeting, Tax Levy and Appropriations Procedures The Revised Code contains detailed provisions regarding School District budgeting, tax levy and appropriation procedures. These procedures involve review by County officials at several steps. School District budgeting for a Fiscal Year formally begins with the preparation of an alternative tax budget as determined by the County Budget Commission (the Budget Commission ), comprised of the County Auditor, County Treasurer and Prosecuting Attorney of the County. The alternative tax budget is submitted to the County by January 15th prior to the Fiscal Year to which it pertains. Among other items, the alternative tax budget must show the amounts required for debt service, the estimated receipts for payment from sources other than ad valorem property taxes and the net amount for which an ad valorem property tax levy must be made. The alternative tax budget then is presented for review by the Budget Commission. The Budget Commission holds a public hearing to review the budget, and issues, by March 1st, the Certificate of Estimated Resources that is the basis for School District appropriations and expenditures for the coming Fiscal Year. Upon approval of the tax budget and issuance of the Certificate of Estimated Resources, the Budget Commission certifies its actions to the Board together with the approved tax rates. Thereafter, the Board levies the approved taxes and certifies them to the proper County officials. The approved and certified tax rates are reflected in the tax bills sent to property owners during the collection year. Real property taxes are payable on a calendar year basis, generally in two installments with the first due usually in January and the second due in June or later. A-33

62 At the start of each Fiscal Year, the Board adopts a temporary appropriation measure to begin that new Fiscal Year and then, within three months, a permanent appropriation measure for that Fiscal Year. Permanent appropriation measures may be amended or supplemented during the Fiscal Year. Annual appropriations may not exceed the Budget Commission s official estimates of resources. The County Auditor must certify that the Board s appropriation measures, including any supplements or amendments, do not appropriate moneys in excess of the amount set forth in the latest of those official estimates. The County serves as tax collector for the School District. Investments and deposits of County funds are also governed by Revised Code Chapter 135 (the Uniform Depository Act ). The County Treasurer is responsible for those investments and deposits. The County s most recent audited financials contain a recitation of the County s current investment practices and can be obtained at the Ohio Auditor of State website: Financial Reports and Audits The School District s Fiscal Year is the 12-month period beginning July 1 and ending June 30. The Board maintains its accounts, appropriations, and other fiscal records on the basis of generally accepted accounting principles ( GAAP ). The State Auditor is charged by law with the responsibility for auditing the financial statements of each taxing subdivision and most public agencies and institutions. A financial report for each Fiscal Year is required to be filed with the State Auditor pursuant to Revised Code Section Such reports are required to be submitted to the State Auditor at the close of each Fiscal Year. At the time of filing of such report, the Treasurer is required to publish a notice that the report is completed and available for review in the Treasurer s office. The most recent audit of the School District s financial statements by the State Auditor was completed through the Fiscal Year ending June 30, 2017 and was reviewed by the Board s administrative staff. The State Auditor did not require any adjustments or make any findings for recovery. No bringdown procedures have been undertaken by the State Auditor since the date of the financial statements. The audited Financial Statements for the Fiscal Year Ended June 30, 2017 are attached hereto as APPENDIX B. Governmental Accounting Standards Board pronouncements and Financial Accounting Standards Board pronouncements are the principal sources used to determine the accounting principles employed under GAAP. These publications, among other things, provide for a modified accrual basis of accounting for governmental funds and for a full accrual basis of accounting for proprietary funds and for each major and aggregated non-major fiduciary fund. The publications also further provide for the preparation of balance sheets for each major and non-major fund, and statements of revenues and expenditures, and changes in fund balances (major and aggregated non-major governmental funds) or statements of revenues, expenses and changes in retained earnings/equity (major and aggregated non-major proprietary funds) and statement of cash flows. The principles further require preparation of a statement of net assets and a statement of activities for the entity s business type and government type activities on the full accrual basis of accounting, and management s discussion and analysis of major events and transactions during the year. Five-Year Projection Boards of education are required to submit a five-year projection of operational revenues and expenditures (commonly known as the five-year forecast ) according to Department rules. Pursuant to such rules, the Department reviews the School District s five-year projection to determine if the School District has projected a deficit during the first three years of the five-year projection period. If the A-34

63 Department determines that further fiscal analysis is needed, the Department must forward the projection to the State Auditor, who will determine if the School District must be formally notified of a pending projected deficit. The School District must then take steps to eliminate any deficit in the current year and to plan to avoid projected deficits. The Board approved a five-year projection on December 11, 2017, a copy of which is attached hereto as APPENDIX C. Deficit projections arising from the five-year forecast may have the effect of triggering certain fiscal oversight mechanisms created under State law. Fiscal Oversight System The State has created a fiscal oversight system designed to ensure the financial stability of public school districts so that they can continue to perform the vital governmental mission of educating children while meeting their ongoing obligations to creditors, employees, vendors and suppliers. Under this fiscal oversight system, a school district may be declared to be in a state of fiscal caution, fiscal watch, or fiscal emergency based on certain triggering criteria established by law. These triggering criteria relate primarily to the size of the school district s current and projected operating deficits, but also include an evaluation of the school district s financial practices and its effectiveness in taking the necessary corrective measures. Increasing levels of intervention and control are imposed with each successive determination, culminating (at the fiscal emergency level) in the creation of an independent governing board for the school district. This independent governing board, the Financial Planning and Supervision Commission ( FPSC ), is vested with extraordinary powers, including the power to remove the superintendent and/or the treasurer and to implement staff reductions which would otherwise violate existing collective bargaining agreements. The State Auditor may conduct a performance audit of a school district in fiscal caution, fiscal watch, or fiscal emergency at any time. 1 The School District is not subject to a declaration of fiscal caution, fiscal watch, or fiscal emergency, and is not subject to any directives from the State Auditor, the State Superintendent, or a FPSC arising from any prior declaration. General Fund Operations The General Fund is the main operating fund of the School District. It is the fund from which most of the School District s expenditures are paid and into which most of the School District s revenues are deposited. The School District derives most of its revenues from a tax on real and tangible personal property and from State aid, including the School Foundation Program. (See OTHER SOURCES OF SCHOOL DISTRICT FUNDING School Foundation Program. ) 1 For more information about the criteria the State Auditor and State Superintendent use to determine whether a school district should be placed on fiscal caution, fiscal watch, or fiscal emergency, please visit the State Auditor s website at A-35

64 General Fund Set-Aside Ohio school districts are required to establish the following set-aside within their General Fund: Fund Source and Amount of Balance Purpose Capital and Maintenance Fund 1 3% 2 of general fund revenues 3 using the state base-cost formula amount for the preceding Fiscal Year multiplied by the School District s student population for the preceding Fiscal Year Acquisition, replacement, enhancement, maintenance, or repair of permanent improvements Any balance remaining in the above funds at the end of the current Fiscal Year is carried over to the next Fiscal Year. Investment of Funds According to the Treasurer, all moneys of the School District, specifically moneys in the general fund, the bond retirement fund, and all project funds containing proceeds of any debt issuances of the School District (including the Bonds), are presently or will be invested in accordance with the requirements of Ohio law, and in particular the Uniform Depository Act. Under Revised Code Section , the School District may invest its funds, provided that such investments generally must mature or be redeemable within five years from the date of purchase. The classifications of obligations which are eligible for such investment by the School District range from investment in the State Treasury Asset Reserve of Ohio investment pool ( STAR Ohio ) to investment in United States Treasury bills, commercial paper, certificates of deposit and bankers acceptances. Certain investment practices remain exclusive to those school districts whose fiscal officers have completed additional training in accordance with the Uniform Depository Act. Further, pursuant to Revised Code Section , all investments of the School District, except for investments in securities in STAR Ohio and certain no-load money market mutual funds, must be made through members of the National Association of Securities Dealers, Inc., banks, savings banks, or savings and loan associations regulated by the State superintendent of financial institutions or through institutions regulated by the comptroller of the currency, Federal Deposit Insurance Corporation, or board of governors of the Federal Reserve System. The School District interprets the limits on Federal guaranteed investments, bankers acceptances, commercial paper and all other legal investments very conservatively. No moneys of the School District have ever been invested in interest-only obligations, reverse-repurchase obligations, inverse floater obligations, or other investment vehicles commonly referred to as derivative investments. No moneys of the School District are invested in obligations which mature later than the time at which it is reasonably expected that the School District will need access to such moneys in order to meet current financial commitments. The Treasurer has attended special training in all of the investment areas to assure strict compliance with the strictly conservative investment philosophy of the School District. All investments are transacted with banks or other financial institutions operating in the State. Complete detail of the current investment practices of the School District can be found in the most recent audited financial statements of the School District. (See APPENDIX B herein.) 1 A school district may elect to set aside funds pursuant to previous law by notifying the State Auditor within 90 days of the beginning of the fiscal year of such election. 2 A different percentage requirement may be set by the State Auditor. 3 A school district may elect to set-aside funds from the proceeds of a permanent improvement levy instead of diverting funds from the general fund to meet this requirement. A-36

65 School District Insurance The School District maintains comprehensive insurance coverage with private carriers for real property and building contents with a $5,000 deductible, and for the bus fleet and maintenance vehicles with a $1,000 deductible and a $1,000,000 limit per occurrence. In addition, the School District maintains general liability insurance with $8 million of umbrella coverage. Ohio law provides immunity for political subdivisions such as the School District from liability in damages. The immunity covers injury, death, or loss to persons or property allegedly caused by an act or omission of such political subdivisions or their employees with governmental and proprietary functions, as defined in the Ohio statutes. Included among such governmental functions are the design, construction, reconstruction, renovation, repair, maintenance, and operation of any school athletic facility, school auditorium, or gymnasium. The statutes have no effect on any liability imposed by federal law or other federal cause of action. Pursuant to Ohio law, there are, however, five areas in which a political subdivision may be held liable for such loss. These include the negligent operation of a motor vehicle by employees engaged within the scope of their employment and authority; negligent performance of proprietary functions; negligent failure to keep public roads in repair, and other negligent failure to remove obstructions from public roads; negligence of employees due to physical defects within or upon the grounds of buildings used in the performance of governmental functions, excluding jails, juvenile detention workhouses and other detention facilities; and liability specifically imposed by statute. Ohio law also imposes a two-year statute of limitations and puts limits on the damages which may be recovered from such political subdivisions. No punitive or exemplary damages can be recovered, and any insurance benefits are deducted from any award against a political subdivision. Although there is no limitation with respect to compensatory damages representing a person s economic loss, there is a $250,000 per person ceiling on the compensatory damage that represents a person s non-economic loss in cases other than wrongful death, in which case there is no maximum limitation. [Balance of Page Intentionally Left Blank] A-37

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67 APPENDIX B FINANCIAL STATEMENTS Upper Arlington City School District Franklin County, Ohio for the Fiscal Year ended June 30, 2017 B-1

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69 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY SINGLE AUDIT FOR THE YEAR ENDED JUNE 30, 2017

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71 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY TABLE OF CONTENTS TITLE PAGE Independent Auditor s Report... 1 Prepared by Management: Management s Discussion and Analysis... 5 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet Governmental Funds Reconciliation of Total Governmental Fund Balances to Net Position of Governmental Activities Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Fiduciary Assets and Liabilities Fiduciary Funds Notes to the Basic Financial Statements Required Supplementary Information: Statement of Revenues, Expenditures, and Changes in Fund Balance Budget (Non-GAAP Basis) and Actual General Fund Schedules of the District s Proportionate Share of the Net Pension Liability - SERS Schedules of the District s Proportionate Share of the Net Pension Liability - STRS Schedules of District s Contributions - SERS Schedules of District s Contributions - STRS Notes to the Required Supplementary Information Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards... 68

72 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY TABLE OF CONTENTS (Continued) TITLE PAGE Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Required by Government Auditing Standards Independent Auditor s Report on Compliance with Requirements Applicable to the Major Federal Program and on Internal Control Over Compliance Required by Uniform Guidance Schedule of Findings... 73

73 INDEPENDENT AUDITOR S REPORT Upper Arlington City School District Franklin County 1950 North Mallway Drive Upper Arlington, Ohio To the Board of Education: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of Upper Arlington City School District, Franklin County, Ohio (the District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for preparing and fairly presenting these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes designing, implementing, and maintaining internal control relevant to preparing and fairly presenting financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to opine on these financial statements based on our audit. We audited in accordance with auditing standards generally accepted in the United States of America and the financial audit standards in the Comptroller General of the United States Government Auditing Standards. Those standards require us to plan and perform the audit to reasonably assure the financial statements are free from material misstatement. An audit requires obtaining evidence about financial statement amounts and disclosures. The procedures selected depend on our judgment, including assessing the risks of material financial statement misstatement, whether due to fraud or error. In assessing those risks, we consider 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 to the extent needed to opine on the effectiveness of the District's internal control. Accordingly, we express no opinion. An audit also includes evaluating the appropriateness of management s accounting policies and the reasonableness of their significant accounting estimates, as well as our evaluation of the overall financial statement presentation. We believe the audit evidence we obtained is sufficient and appropriate to support our audit opinions. 88 East Broad Street, Tenth Floor, Columbus, Ohio Phone: or

74 Upper Arlington City School District Franklin County Independent Auditor s Report Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the major fund, and the aggregate remaining fund information of Upper Arlington City School District, Franklin County, Ohio, as of June 30, 2017, and the respective changes in financial position thereof for the year then ended in accordance with the accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require this presentation to include Management s discussion and analysis, required budgetary comparison schedule and schedules of net pension liabilities and pension contributions listed in the table of contents, to supplement the basic financial statements. Although this information is not part of the basic financial statements, the Governmental Accounting Standards Board considers it essential for placing the basic financial statements in an appropriate operational, economic, or historical context. We applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, consisting of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, to the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not opine or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to opine or provide any other assurance. Supplementary and Other Information Our audit was conducted to opine on the District s basic financial statements taken as a whole. The Schedule of Expenditures of Federal Awards presents 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 and is not a required part of the financial statements. The Schedule is management s responsibility, and derives from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. We subjected this Schedule to the auditing procedures we applied to the basic financial statements. We also applied certain additional procedures, including comparing and reconciling the Schedule directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves in accordance with auditing standards generally accepted in the United States of America. In our opinion, this Schedule is fairly stated in all material respects in relation to the basic financial statements taken as a whole. 2

75 Upper Arlington City School District Franklin County Independent Auditor s Report Page 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 21, 2017 on our consideration of the District s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. That report describes the scope of our internal control testing over financial reporting and compliance, and the results of that testing, and does not opine 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 the District s internal control over financial reporting and compliance. Dave Yost Auditor of State Columbus, Ohio November 21,

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77 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (UNAUDITED) As management of the Upper Arlington City School District (the District), we offer readers of the District financial statements this narrative overview and analysis of the financial activities of the District for the fiscal year ended June 30, Financial Highlights The District s net position was ($16,158,219) as of June 30, 2017 according to the Statement of Net Position. This represents a decrease of $70,000 or 0.4% from last year s net position of ($16,088,219). In November 2013, the Citizens of the District voted to approve a new continuing operating levy of 4.0 mills. This levy generates approximately $6.3 million annually. The General Fund reported a positive fund balance of $68,250,552. However, included within this balance is approximately $30.7 million in tax revenues intended to finance next year s operations. Under accrual accounting, monies certified as being available for advance by the County Auditor, as of fiscal year end, are recognized as revenues within that fiscal year. On a budgetary basis, these monies are intended to finance the following year. Reporting the District as a Whole The Statement of Net Position and Statement of Activities One of the most important questions asked about the District s finances is, Is the District better off or worse off as a result of the year s activities? The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities in a manner that helps answer this question. These statements include all assets and deferred outflows and liabilities and deferred inflows using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year revenues and expenses are taken into consideration regardless of when cash is received or paid. These two statements report the District s net position and changes in them. The change in net position provides the reader a tool to assist in determining whether the District s financial health is improving or deteriorating. The reader will need to consider other non-financial factors such as property tax base, current property tax laws, student enrollment growth, and facility conditions in arriving at their conclusion regarding the overall health of the District. Reporting the District s Most Significant Fund Fund Financial Statements Our analysis of the District s major fund appears on the fund financial statements beginning with the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances. These statements provide detailed information about the most significant fund not the District as a whole. Some funds are required to be established by State statute, while many other funds are established by the District to help manage money for particular purposes and compliance with various grant provisions. The District s two types of funds, governmental and fiduciary, use different accounting approaches as further described in the notes to the basic financial statements. 5

78 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017, CONTINUED (UNAUDITED) Governmental Funds Most of the District s activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting which measures cash and other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District s general government operations and the basic services it provides. Governmental fund information helps readers determine whether there are financial resources available to spend in the near future to finance the District s programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is reconciled in the basic financial statements. Fiduciary Funds The District s fiduciary funds are the Student Managed Activities Fund and the District Agency Fund (OHSAA). The District s fiduciary activities are reported in the Statement of Fiduciary Assets and Liabilities, Fiduciary Funds. We exclude these activities from the District s other financial statements because these assets cannot be utilized by the District to finance its operations. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of the District, assets (including deferred outflows) were less than liabilities (including deferred inflows) by ($16,158,219) according to the Statement of Net Position at the close of the most recent fiscal year. The negative net position is solely attributed to the net pension liability (including related deferred inflows and outflows of resources) in the amount of $130,357,890. A comparative analysis of fiscal year 2017 to 2016 follows from the Statements of Net Position: Net Position Governmental Activities Current assets $ 140,099,332 $ 136,110,603 Capital assets 60,380,571 59,084,462 Total assets 200,479, ,195,065 Deferred outflows 29,085,108 13,613,194 Current liabilities 11,587,518 10,062,596 Long-term liabilities 187,643, ,670,423 Total liabilities 199,231, ,733,019 Deferred inflows 46,491,898 51,163,459 Net Position: Net investment in capital assets 37,590,246 36,477,525 Restricted 13,571,992 11,646,685 Unrestricted (67,320,457) (64,212,429) Total net position $ (16,158,219) $ (16,088,219) 6

79 Analysis of Net Position UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017, CONTINUED (UNAUDITED) Total net position decreased $70,000, and remained at a deficit net position of $16.2 million. Net Pension Liability increased $28.4 million. This liability represents the District s share, as calculated per GASB 68, of the two state retirement systems present value of estimated future pension benefits less the assets available to pay those benefits. This will fluctuate annually based on a number of factors including investment returns, actuarial assumptions used, and the District s proportionate share of the Net Pension Cost. As a result, many end users of this financial statement will gain a clearer understanding of the District s actual financial condition by adding deferred inflows related to pension and the net pension liability to the reported net position and subtracting deferred outflows related to pension. The result would be a positive net position in 2017 of $114,199,671. One of the other largest portions of the District s net position of $37.6, million reflects its net investment in capital assets. The District uses capital assets to provide services; consequently, these assets are not available for future spending. Although the District s net investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Changes in Net Position Governmental Activities Program revenues: Charges for services and sales $ 6,222,665 $ 5,323,578 Operating grants and contributions 3,016,316 2,914,092 General revenues: Property taxes 77,504,079 75,747,136 Payment in lieu of taxes (PILOT) 1,246,687 1,436,430 Grants and entitlements not restricted to specific programs 13,905,493 13,798,788 Investment earnings 477, ,965 Miscellaneous 5,031,821 3,933,218 Total revenues 107,404, ,681,207 Program expenses: Instructional services 64,976,104 53,725,043 Support services 33,258,942 28,591,358 Extracurricular student activities 2,895,650 2,633,609 Food service operations 1,772,788 1,475,411 Community services 3,859,606 3,281,202 Interest on long-term debt 711, ,386 Total expenses 107,474,289 90,412,009 Change in net position (70,000) 13,269,198 Net position at the beginning of the year (16,088,219) (29,357,417) Net position at end of year $ (16,158,219) $ (16,088,219) Governmental Activities In 2017, net position of the District s governmental activities decreased by $70,000. This decrease is primarily a result of the increase in net pension cost over last year by approximately $7.3 million. Other than pension cost, revenues continuing to outpace other operating expenses. Overall net entity-wide cash increased by approximately $3.0 million. 7

80 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017, CONTINUED (UNAUDITED) The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. The table below reflects the cost of program services and the net cost of those services after taking into account the program revenues for the governmental activities. General revenues including tax revenue, investment earnings and unrestricted state entitlements must support the net cost of program services. Programs Total Cost of Service Net Cost of Service Total Cost of Service Net Cost of Service Instructional services $ 64,976,104 $ 63,166,839 $ 53,725,043 $ 52,069,366 Support services 33,258,942 32,836,342 28,591,358 28,191,694 Extracurricular student activities 2,895,650 1,377,913 2,633,609 1,505,549 Food service operations 1,772, ,176 1,475,411 (6,321) Community services 3,859,606 (4,161) 3,281,202 (291,335) Interest on long-term debt 711, , , ,386 Total $ 107,474,289 $ 98,235,308 $ 90,412,009 $ 82,174,339 Local property taxes and related PILOT revenues make up 73.3% of total revenues for governmental activities. The net cost of service column reflects the need for $98,235,308 of support indicating the reliance on general revenues to support governmental activities. The District s Funds The District s governmental funds reported a combined fund balance of $81,446,201, which represents an increase of $949,343 as compared to last year s total of $80,496,858 according to the Governmental Funds Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balances. The schedule below shows the fund balances and the total change in fund balances from June 30, 2017 to Fund Balance at June 30, 2017 Fund Balance at June 30, 2016 Increase General Fund $ 68,250,552 $ 64,502,374 $ 3,748,178 Other Governmental Funds 13,195,649 15,994,484 (2,798,835) Total $ 81,446,201 $ 80,496,858 $ 949,343 General Fund The District s General Fund balance increase is a result of revenues continuing to outpace expenses due to the District continuing to focus on maintaining expenses. Other Governmental Funds Other governmental funds consist of Debt Service, Special Revenue, and Capital Projects funds. Fund balance in these funds decreased by $2,798,835. The decrease is primarily related to the District spending down the proceeds from the issuance of $4.5 million tax anticipate notes issued in fiscal year

81 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017, CONTINUED (UNAUDITED) The tables that follow assist in illustrating the financial activities and balance of the General Fund % Change Property taxes $ 71,010,141 $ 70,994, % Payments in lieu of taxes 1,246,687 1,436, % Intergovernmental 13,208,644 13,184, % Investment income 461, , % Other revenue 5,137,221 3,933, % Total $ 91,064,380 $ 90,074, % As the table below indicates, the largest portion of General Fund expenditures at 62.6% is for instructional services. Expenditures by Function % Change Instructional services $ 54,591,373 $ 52,133, % Support services 30,247,054 28,872, % Co-curricular student activities 1,705,195 1,666, % Capital outlay 19,770 5,045, % Debt service 674, % Total $ 87,237,852 $ 87,717, % Total General Fund expenditures decreased by 0.55 % over the prior year. This decrease is due to the inception of capital lease obligation for various instructional computer equipment as denoted by the $5 million in capital outlay in fiscal year Absence transactions related to such lease in both fiscal year 2017 (debt service) and 2016, expenditures increased 4.7%. General Fund Budget Information The District s budget is prepared in accordance with Ohio law and is based on the cash basis of accounting, utilizing cash receipts, disbursements and encumbrances. Changes are made to the District s budget as changes in revenues and spending patterns are experienced. During the course of fiscal year 2017, the District amended its General Fund budget numerous times. For the General Fund, final budgeted revenues (certified revenues plus other financing sources) of $87,758,578 were $2,185,590 higher than the original budgeted revenues estimate of $85,572,988. The actual budget basis revenues and other financing sources for fiscal year 2017 totaled $87,781,630, which were $23,052 higher than the final budget revenues. General Fund original appropriations (appropriated expenditures plus other financing uses) of $86,647,445 were decreased to $85,054,452 in the final budget. The actual budget basis expenditures and other financing uses for fiscal year 2017 totaled $84,858,439, which was $196,013 less than the final budget appropriations. 9

82 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017, CONTINUED (UNAUDITED) Changes in the current year budget, which is presented as required supplemental information, in the following basic financial statements are as follows: Revenues The variance in revenues related to the final budget and actual amounts is less than 0.1%. Expenditures Overall, the variance between actual expenditures and the final budget was less than 0.25% of the total budget which is acceptable to District management. The District uses the five-year forecast as the original document from which to form the operating budget. After updating the forecast for changes in revenue and expenditure assumptions, the operating budget begins at the school level. Each school in the District receives a per pupil allocation augmented with resources for special education students in the specific buildings. Budgets are reviewed periodically to ensure management becomes aware of any variations during the year. Capital Assets At June 30, 2017, the District has $60,380,571 in capital assets net of accumulated depreciation. The following table shows fiscal year 2017 and 2016 balances: Governmental Activities Increase (Decrease) Land $ 629,783 $ 629,783 $ - Construction in progress 4,177,583 2,983,900 1,193,683 Land improvements 3,306,997 3,124, ,497 Building and improvements 91,323,244 88,175,354 3,147,890 Furniture, fixtures and equipment 13,954,821 13,281, ,006 Vehicles 2,800,977 2,631, ,044 Less: Accumulated depreciation (55,812,834) (51,742,823) (4,070,011) Totals $ 60,380,571 $ 59,084,462 $1,296,109 Additional information on the District s capital assets can be found in the notes to the basic financial statements. (Note 6) 10

83 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017, CONTINUED (UNAUDITED) Debt On June 30, 2017, the District had $20,573,215 in net long-term bonds and notes outstanding. The District paid $3,050,000 in principal on bonds and notes outstanding. On May 3, 2016, the District issued tax anticipation note in the amount of $4,500,000. The notes have a fixed interest rate of 1.39 percent and a maturity date of December 1, The District has an option to redeem such notes on or after December 1, The proceeds are to be used various permanent improvements. Detailed information regarding long-term debt is included in the notes to the basic financial statements (See Note 7). Under current state statutes, the District s general obligation bonded debt issues are subject to a legal limitation based on 9% of the total taxable valuation of real and personal property. As of June 30, 2017, the District s general obligation debt was below the legal limit. Economic Factors The property tax laws in Ohio create the need periodically to seek voter approval for additional operating funds. Tax revenues generated from voted tax levies do not increase as a result of inflation. An operating levy is approved for a fixed millage rate, but the rate is reduced for inflation with the effect of providing the District the same amount of tax dollars as originally approved. Therefore, school districts such as ours that are dependent upon property taxes as a primary source of revenue must periodically return to the ballot and ask voters for additional resources to maintain current programs. Since the District must rely heavily on voter approval of operating tax issues, management of the resources is of paramount concern to the District s Board of Education, administration, and the voting public. Contacting the District s Financial Management This financial report is designed to provide our citizens, tax payers, investors, and creditors with a general overview of the District s finances and to reflect the District s accountability for monies it receives. Questions concerning any information in this report or request for additional information should be directed to Andrew L. Geistfeld, Treasurer, Upper Arlington City School District, 1950 North Mallway Drive, Upper Arlington, Ohio

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85 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO STATEMENT OF NET POSITION JUNE 30, 2017 GOVERNMENTAL ACTIVITIES ASSETS: Equity in pooled cash & investments $ 61,127,823 Receivables 78,256,455 Due from other: Governments 490,352 Funds - Inventory 224,702 Deferred charges - Land and Construction in Progress 4,807,366 Depreciable capital assets, net of accumulated deprecation 55,573,205 TOTAL ASSETS 200,479,903 DEFERRED OUTFLOWS OF RESOURCES: Deferred charge on refunding 809,017 Pension 28,276,091 TOTAL DEFERRED OUTFLOWS OF RESOURCES 29,085,108 LIABILITIES: Accounts payable 2,554,936 Due to other governments 1,647,873 Accrued interest payable 53,899 Accrued liabilities 7,330,810 Long-term Liabilities: Due within one year 5,242,830 Due in more than one year: Net pension liability 157,522,907 Other amounts due in more than one year 24,878,077 TOTAL LIABILITIES 199,231,332 DEFERRED INFLOWS OF RESOURCES: Property taxes 45,380,824 Pension 1,111,074 TOTAL DEFERRED INFLOWS OF RESOURCES 46,491,898 NET POSITION Net investment in capital assets 37,590,246 Restricted for: Debt Service 3,804,970 Capital Outlay 5,851,939 Food Services 27,085 Non-Public Schools 102,266 Special Education 301,764 Community Services 2,039,188 Student Activities 567,569 Other Purposes 877,211 Unrestricted (67,320,457) TOTAL NET POSITION $ (16,158,219) The notes to the basic financial statements are an integral part of this statement. 13

86 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Net (Expense) Revenue and Changes in Net Position Program Revenues Primary Government - Charges for Operating Grants Governmental Expenses Services and Sales and Contributions Activities Governmental Activities Instructional services: Regular $ 50,195,056 $ 463,093 $ - $ (49,731,963) Special 14,669,727-1,346,172 (13,323,555) Vocational 111, (111,321) Support services: Operation and maintenance of plant 7,276, (7,276,032) School Administration 5,719, ,734 (5,502,580) Pupils 6,448,255 21,004 43,649 (6,383,602) Fiscal 2,146, (2,146,319) Business Operations 585, (585,809) Instructional staff 4,510,383-76,193 (4,434,190) Student transportation 2,012,573-50,620 (1,961,953) Central services 4,515,964-14,400 (4,501,564) General Administration 44, (44,293) Extracurricular student activities 2,895,650 1,517,737 - (1,377,913) Food Service operations 1,772,788 1,585,388 40,224 (147,176) Community services 3,859,606 2,635,443 1,228,324 4,161 Interest on long-term debt 711, (711,199) Total Governmental Activities $ 107,474,289 $ 6,222,665 $ 3,016,316 $ (98,235,308) General revenues: Property taxes 77,504,079 Payment in lieu of taxes 1,246,687 Grants and entitlements not restricted to specific programs 13,905,493 Investment earnings 477,228 Miscellaneous 5,031,821 Total general revenues 98,165,308 Change in Net Position (70,000) Net Position Beginning of Year (16,088,219) Net Position End of Year $ (16,158,219) The notes to the basic financial statements are an integral part of this statement. 14

87 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2017 OTHER GOVERNMENTAL GENERAL FUNDS TOTAL ASSETS : Equity in pooled cash and investments $ 49,063,148 $ 12,064,675 $ 61,127,823 Receivables 72,499,811 5,756,644 78,256,455 Due from other: Governments - 490, ,352 Funds 84,145-84,145 Interfund receivable Inventory and Prepaids 83, , ,702 TOTAL ASSETS $ 121,731,167 $ 18,452,576 $ 140,183,743 LIABILITIES: Accounts payable 1,403,021 1,151,915 2,554,936 Due to other: Governments 1,563,205 84,668 1,647,873 Funds - 84,145 84,145 Interfund payable Accrued liabilities 7,109, ,669 7,330,810 TOTAL LIABILITIES 10,075,367 1,542,663 11,618,030 DEFERRED INFLOWS OF RESOURCES 43,405,248 3,714,264 47,119,512 FUND BALANCES: Nonspendable - Inventories/Prepaids 83, , ,702 Restricted for: Debt Service - 3,804,147 3,804,147 Capital Outlay - 5,798,663 5,798,663 Food Services - 17,627 17,627 Non-Public Schools - 102, ,266 Community Activities - 2,141,637 2,141,637 Student Activities - 445, ,750 Other Purposes - 877, ,211 Medical insurance 3,304,443-3,304,443 Workers compensation 928, ,825 Assigned 588, ,413 Unassigned 63,345,074 (132,557) 63,212,517 TOTAL FUND BALANCES 68,250,552 13,195,649 81,446,201 TOTAL LIABILITIES, DEFERRED INFLOWS AND FUND BALANCES $ 121,731,167 $ 18,452,576 $ 140,183,743 The notes to the basic financial statements are an integral part of this statement. 15

88 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES JUNE 30, 2017 Total Governmental Fund Balances $ 81,446,201 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not functional resources and therefore are not reported in the funds. 60,380,571 Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the funds. 1,738,688 The net pension liability is not due and payable in the current period; therefore, the liability and related deferred inflows/outflows are not reported reported in governmental funds: Long-term liabilities, including bonds and notes payable, are not due and payable in the current period and therefore are not reported in the funds. Deferred outflows - Pension 28,276,091 Deferred inflows - Pension (1,111,074) Net pension liability (157,522,907) Interest payable (53,899) Compensated absences (6,521,565) Bonds and Notes payable (19,500,000) Premium on bonds, net (1,073,215) Deferred amounts on refundings, net 809,017 Capital lease obligation (3,026,127) Net Position of Governmental Activities $ (16,158,219) The notes to the basic financial statements are an integral part of this statement. 16

89 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 OTHER GOVERNMENTAL GENERAL FUNDS TOTAL REVENUES: Property taxes $ 71,010,141 $ 5,646,070 $ 76,656,211 Payments in lieu of taxes 1,246,687-1,246,687 Intergovernmental: Federal Restricted Grants-in-aid 102,804 1,751,761 1,854,565 State: Unrestricted Grants-in-aid 13,104, ,732 13,905,494 Restricted Grants-in-aid 1,078 1,130,138 1,131,216 Investment income 461,687 17, ,233 Charges for services 1,042,687 4,208,561 5,251,248 Co-curricular activities 202, , ,956 Other 3,892,285 1,169,992 5,062,277 TOTAL REVENUES 91,064,380 15,461, ,525,887 EXPENDITURES: Current: Instructional services: Regular 42,027, ,511 42,250,708 Special 12,452,855 1,272,728 13,725,583 Vocational 111, ,321 TOTAL INSTRUCTIONAL SERVICES 54,591,373 1,496,239 56,087,612 Support services: Operation and maintenance of plant 6,656,859 53,428 6,710,287 School administration 5,119, ,584 5,339,583 Pupils 5,781,974 52,462 5,834,436 Fiscal 1,978,090 96,985 2,075,075 Business operations 544, ,985 Instructional staff 4,060, ,295 4,183,182 Student transportation 1,660, ,251 1,879,754 Central services 4,400,889 14,400 4,415,289 General administration 42,868-42,868 TOTAL SUPPORT SERVICES 30,247, ,405 31,025,459 Co-curricular student activities 1,705,195 1,043,540 2,748,735 Community services - 3,705,311 3,705,311 Food service - 1,667,752 1,667,752 Capital outlay 19,770 5,279,401 5,299,171 Debt service: Principal retirement 666,417 3,632,037 4,298,454 Interest 8, , ,050 TOTAL EXPENDITURES 87,237,852 18,338, ,576,544 Excess (deficiency) of revenues over expenditures 3,826,528 (2,877,185) 949,343 OTHER FINANCING SOURCES (USES): Transfers in - 885, ,587 Transfers out (78,350) (807,237) (885,587) TOTAL OTHER FINANCING SOURCES (USES) (78,350) 78,350 - Change in Fund Balances 3,748,178 (2,798,835) 949,343 FUND BALANCES AT BEGINNING OF YEAR FUND BALANCE AT END OF YEAR 64,502,374 15,994,484 80,496,858 $ 68,250,552 $ 13,195,649 $ 81,446,201 The notes to the basic financial statements are an integral part of this statement. 17

90 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Net Changes in Fund Balances - Total Governmental Funds $ 949,343 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. Capital outlay $ 5,483,865 Depreciation (4,173,304) 1,310,561 Revenues in the statement of activities that do not provide current financial resources are not reported as revenue in the funds. 878,402 Repayment of principalon debt obligations is an expenditure in governmental fund, but the repayment reduces long-term liabilities in the statement of net position and does not result in an expense in the statement of activities. Principal 4,298,454 4,298,454 Contractually required pension contributions are reported as expenditures in governmental funds; however, the statement of activities reports these amounts as deferred outflows. 7,541,285 Except for amounts reported as deferred inflows/outflows, changes in the net pension liability are reported as pension expense in the statement of activities (14,813,243) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Compensated absences (253,201) Loss on disposal of assets (14,452) Amortization, net 18,158 Interest expense 14,693 Change in Net Position of Governmental Activities $ (70,000) The notes to the basic financial statements are an integral part of this statement. 18

91 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUNDS JUNE 30, 2017 AGENCY FUND ASSETS: Equity in pooled cash and investments $252,561 Accounts receivable 752 TOTAL ASSETS $253,313 LIABILITIES: Accounts payable $3,995 Due to: Student Activities 249,201 Others 117 TOTAL LIABILITIES $253,313 The notes to the basic financial statements are an integral part of this statement. 19

92 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, Description of the School and Reporting Entity The Upper Arlington City School District, Franklin County, Ohio (the District) was organized in 1918 and is a fiscally independent political subdivision of the State of Ohio, Franklin County, Ohio. The District is governed by a five-member Board of Education (the Board) elected by the citizens of Upper Arlington. The District is comprised of 8 schools and other buildings and departments that employ approximately 746 employees. Our student population is 5,751 students, excluding Community Schools enrollment. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure that the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For the District, this includes general operations, food service and student related activities of the District. Component units are legally separate organizations for which the District is financially accountable. The District is financially accountable for an organization if the District appoints a voting majority of the organization s governing board and (1) the District is able to significantly influence the programs or services performed or provided by the organization; or (2) the District is legally entitled to or can otherwise access the organization s resources; the District is legally obligated or has otherwise assumed the responsibility to finance the deficits of, or provide financial support to, the organization; or the District is obligated for the debt of the organization. Component units may also include organizations that are fiscally dependent on the District in that the District approves the budget, the issuance of debt, or the levying of taxes. The following organizations are described due to their relationship to the District: JOINT VENTURE WITHOUT EQUITY INTEREST Rockbridge Academy The Rockbridge Academy is a joint venture consisting of a consortium of four school districts. The District does have an ongoing financial obligation to support the Rockbridge Academy s operations. See Note 12 to the basic financial statements. Burbank Park Burbank Park is an agreement between the City of Upper Arlington (the City) and the District to provide recreational facilities at Burbank Park. See Note 12 to the basic financial statements. JOINTLY GOVERNED ORGANIZATION Metropolitan Educational Technology Association (META) The District participates in the Metropolitan Educational Technology Association (META), a jointly governed organization created as a regional council of governments pursuant to Chapter 167 of the Ohio Revised Code. META operates as, and has all the powers of, a data acquisition site/information technology center pursuant to applicable provisions of the Ohio Revised Code. The organization was formed for the purpose of identifying, developing, and providing to members and non-members innovative educational and technological services and products, as well as expanded opportunities for cooperative purchasing. The General Assembly of META consists of one delegate from every member school district. 20

93 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 1. Description of the School and Reporting Entity Policies (Continued) The delegate is the superintendent of the school district or the superintendent s designee. The degree of control exercised by any participating school district is limited to its representation on the General Assembly. The General Assembly exercises total control over the operation of META including budgeting, appropriating, contracting, and designating management. Financial information can be obtained from David Varda, CFO, 100 Executive Drive, Marion, Ohio Additionally, within the District boundaries, St. Agatha, St. Andrew, and Wellington, are privately operated schools. The State provides funding for these nonpublic schools. These monies are received and disbursed on behalf of the nonpublic school by the Treasurer of the District, as directed by the nonpublic school. This financial activity is reflected in other governmental funds for reporting purposes. 2. Summary of Significant Accounting Policies The basic financial statements of the District have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the District s accounting policies are described below. (A) Basis of Presentation The District s basic financial statements consist of government-wide statements, including a Statement of Net Position and a Statement of Activities and fund financial statements which provide a more detailed level of fund information. (B) Government-wide and fund financial statements The Statement of Net Position and the Statement of Activities display information about the District as a whole. These statements include the financial activities of the Primary government, except for fiduciary funds. The Statement of Net Position presents the financial condition of the governmental activities of the District at year end. The government - wide Statement of Activities presents a comparison between direct expenses and program revenues for each program or function of the District s governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues not classified as program revenues are presented as general revenues of the District, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is self-financing or draws from the general revenues of the District. 21

94 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (B) Government-wide and fund financial statements (Continued) During the fiscal year, the District segregates transactions related to certain District functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements are designed to present financial information of the District at this more detailed level. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Fiduciary funds are reported by fund. (C) Fund Accounting The District uses funds to maintain its financial records during the year. Fund accounting is designed to demonstrate legal compliance and to aid management by segregating transactions related to certain District functions or activities. A fund is defined as a fiscal and accounting entity with a selfbalancing set of accounts. The various funds of the District are grouped into the categories governmental and fiduciary. Governmental Funds Governmental funds focus on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The District reports the following major governmental fund: General Fund The General Fund is used to account for all financial resources, except those required to be accounted for in another fund. The General Fund is available to the District for any purpose provided it is expended or transferred according to the general laws of Ohio. Fiduciary Funds Fiduciary fund reporting focuses on net position and changes in net position. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private purpose trust funds, and agency funds. Trust funds are used to account for assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the District s own programs. 22

95 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (C) Fund Accounting (Continued) Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The District has two agency funds. These funds are used to account for student managed activity programs and the Ohio High School Athletic Association activity. The District has not established any of the above trust funds. (D) Measurement focus The government-wide financial statements are reported using the economic resources measurement focus. All assets and deferred outflows of resources and all liabilities and deferred inflows of resources associated with the operation of the District are included on the Statement of Net Position. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities and deferred inflows of resources generally are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for governmental funds. Fiduciary funds are reported using the economic resources measurement focus. (E) Basis of Accounting Basis of accounting determines when a transaction is recorded in the financial records and reported on the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Differences in the accrual and modified accrual basis of accounting arise in the recognition of revenue, the recording of deferred inflows and in the presentation of expenses versus expenditures. Revenues Exchange and Non-exchange Transactions 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. Measurable means the amount of the transaction can be determined and available means collectible within the current fiscal year or soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means expected to be received within sixty days of fiscal year end. 23

96 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (E) Basis of Accounting (Continued) Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, payments in lieu of taxes (PILOTs), grants, entitlements, and donations. Revenue from property taxes and PILOTs are 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. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the fiscal year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specified purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. In applying the susceptible to accrual concept under the modified accrual basis, the following revenue sources are considered to be both measurable and available at fiscal year-end: property taxes available as an advance, grants, investment earnings, tuition, and student fees. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expenses/expenditures) until then. For the District, deferred outflows of resources are reported on the government-wide Statement of Net Position for deferred charges on refunding and for pension. A deferred charge on refunding results from the difference in the carrying value of refunding debt and its reacquisition price. This amount is deferred and amortized over the life of the refunding debt. The deferred outflows of resources related to pensions are explained in Note 10. In additions to liabilities, the statements of financial position will report a separate section for deferred inflows of resources. Deferred inflows of resources represent an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. For the District, deferred inflows include property taxes, payments in lieu of taxes (PILOTs), pension, and unavailable revenues. Property taxes and PILOT s are recognized as revenue in the fiscal year for which taxes have been levied, provided they are collected and certified by the county auditor by the fiscal year-end. Additionally, taxes collected more than thirty days after fiscal yearend are recorded as a receivable with an offset to deferred inflows for amounts not collected and available for advance on June 30 by the county auditor. Tuition, grants, investment earnings, and fees associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as a receivable or revenue, or deferred inflows of the current fiscal period. The deferred inflows of resources related to pension are reported on the government-wide Statement of Net Position. See Note 10 for further information. 24

97 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (E) Basis of Accounting (Continued) Expenditures/Expenses The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than on expenses. Expenditures are recorded when the related liability is incurred, if measurable. Principal and interest on general long term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. The costs of accumulated unpaid vacation and sick leave are reported as fund liabilities in the period in which they will be liquidated with available financial resources rather than in the period earned by the employee. Allocation of costs, such as depreciation and amortization, are not recognized in governmental funds. The accrual basis of accounting utilized on the government-wide financial statements recognizes revenues when they are earned, and expenses are recognized at the time they are incurred. (F) Budgetary Process The budgetary process is prescribed by provisions of the Ohio Revised Code and entails the preparation of budgetary documents within an established timetable. The major documents prepared are the tax budget, the certificate of estimated resources, and the appropriation resolution, all of which are prepared on the budgetary basis of accounting. The certificate of estimated resources and the appropriations resolution are subject to amendment throughout the year with the legal restriction that appropriations cannot exceed estimated resources, as certified. All funds, other than agency funds, are legally required to be budgeted and appropriated. The legal level of budgetary control is at the fund level. Any budgetary modifications at this level must be made by resolution of the Board of Education. Tax Budget: Prior to January 15, the Superintendent and the Treasurer submit to the Board of Education a proposed operating budget for the fiscal year commencing the following July 1. The budget includes proposed expenditures and the means of financing for all funds. The express purpose of this budget document is to reflect the need for existing (or increased) tax rates. By no later than January 20, the budget is filed with the Franklin County Budget Commission for rate determination. Estimated Resources: Prior to March 15, the Board of Education accepts, by formal resolution, the tax rates as determined by the Budget Commission and receives the Commission s Certificate of Estimated Resources which states the projected revenue of each fund. Prior to June 30, the District must revise its budget so that total contemplated expenditures from any fund during the ensuing year do not exceed the amount stated in the Certificate of Estimated Resources. The revised budget then serves as the basis for the appropriation measure. On or about July 1, the Certificate is amended to include unencumbered cash balances from the preceding year. 25

98 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (F) Budgetary Process (Continued) Estimated Resources: (Continued) The Certificate may be further amended during the year if projected increases or decreases in revenue are identified by the District Treasurer. The amounts reported as the final budgeted amounts in the budgetary schedule reflect the amounts in the amended certificate in effect at the time final appropriations were passed. Appropriations: Upon receipt from the County Auditor of an amended official certificate of estimated resources based on the final assessed values and tax rates or a certificate stating no new certificate is necessary, the annual appropriation resolution must be legally enacted by the Board of Education at the fund level of expenditures, which is the legal level of budgetary control. Prior to the passage of the annual appropriation measure, the Board may pass a temporary appropriation measure to meet the ordinary expenses of the District. The appropriation resolution, by fund, must be within the estimated resources as certified by the County Budget Commission and the total of expenditures and encumbrances may not exceed the appropriation totals at any level of control. Any revisions that alter the total of any fund appropriation must be approved by the Board of Education. The Board may pass supplemental fund appropriations so long as the total appropriations by fund do not exceed the amounts set forth in the most recent Certificate of Estimated Resources. During the year, several supplemental appropriations were legally enacted; however, none of these amendments were significant. The amounts reported as the final budgeted amounts represent the final appropriations passed by the Board during the fiscal year. Formal budgetary integration is employed as a management control device during the year for all funds, including the Debt Service Fund, consistent with statutory provisions. Encumbrances: As part of formal budgetary control, purchase orders, contracts and other commitments for the expenditure of monies are recorded as the equivalent of expenditures on the Non-GAAP budgetary basis in order to reserve that portion of the applicable appropriation and to determine and maintain legal compliance. On the GAAP basis, encumbrances outstanding at year-end are not reported. Lapsing of Appropriations: At the close of each year, the unencumbered balance of each appropriation reverts to the respective fund from which it was appropriated and becomes subject to future appropriation. Encumbered appropriations are carried forward to the succeeding fiscal year and are not re-appropriated. 26

99 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (G) Cash and Investments The District has invested funds in the State Treasury Assets Reserve of Ohio (STAR Ohio) during fiscal year STAR Ohio is an investment pool managed by the State Treasurer s Office, which allows governments within the State to pool their funds for investment purposes. STAR Ohio is not registered with the SEC as an investment company, but has adopted Governmental Accounting Standards Board (GASB), Statement No. 79, Certain External Investment Pools and Pool Participants. The City measures their investment in STAR Ohio at the net asset value (NAV) per share provided by STAR Ohio. The NAV per share is calculated on an amortized cost basis that provides an NAV per share that approximates fair value. For 2017, there were no limitations or restrictions on any participant withdrawals due to redemption notice periods, liquidity fees, or redemption gates. However, notice must be given 24 hours in advance of all deposits and withdrawals exceeding $25 million. STAR Ohio reserves the right to limit the transaction to $50 million, requiring the excess amount to be transacted the following business day(s), but only to the $50 million limit. All accounts of the participant will be combined for these purposes. For presentation purposes on the Balance Sheet, investments of the cash management pool and investments with an original maturity of three months or less at the time they are purchased by the District are considered to be cash equivalents. Investments with an initial maturity of more than three months are reported as investments. As authorized by Ohio statutes, the Board of Education has specified the funds to receive an allocation of interest earnings. Interest revenue credited to the General Fund during fiscal year 2017 amounted to $461,687, of which $46,305 was assigned from other funds. Except for nonparticipating investment contracts, investments are reported at fair value, which is based on quoted market prices. Nonparticipating investment contracts such as repurchase agreements and certificates of deposits are reported at cost. (H) Inventory On government-wide financial statements, inventories are presented at the lower cost or market on a first-in, first-out basis and are expensed when used. On fund financial statements, inventories of governmental funds are stated at cost. For all funds, cost is determined on a first-in, first-out basis. The cost of inventory items is recorded as an expenditure in the governmental fund types when purchased. Reported material and supplies inventory is equally offset by a nonspendable fund balance in the governmental funds, which indicates that it does not constitute available expendable resources even though it is a component of net current assets. (I) Capital Assets and Depreciation Capital assets generally result from expenditures in the governmental funds. These assets are reported within the governmental activities on the government-wide Statement of Net Position but are not reported in the fund statements. 27

100 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (I) Capital Assets and Depreciation (Continued) All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements throughout the year. Donated capital assets are recorded at their fair market values as of the date received. The District follows the policy of not capitalizing assets with a cost of less than $2,500 and a useful life of less than one year. The District does not possess any infrastructure. All reported capital assets, with the exception of land and construction in progress are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the following useful lives: Land improvements 20 Buildings and building improvements Furniture fixtures, and equipment 3-20 Vehicles 8-15 (J) Interfund Activity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures or expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources and uses in governmental funds. On fund financial statements, short-term interfund loans are classified as Due to/from other funds. These amounts are eliminated in the Statement of Net Position. (K) Compensated Absences Administrators and classified staff who work twelve month contracts are granted vacation leave. The leave amount is based on length of service and position. The District accrues vacation leave benefits as earned. Accrued vacation may be carried forward to the next fiscal year. The maximum amount to be carried at any one time is two times the annual number of days. District employees are granted vacation, personal leave, and sick leave in varying amounts. All leave will either be absorbed by time off from work, or with certain limitations, be paid to the employees when their employment ceases. Sick leave benefits are only paid upon retirement at the rate of 25% up to a maximum amount of days as determined by negotiated agreements with the two bargaining units and Board policy for all other employees. The entire compensated absence liability is reported on the entity-wide financial statements. For governmental fund financial statements, the amount of accumulated vacation and sick leave of employees has been recorded as a current liability to the extent that the amounts are expected to be paid using expendable available financial resources. The noncurrent portion of the liability is not recorded. The total liability for vacation and severance payments has been calculated using pay rates in effect at June 30, 2016, and reduced to the maximum payment allowed by labor contract and/or statute, plus any additional salary related payments. 28

101 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (K) Compensated Absences (Continued) The District uses the vesting method in determining the liability of sick leave recorded in accordance with the provisions of GASB Statement No. 16, Accounting for Compensated Absences. The timing of future payments for vacation and sick leave is dependent on many factors and therefore not readily determinable. However, management believes that sufficient resources will be made available for the payment of vacation and sick leave when such payments become due. (L) Accrued Liabilities and Long-term Debt All payables, accrued liabilities and long-term obligations are reported in the government wide financial statements. In general, governmental fund payables and accrued liabilities that once incurred, are paid in a timely manner and in full from current financial resources, and are reported as obligations of the funds. However, compensated absences and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. (M) Net Position Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisitions, construction, or improvement of those assets. Net position is reported as restricted when there are limitations imposed on its use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors or laws, or regulations of other governments. The government-wide Statement of Net Position reports $13,571,992 of restricted net position, of which none is restricted by enabling legislation. Net position restricted for other purposes include resources restricted for state and federal grants restricted to expenditures for specified purposes. The District applies restricted resources first when an expense is incurred for purposes for which both restricted and unrestricted net position is available. (N) Fund Balances In accordance with Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting, the District classifies its fund balance based on the purpose for which the resources were received and the level of constraint placed on the resources. The following categories are used: Nonspendable resources that are not in spendable form (inventory) or have legal or contractual requirements to maintain the balance intact. 29

102 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (N) Fund Balances (Continued) Restricted resources that have external purpose restraints imposed on them by providers, such as creditors, grantors, or other regulators. Committed resources that are constrained for specific purposes that are internally imposed by the District at its highest level of decision making authority, the Board of Education. Assigned resources that are intended to be used for specific purposes as approved through the District s formal purchasing procedure by the Treasurer. Unassigned residual fund balance within the General Fund that is not restricted, committed, or assigned The District applies restricted resources first when an expense is incurred for purposes which both restricted and unrestricted net position are available. The District considers committed, assigned, and unassigned fund balances, respectively, to be spent when expenditures are incurred for purposes for which any of the unrestricted fund balance classifications could be used. The District has a formal minimum fund balance policy. The policy requires the General Fund to maintain a fund balance equal to at least three months of operating expenses. (O) Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (P) Extraordinary and Special Items Extraordinary items are transactions or events that are both unusual in nature and infrequent in occurrence. Special items are transactions or events that are within the control of the Board of Education and that are either unusual in nature or infrequent in occurrence. At June 30, 2017 the District had no events which qualified as an extraordinary or special item. (Q) Unamortized Bond Premium and Deferred Amounts on Refunding In the government-wide financial statements bond premiums and deferred amounts on refunding are deferred and amortized over the term of the bonds using the bonds-outstanding method, which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium. Deferred amounts on refunding are recorded as deferred outflows of resources and amortized over the term of the related debt. 30

103 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 2. Summary of Significant Accounting Policies (Continued) (Q) Unamortized Bond Premium and Deferred Amounts on Refunding (Continued) On the governmental fund financial statements, issuance costs and bond premiums are recognized in the current period. The face amount of the debt issue is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. (R) Restricted Assets Assets are reported as restricted assets when limitations on their use change the normal understanding of the availability of the asset. Such constraints are either externally imposed by creditors, contributors, grantors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The District has no restricted assets. (S) 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 pension plans and additions to/deductions from their fiduciary net positon have been determined on the same basis as they are reported by the pension systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. The pension systems report investments at fair value. 3. Change in Accounting Principles For fiscal year 2017, the District implemented Governmental Accounting Standards Board (GASB) Statement No. 77, Tax Abatement Disclosures which improves disclosure of tax abatement information, such as how the tax abatements affect their financial statements and operations and the government s ability to raise resources in the future, by reporting (1) the 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. The implementation of this statement did not have an effect on the financial statements of the District (See Note 5). 4. Deposits and Investments State statutes classify monies held by the District into three categories. Active deposits are public deposits necessary to meet current demands on the treasury. Such monies must be maintained either as cash in the District treasury, in commercial accounts payable or withdrawable on demand, including negotiable order of withdrawal (NOW) accounts, or in money market deposit accounts. 31

104 4. Deposits and Investments (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) Inactive deposits are public deposits the Board of Education has identified as not required for use within the current five year period of designation of depositories. Inactive deposits must either be evidenced by certificates of deposit maturing not later than the end of the current period of designation of depositories, or by savings or deposit accounts including, but not limited to, passbook accounts. Interim deposits are deposits of interim monies. Interim monies are those monies which are not needed for immediate use but which will be needed before the end of the current period of designation of depositories. Interim deposits must be evidenced by time certificates of deposit maturing not more than one year from the date of deposit or by savings accounts, including passbook accounts. Protection of the District s deposits is provided by the Federal Deposit Insurance Corporation (FDIC), by eligible securities pledged by the financial institution as security for repayment, by surety company bonds deposited with the treasurer by the financial institution or by a single collateral pool established by the financial institution to secure the repayment of all public money deposited with the institution. Interim monies may be invested in the following obligations: 1) United States Treasury Notes, Bills, Bonds, or any other obligation or security issued by the United States Treasury or any other obligation guaranteed as to principal and interest by the United States; 2) Bonds, notes, debentures, or other obligations or securities issued by any federal government agency or instrumentality, including but not limited to, the Federal National Mortgage Association, Federal Home Loan, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, and Student Loan Marketing Association. All federal agency securities shall be direct issuances of federal governmental agencies or instrumentalities; 3) Written repurchase agreements in the securities listed above provided that the market value of the securities subject to the repurchase agreement must exceed the principal value of the agreement by at least two percent and be marked to market daily, and that the term of the agreement must not exceed thirty days; 4) Bonds and other obligations of the State of Ohio; 5) No- load money market mutual funds consisting exclusively of obligations described in division (1) or (2) of this section and repurchase agreements secured by such obligations, provided that investments in securities described in this division are made only through eligible institutions; The State Treasurer s investment pool (STAR Ohio); 6) Certain bankers acceptances and commercial paper notes for a period not to exceed one hundred eighty days from the date of purchase in an amount not to exceed twenty-five percent of the interim monies available for investment at any one time; 32

105 4. Deposits and Investments (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 7) Investments in stripped principal or interest obligations reverse repurchase agreements and derivatives are prohibited. The issuance of taxable notes for the purpose of arbitrage, the use of leverage and short selling are also prohibited. An investment must mature within five years from the date of purchase unless matched-to a specific obligation or debt of the District and must be purchased with the expectation that it will be held to maturity. Investments may only be made through specified dealers and institutions. Payments for investments may be made only upon the delivery of the securities representing the investments to the Treasurer or, if the securities are not represented by a certificate, upon receipt of confirmation of transfer from the custodian. Deposits: Custodial credit risk is the risk that in the event of bank failure, the District s deposits may not be returned. According to state law, public depositories must give security for all public funds on deposit. These institutions may either specifically collateralize individual accounts in lieu of amounts insured by the FDIC, or may pledge a pool of government securities valued at least 105% of the total value of public monies on deposit at the institution. Repurchase agreements must be secured by the specific government securities upon which the repurchase agreements are based. These securities must be obligations of or guaranteed by the United States and mature or be redeemable within 5 years of the date of the related repurchase agreement. State law does not require security for public deposits and investments to be maintained in the District's name. During 2017, the District and public depositories complied with the provisions of these statutes. At year-end, the carrying amount of all District deposits was $9,528,778, exclusive of $600 in cash on hand. The combined bank balance was $9,622,386 of which $6,969,477 was covered by FDIC insurance and $2,652,909 was uninsured. Of the remaining uninsured bank balance, all was collateralized with eligible securities held in single financial institution collateral pools at Federal Reserve Banks, or at member banks of the Federal Reserve System, in the name of the respective depository bank and pledged as a pool of collateral against all of the public deposits it holds. Deposits are also collateralized with specific collateral held at the Federal Reserve Bank in the name of the District. Investments: As of June 30, 2017, the District had the following investments: Type Fair Value Maturity (Days) STAR Ohio $13,307,306 1 Commercial Paper 11,747, months or less FHLB 3,966,335 Greater than 24 months FHLMC 10,196,219 Greater than 24 months FNMA 10,393,134 Greater than 24 months FFCB 1,320,000 Greater than 24 months Negotiable CD s 920, months or less Total Investments $51,851,006 33

106 4. Deposits and Investments (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) Interest Rate Risk The Ohio Revised Code generally limits security purchases to those that mature within five years of the settlement date. As a means of limiting exposure to fair value losses arising from rising interest rates and according to state law, the District s investment policy limits investment portfolio maturities to five years or less. Credit Risk The District s investments in FHLB, FHLMC, & FNMA listed above were rated Aaa and AA+ by Moody s Investor Services and Standard and Poor s, respectively. The commercial paper was rated P1 and A1 by Moody s Investor Services and Standard and Poor s, respectively. Standard and Poor s has assigned STAROhio an AAAm money market rating. Concentration of Credit Risk The District places no limit on the amount the District may invest in any one issuer. Of the District s total investments, 22.7% are included in Commercial Paper, 7.7% in FHLBs, 19.7% in FHLMC, 2.5%in FFCB and 20.0% in FNMA, while 25.6% is in STAROhio and 1.8% is in negotiable certificates of deposits. For fiscal year 2017, Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application, was effective. These GASB pronouncements had no effect on beginning net position. Accordingly, the District has categorized its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The above chart identifies the District's recurring fair value measurements as of June 30, All of the District's investments measured at fair value are valued using quoted market prices (Level 1 inputs). 5. Receivables and Deferred Inflows of Resources Receivables at June 30, 2017, consist of the following: Governmental activites: Taxes PILOT's Interest Other Totals General $ 71,341,000 $ 902,496 $ 164,792 $ 91,523 $ 72,499,811 Other governmental funds 5,730, ,644 5,756,644 Total Governmental Activities $ 77,071,000 $ 902,496 $ 164,792 $ 118,167 $ 78,256,455 34

107 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 5. Receivables and Deferred Inflows of Resources (Continued) Deferred Inflows of resources at June 30, 2017, consist of the following: Intergovernmental Governmental activites: Taxes PILOT's Revenues Totals General $ 42,816,000 $ 589,248 $ - $ 43,405,248 Other governmental funds 3,412, ,764 3,714,264 Total Governmental Activities $ 46,228,500 $ 589,248 $ 301,764 $ 47,119,512 The payments in lieu of taxes (PILOT s) are a result of various tax abatement arrangements in which the City of Upper Arlington or other entities have agreed to hold the District harmless for various tax sharing arrangements with Developers. In conjunction with the receivable and deferred amounts listed above, the District recorded revenue in the amounts of $1,246,687 on the entity wide statement of activities. 6. Capital Assets A summary of changes in capital assets for the year ended June 30, 2017, follows: Balance June 30, 2016 Additions Disposals Transfers Balance June 30, 2017 Governmental Activities Cost Land $ 629,783 $ - $ - $ - $ 629,783 Construction in progress 2,983,900 4,141,092 - (2,947,409) 4,177,583 Land improvements 3,124, ,257-29,240 3,306,997 Building and improvements 88,175, ,277-2,460,613 91,323,244 Furniture, fixtures and equipment 13,281, , , ,556 13,954,821 Vehicles 2,631, , ,800,977 Total at cost 110,827,285 5,483, , ,193,405 Less accumulated depreciation Land improvements 1,735, , ,859,304 Building and improvements 41,549,426 1,818, ,367,964 Furniture, fixtures and equipment 6,720,154 2,076, ,293-8,693,235 Vehicles 1,737, , ,892,331 Total accumulated depreciation 51,742,823 4,173, ,293-55,812,834 Capital assets, net $ 59,084,462 $ 1,310,561 $ 14,452 $ - $ 60,380,571 35

108 6. Capital Assets (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) Depreciation expense was charged to governmental functions as follows: Instructional services: Regular $3,504,070 Special 30,410 Support services: Pupils 74,793 Instructional staff 45,801 Administration 12,566 Operation and maintenance of plant 211,544 Student transportation 148,110 Extra-curricular activities 141,197 Community Service 448 Food service operations 4,365 Total depreciation expense $4,173,304 36

109 7. Long-Term Obligations UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) A summary for changes in long-term obligations for the year ended June 30, 2017, follows: 7/1/2016 6/30/2017 Due within Debt Issuance Issued Balance Additions Deletions Balance 1 yr 2013 Refunding Issue Bonds 2013 $ 18,050,000 $ - $ (2,305,000) $ 15,745,000 $ 2,375,000 Premium on Refunding Bonds ,426,569 - (353,354) 1,073, ,705 Refunding Bonds Payable 19,476,569 - (2,658,354) 16,818,215 2,681,705 Note payable ,500,000 - (745,000) 3,755, ,000 Capital Lease ,274,581 - (1,248,454) 3,026,127 1,247,154 Total long term debt 28,251,150 - (4,651,808) 23,599,342 4,658,859 Net pension liability: STRS N/A 109,632,172 23,753, ,385,915 - SERS N/A 19,518,737 4,618,255-24,136, ,150,909 28,371, ,522,907 - Compensated Absences N/A 6,268, ,508 (563,307) 6,521, ,971 Total Long-Term Obligations $ 163,670,423 $ 29,188,506 $ (4,121,964) $ 187,643,814 $ 5,242,830 Deferred outflows of resources Deferred Pension N/A (12,468,981) (22,958,880) 7,151,770 (28,276,091) Deferred Amount on Refunding 2013 (1,144,213) - 335,196 (809,017) Total deferred outflows of resources $ (13,613,194) $ (22,958,880) $ 7,486,966 $ (29,085,108) The general obligation bonds and notes are a direct obligation of the District for which its full faith, credit and resources are pledged and are payable from taxes levied on all taxable property in the District. In the opinion of management, the District has complied with all bond covenants. 37

110 7. Long-Term Obligations (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) The annual maturities of the general obligation bonds (at par) as of June 30, 2017, interest payments are as follows: and related Year ending June 30, Interest rate (%) Principal Interest $ 2,375,000 $ 634, ,450, , ,595, , ,775, , ,890, , ,660,000 68,162 Total $ 15,745,000 $ 2,283,929 The Ohio Revised Code (ORC) provides that the net debt of a school district, whether or not approved by the people, shall not exceed 9.0% of the total value of all property in the school district as listed and assessed for taxation. In addition, the unvoted net debt of a school district cannot exceed 0.1% of the total assessed value of property. The statutory limitations on debt are measured by a direct ratio of net debt to tax valuation and expressed in terms of a percentage. An exception to the 9% limit is provided in ORC (E). At June 30, 2017 the District's total net debt was 1.13% of the total assessed value of all property within the District. 8. Capital Lease Obligation The District entered into a master lease agreement dated September 7, 2015, to finance various computer hardware. As part of this master agreement, the District entered into two separate agreements in the amounts of $2,954,716 and $2,069,716, dated September 7, 2015 and May 26, 2016, respectively. These agreements qualify as a capital lease for accounting purposes and, therefore, have been recorded at the aforementioned present value of their future minimum lease payments as of the inception date. The assets are included in capital assets as furniture, fixtures, and equipment at the estimated fair value at the time of acquisition of $5,024,432. Depreciation expense in fiscal 2017 was $1,559,826. Accumulated depreciation was $2,380,581 as of June 30,

111 8. Capital Lease Obligation (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) The annual maturities of the capital lease as of June 30, 2017, and related interest payments are as follows: Year ending June 30, Interest rate (%) Principal Interest $ 1,247,154 $ 27, ,258,624 15, ,349 4,111 Total $ 3,026,127 $ 46, Note Payable On May 3, 2016, the District issued tax anticipation notes in the amount of $4,500,000. The notes have a fixed interest rate of 1.39 percent and a maturity date of December 1, The District has an option to redeem such notes on or after December 1, The proceeds are to be used various permanent improvements. The annual maturities of the note as of June 30, 2017, and related interest payments are as follows: Year ending June 30, Principal Interest 2018 $ 730,000 $ 47, ,000 36, ,000 26, ,000 16, ,000 5,386 Total $ 3,755,000 $ 132, Defined Benefit Pension Plans Net Pension Liability The net pension liability reported on the Statement of Net Position represents a liability to employees for pensions. Pensions are a component of exchange transactions- between an employer and its employees of salaries and benefits for employee services. Pensions are provided to an employee on a deferred-payment basis as part of the total compensation package offered by an employer for employee services each financial period. The obligation to sacrifice resources for pensions is a present obligation because it was created as a result of employment exchanges that already have occurred. 39

112 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) Net Pension Liability (Continued) The net pension liability represents the District s proportionate share of each pension plan s collective actuarial present value of projected benefit payments attributable to past periods of service, net of each pension plan s fiduciary net position. The net pension liability calculation is dependent on critical long-term variables, including estimated average life expectancies, earnings on investments, cost of living adjustments and others. While these estimates use the best information available, unknowable future events require adjusting this estimate annually. Ohio Revised Code limits the District s obligation for this liability to annually required payments. The District cannot control benefit terms or the manner in which pensions are financed; however, the District does receive the benefit of employees services in exchange for compensation including pension. GASB 68 assumes the liability is solely the obligation of the employer, because (1) they benefit from employee services; and (2) State statute requires all funding to come from these employers. All contributions to date have come solely from these employers (which also includes costs paid in the form of withholdings from employees). State statute requires the pension plans to amortize unfunded liabilities within 30 years. If the amortization period exceeds 30 years, each pension plan s board must propose corrective action to the State legislature. Any resulting legislative change to benefits or funding could significantly affect the net pension liability. Resulting adjustments to the net pension liability would be effective when the changes are legally enforceable. The proportionate share of each plan s unfunded benefits is presented as a long-term net pension liability on the accrual basis of accounting. Any liability for the contractually-required pension contribution outstanding at the end of the year is included in intergovernmental payable on both the accrual and modified accrual bases of accounting. School Employees Retirement System The District contributes to the School Employees Retirement System of Ohio (SERS), a cost-sharing multiple-employer defined benefit pension plan. SERS provides retirement, disability, and survivor benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Authority to establish and amend benefits is provided by state statute per Chapter 3309 of the Ohio Revised Code. SERS issues a publicly available, stand-alone financial report that includes financial statements and required supplementary information. That report can be obtained on SERS website at under Employers/Audit Resources. 40

113 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) School Employees Retirement System (Continued) Age and service requirements for retirement are as follows: Eligible to Eligible to Retire on or before Retire on or after August 1, 2017 * August 1, 2017 Full Benefits Any age with 30 years of service credit Age 67 with 10 years of service credit; or Age 57 with 30 years of service credit Actuarially Reduced Benefits Age 60 with 5 years of service credit Age 62 with 10 years of service credit; or Age 55 with 25 years of service credit Age 60 with 25 years of service credit * Members with 25 years of service credit as of August 1, 2017, will be included in this plan. Annual retirement benefits are calculated based on final average salary multiplied by a percentage that varies based on year of service; 2.2 percent for the first thirty years of service and 2.5 percent for years of service credit over 30. Final average salary is the average of the highest three years of salary. One year after an effective benefit date, a benefit recipient is entitled to a three percent cost-of-living adjustment (COLA). This same COLA is added each year to the base benefit amount on the anniversary date of the benefit. Funding Policy Plan members are required to contribute 10 percent of their annual covered salary and the District is required to contribute 14 percent of annual covered payroll. The contribution requirements of plan members and employers are established and may be amended by the SERS Retirement Board up to statutory maximum amounts of 10 percent for plan members and 14 percent for employers. The Retirement Board, acting with the advice of the actuary, allocates the employer contribution rate among four of the System s funds (Pension Trust Fund, Death Benefit Fund, Medicare B Fund, and Health Care Fund). For the fiscal year ended June 30, 2017, the allocation to pension, death benefits, and Medicare B was 14.0 percent. No amount was allocated to the Health Care Fund. The District s contractually required contributions to SERS was $1,452,196 for fiscal year State Teachers Retirement System Plan Description District licensed teachers and other faculty members participate in STRS Ohio, a cost-sharing multiple-employer public employee retirement system administered by STRS. STRS provides retirement and disability benefits to members and death and survivor benefits to beneficiaries. STRS issues a stand-alone financial report that includes financial statements, required supplementary information and detailed information about STRS fiduciary net position. That report can be obtained by writing to STRS, 275 E. Broad St., Columbus, OH , by calling (888) , or by visiting the STRS Web site at 41

114 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) State Teachers Retirement System (Continued) New members have a choice of three retirement plans; a Defined Benefit (DB) Plan, a Defined Contribution (DC) Plan and a Combined Plan. Benefits are established by Ohio Revised Code Chapter The DB plan offers an annual retirement allowance based on final average salary multiplied by a percentage that varies based on years of service. Effective August 1, 2015, the calculation will be 2.2 percent of final average salary for the five highest years of earnings multiplied by all years of service. With certain exceptions, the basic benefit is increased each year by two percent of the original base benefit. For members retiring August 1, 2015, or later, the first two percent is paid on the fifth anniversary of the retirement benefit. Members are eligible to retire at age 60 with five years of qualifying service credit, or age 55 with 26 years of service, or 31 years of service regardless of age. Age and service requirements for retirement will increase effective August 1, 2015, and will continue to increase periodically until they reach age 60 with 35 years of service or age 65 with five years of service on August 1, The DC Plan allows members to place all their member contributions and 9.5 percent of the 14 percent employer contributions into an investment account. Investment allocation decisions are determined by the member. The remaining 4.5 percent of the 14 percent employer rate is allocated to the defined benefit unfunded liability. A member is eligible to receive a retirement benefit at age 50 and termination of employment. The member may elect to receive a lifetime monthly annuity or a lump sum withdrawal. The Combined Plan offers features of both the DB Plan and the DC Plan. In the Combined Plan, member contributions are allocated among investment choices by the member, and employer contributions are used to fund the defined benefit payment at a reduced level from the regular DB Plan. The defined benefit portion of the Combined Plan payment is payable to a member on or after age 60 with five years of services. The defined contribution portion of the account may be taken as a lump sum payment or converted to a lifetime monthly annuity at age 50. New members who choose the DC plan or Combined Plan will have another opportunity to reselect a permanent plan during their fifth year of membership. Members may remain in the same plan or transfer to another STRS plan. The optional annuitization of a member s defined contribution account or the defined contribution portion of a member s Combined Plan account to a lifetime benefit results in STRS bearing the risk of investment gain or loss on the account. STRS has therefore included all three plan options as one defined benefit plan for GASB 68 reporting purposes. A DB or Combined Plan member with five or more years of credited service who is determined to be disabled may qualify for a disability benefit. Eligible survivors of members who die before service retirement may qualify for monthly benefits. New members on or after July 1, 2013, must have at least ten years of qualifying service credit that apply for disability benefits. Members in the DC Plan who become disabled are entitled only to their account balance. If a member of the DC Plan dies before retirement benefits begin, the member s designated beneficiary is entitled to receive the member s account balance. 42

115 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) State Teachers Retirement System (Continued) Funding Policy Employer and member contribution rates are established by the State Teachers Retirement Board and limited by Chapter 3307 of the Ohio Revised Code. For the fiscal year ended June 30, 2017, plan members were required to contribute 14 percent of their annual covered salary. The District was required to contribute 14 percent; the entire 14 percent was the portion used to fund pension obligations. The fiscal year 2017 contribution rates were equal to the statutory maximum rates. The District s contractually required contributions to STRS was $6,089,089 for fiscal year Social Security System Effective July 1, 1991, all employees not otherwise covered by the School Employees Retirement System or the State Teachers Retirement System of Ohio have an option to choose Social Security or the School Employees Retirement System/State Teachers Retirement System of Ohio. As of June 30, 2017, three members of the Board of Education elected Social Security. The Board's liability is 6.2 percent of wages paid. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The District's proportion of the net pension liability was based on the District's share of contributions to the pension plan relative to the contributions of all participating entities. Following is information related to the proportionate share and pension expense: SERS STRS Total Proportion of the Net Pension Liability - Prior Measurement Date % % Proportion of the Net Pension Liability - Current Measurement Date % % Change in Proportionate Share % % Proportionate Share of the Net Pension Liability $24,136,992 $133,385,915 $157,522,907 Pension Expense $2,364,161 $12,449,082 $14,813,243 43

116 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (Continued) At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: SERS STRS Total Deferred Outflows of Resources Differences between expected and actual experience $325,553 $5,389,432 $5,714,985 Changes of assumptions 1,611,276 - $1,611,276 Net difference between projected and actual earnings on pension plan investments 1,990,952 11,074,615 13,065,567 Changes in proportion and differences - 342, ,978 District contributions subsequent to the measurement date 1,452,196 6,089,089 7,541,285 Total Deferred Outflows of Resources $5,379,977 $22,896,114 $28,276,091 Deferred Inflows of Resources proportionate share of contributions $ 1,058,679 $ 52,395 $ 1,111,074 Total Deferred Inflows of Resources $1,058,679 $52,395 $1,111,074 $7,541,285 reported as deferred outflows of resources related to pension resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pension will be recognized in pension expense as follows: Fiscal Year Ending June 30: SERS STRS Total 2018 $538,790 $2,675,035 $3,213, ,359 2,675,036 3,212, ,220,638 6,924,675 8,145, ,315 4,479,884 5,052,199 Total $2,869,102 $16,754,630 $19,623,732 44

117 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) Actuarial Assumptions - SERS SERS total pension liability was determined by their actuaries in accordance with GASB Statement No. 67, as part of their annual actuarial valuation for each defined benefit retirement plan. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts (e.g., salaries, credited service) and assumptions about the probability of occurrence of events far into the future (e.g., mortality, disabilities, retirements, employment termination). Actuarially determined amounts are subject to continual review and potential modifications, as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employers and 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 employers and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations. Actuarial calculations reflect a long-term perspective. For a newly hired employee, actuarial calculations will take into account the employee s entire career with the employer and also take into consideration the benefits, if any, paid to the employee after termination of employment until the death of the employee and any applicable contingent annuitant. In many cases actuarial calculations reflect several decades of service with the employer and the payment of benefits after termination. Key methods and assumptions used in calculating the total pension liability in the latest actuarial valuation, prepared as of June 30, 2016, are presented below: Wage Inflation Future Salary Increases, including inflation COLA or Ad Hoc COLA Investment Rate of Return Actuarial Cost Method 3.00 percent 3.50 percent to percent 3 percent 7.50 percent net of investments expense, including inflation Entry Age Normal Mortality rates were based on the RP-2014 Blue Collar Mortality Table with fully generational projection and a five year age set-back for both males and females. Mortality among service retired members, and beneficiaries were based upon the RP-2014 Blue Collar Mortality Table with fully generational projection with Scale BB, 120 percent of male rates, and 110 percent of female rates. Mortality among disable members were based upon the RP-2000 Disabled Mortality Table, 90 percent for male rates and 100 percent for female rates, set back five years is used for the period after disability retirement. The long-term return expectation for the Pension Plan Investments has been determined using a building-block approach and assumes a time horizon, as defined in SERS Statement of Investment Policy. A forecasted rate of inflation serves as the baseline for the return expectation. Various real return premiums over the baseline inflation rate have been established for each asset class. 45

118 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) Actuarial Assumptions SERS (Continued) The long-term expected nominal rate of return has been determined by calculating a weighted averaged of the expected real return premiums for each asset class, adding the projected inflation rate, and adding the expected return from rebalancing uncorrelated asset classes. The target allocation and best estimates of arithmetic real rates of return for each major assets class are summarized in the following table: Target Long-Term Expected Asset Class Allocation Real Rate of Return Cash 1.00 % 0.50 % US Stocks Non-US Stocks Fixed Income Private Equity Real Assets Multi-Asset Strategies Total % Discount Rate The total pension liability was calculated using the discount rate of 7.50 percent. The projection of cash flows used to determine the discount rate assumed the contributions from employers and from the members would be computed based on contribution requirements as stipulated by State statute. Projected inflows from investment earning were calculated using the longterm assumed investment rate of return (7.50 percent). Based on those assumptions, the plan s fiduciary net position was projected to be available to make all future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefits to determine the total pension liability. Sensitivity of the District's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate Net pension liability is sensitive to changes in the discount rate, and to illustrate the potential impact the following table presents the net pension liability calculated using the discount rate of 7.50 percent, as well as what each plan s net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.50 percent), or one percentage point higher (8.50 percent) than the current rate. Current 1% Decrease Discount Rate 1% Increase (6.50%) (7.50%) (8.50%) District's proportionate share of the net pension liability $31,955,873 $24,136,992 $17,592,263 46

119 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) Actuarial Assumptions STRS The total pension liability in the June 30, 2016, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.75 percent Projected salary increases percent at age 20 to 2.75 percent at age 70 Investment Rate of Return 7.75 percent, net of investment expenses including inflation Cost-of-Living Adjustments 2 percent simple applied as follows: for members retiring before (COLA) August 1, 2013, 2 percent per year; for members retiring August 1, 2013, or later, 2 percent COLA paid on fifth anniversary of retirement date. Mortality rates were based on the RP-2000 Combined Mortality Table (Projection 2022 Scale AA) for Males and Females. Males ages are set-back two years through age 89 and no set-back for age 90 and above. Females younger than age 80 are set back four years, one year set back from age 80 through 89 and not set back from age 90 and above. Actuarial assumptions used in the June 30, 2016, valuation are based on the results of an actuarial experience study, effective July 1, The 10 year expected real rate of return on pension plan investments was determined by STRS investment consultant by developing best estimates of expected future real rates of return for each major asset class. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized as follows: Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic Equity % 8.00 % International Equity Alternatives Fixed Income Real Estate Liquidity Reserves Total % *10-year annualized geometric nominal returns, which include the real rate of return and inflation of 2.50 percent and does not include investment expenses. The total fund long-term expected return reflects diversification among the asset classes and therefore is not a weighted average return of the individual asset classes. 47

120 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 10. Defined Benefit Pension Plans (Continued) Actuarial Assumptions STRS (Continued) Discount Rate The discount rate used to measure the total pension liability was 7.75 percent as of June 30, The projection of cash flows used to determine the discount rate assumes member and employer contributions will be made at the statutory contribution rates in accordance with rate increases described above. For this purpose, only employer contributions that are intended to fund benefits of current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs of future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, STRS fiduciary net position was projected to be available to make all projected future benefit payments to current plan members as of June 30, Therefore, the longterm expected rate of return on pension plan investments of 7.75 percent was applied to all periods of projected benefit payment to determine the total pension liability as of June 30, Sensitivity of the District's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following table presents the District's proportionate share of the net pension liability calculated using the current period discount rate assumption of 7.75 percent, 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 one-percentage-point lower (6.75 percent) or one-percentage-point higher (8.75 percent) than the current rate: Current 1% Decrease Discount Rate 1% Increase (6.75%) (7.75%) (8.75%) School District's proportionate share of the net pension liability $177,259,043 $133,385,915 $96,376,346 Changes Between Measurement Date and Report Date In March 2017, the STRS Board adopted certain assumption changes which will impact their annual actuarial valuation prepared as of June 30, The most significant change is a reduction in the discount rate from 7.75 percent to 7.45 percent. In April 2017, the STRS Board voted to suspend cost of living adjustments granted on or after July 1, Although the exact amount of these changes is not known, the overall decrease to the School District s Net Pension Liability is expected to be significant. 11. Post employment Benefits Other than Pension Benefits School Employees Retirement System In addition to a cost-sharing multiple-employer defined benefit pension plan the School Employees Retirement System of Ohio (SERS) administers two postemployment benefit plans. 48

121 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 11. Post employment Benefits Other than Pension Benefits (Continued) School Employees Retirement System (Continued) Medicare Part B Plan The Medicare Part B plan reimburses Medicare Part B premiums paid by eligible retirees and beneficiaries as set forth in Ohio Revised Code (ORC) Qualified benefit recipients who pay Medicare Part B premiums may apply for and receive a monthly reimbursement from SERS. The reimbursement amount is limited by statute to the lesser of the January 1, 1999 Medicare Part B premium or the current premium. The Retirement Board, acting with the advice of the actuary, allocates a portion of the current employer contribution rate to the Medicare B Fund. For fiscal year 2017, the actuarially required allocation is.74%. The District s contributions for the years ended June 30, 2017, 2016 and 2015 were $76,759, $75,889, and $76,219, respectively, which equaled the required contributions each year. Health Care Plan ORC and permit SERS to offer health care benefits to eligible retirees and beneficiaries. SERS Retirement Board reserves the right to change or discontinue any health plan or program. SERS offers several types of health plans from various vendors, including HMOs, PPOs, Medicare Advantage and traditional indemnity plans. A prescription drug program is also available to those who elect health coverage. SERS employs two third-party administrators and a pharmacy benefit manager to manage the self-insurance and prescription drug plans, respectively The ORC provides the statutory authority to fund SERS postemployment benefits through employer contributions. Active members do not make contributions to the postemployment benefit plans. The Health Care Fund was established under, and is administered in accordance with Internal Revenue Code 105(e). Each year after the allocation for statutorily required benefits, the Retirement Board allocates the remainder of the employer 14% contribution to the Health Care Fund. For the year ended June 30, 2016, the health care allocation is.0%. An additional health care surcharge on employers is collected for employees earning less than an actuarially determined minimum compensation amount, pro-rated according to service credit earned. Statutes provide that no employer shall pay a health care surcharge greater than 2% of that employer s SERS-covered payroll; nor may SERS collect in aggregate more than 1.5% of the total statewide SERS-covered payroll for the health care surcharge. For fiscal year 2017, the minimum compensation level was established at $23,500. The surcharge, added to the unallocated portion of the 14% employer contribution rate is the total amount assigned to the Health Care Fund. The District contributions assigned to health care for the years ended June 30, 2017, 2016, and 2015 exclusive of the surcharge amounts was $0, for the last three fiscal years, respectively. The SERS Retirement Board establishes the rules for the premiums paid by the retirees for health care coverage for themselves and their dependents or for their surviving beneficiaries. Premiums vary depending on the plan selected, qualified years of service, Medicare eligibility, and retirement status. 49

122 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 11. Post employment Benefits Other than Pension Benefits (Continued) School Employees Retirement System (Continued) The financial reports of SERS Health Care and Medicare B plans are included in its Comprehensive Annual Financial Report. The report can be obtained on SERS website at under Employers/Audit Resources. State Teachers Retirement System Plan Description The District contributes to the cost sharing multiple employer defined benefit Health Plan administered by the State Teachers Retirement System of Ohio (STRS Ohio) for eligible retirees who participated in the defined benefit or combined pension plans offered by STRS Ohio. Benefits include hospitalization, physicians fees, prescription drugs and reimbursement of monthly Medicare Part B premiums. Ohio law authorizes STRS Ohio to offer the Plan and gives the Retirement Board authority over how much, if any, of the health care costs will be absorbed by STRS Ohio. All benefit recipients pay a monthly premium. The Plan is included in the report of STRS Ohio which may be obtained by visiting or by calling (888) Funding Policy Under Ohio law, funding for post-employment health care may be deducted from employer contributions. For 2017, STRS Ohio did not allocate employer contributions to the Health Care Stabilization Fund. 12. Joint Venture Without Equity Interest Rockbridge Academy The Rockbridge Academy (the Academy) is a joint venture consisting of a consortium of four schools districts. The joint venture was formed for the purpose of providing alternative education services to at risk students. The Governing Board of the Academy consists of six members appointed by each member school. The District does not have an equity interest that is explicit and measurable in the joint venture, however, the District does have an ongoing financial obligation to support the Academy in meeting its financial obligations. The Academy is dependent upon continued support of the member schools as it is not independently accumulating adequate financial resources. The Educational Service Center of Central Ohio (ESC) is the fiscal agent for the Academy. Further detailed financial information may be obtained by contacting the ESC at Burbank Park In 2003 the City of Upper Arlington (the City) and the Upper Arlington City School District (the District) entered into a joint operating agreement to provide recreational facilities at Burbank Park for the benefit of the residents of the City. Whereas, pursuant to Ohio Revised Code Section , this agreement shall establish the working partnership between the City and the District regarding joint acquisition and construction of the project, as well as its shared operation and maintenance. The agreement establishes a four (4) member operations committee consisting of the Superintendent of the District, the City Manager, the District s Athletic Director, and the Parks and Recreation Director of the City. 50

123 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) 12. Joint Venture Without Equity Interest (Continued) The Agreement shall exist until: One year from date of certificate of establishment (July 11, 2003), and shall automatically renew for consecutive periods of one (1) year each for so long as the project is used for public athletic and recreational uses for the benefit of the residents of the City. 13. Property Taxes Property taxes are levied and assessed on a calendar year basis while the District fiscal year runs from July through June. First half tax collections are received by the District in the second half of the fiscal year. Second half tax distributions occur in the first half of the following fiscal year. Property taxes include amounts levied against all real, public utility property, and tangible personal property (used in business) located in the District. Real property tax revenues received in calendar year 2017 represent the collection of calendar year 2016 taxes. Real property taxes received in calendar year 2017 were levied after April 1, 2016, on the assessed values as of January 1, 2016, the lien date. Assessed values for real property taxes are established by State law at thirty-five percent of appraised market value. Real property taxes are payable annually or semiannually. If paid annually, payment is due December 31; if paid semiannually, the first payment is due December 31, with the remainder payable by June 20. Under certain circumstances, State statute permits alternate payment dates to be established. Public utility property tax revenues received in calendar year 2017 represent the collection of calendar year 2017 taxes. Public utility real and tangible personal property taxes received in calendar year 2017 became a lien on December 31, 2015, were levied after April 1, 2016, and are collected in 2017 with real property taxes. Public utility real property is assessed at thirty-five percent of true value; public utility tangible personal property is currently assessed at varying percentages of true value. The District receives property taxes from Franklin County. The County Auditor periodically advances to the District its portion of the taxes collected. Second-half real property tax payments collected by the County by June 30, 2017, are available to finance fiscal year 2017 operations. The amount available to be advanced can vary based on the date the tax bills are sent. Accrued property taxes receivable includes personal property and public utility taxes, and the late June personal property settlement which are measurable as of June 30, 2017 and for which there is an enforceable legal claim. Although total property tax collections for the next fiscal year are measurable, only the amount of real property taxes available as an advance at June 30 and the late personal property tax settlement were levied to finance current fiscal year operations. On a full accrual basis, collectible delinquent property taxes and the amount available as an advance have been recorded as a receivable and revenue while the rest of the receivable is deferred. On a modified accrual basis, only the amount available as an advance is recognized as revenue. 51

124 13. Property Taxes (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) The assessed values upon which the fiscal year 2017 taxes were collected are: Real Estate $ 1,719,170,040 Public Utility 23,976,569 Total $ 1,743,146, Contingent Liabilities The Federal and State Grants remain subject to review and audit by the grantor agencies or their designees. Such audits could lead to a request for reimbursement to the grantor agency for expenditures disallowed under terms of the grant. Based on prior experience, the District's administration believes such disallowances, if any, would be immaterial. District Foundation funding is based on the annualized full-time equivalent (FTE) enrollment of each student. Effective for the school year, traditional school districts must comply with minimum hours of instruction, instead of a minimum number of school days each year. The funding formula of the Ohio Department of Education (ODE) is legislatively required to follow will continue to adjust as enrollment information is updated by the District, which can extend past the fiscal year end. As of the date of this report, ODE has not finalized the impact of enrollment adjustments to the June 30, 2017 Foundation funding for the District; therefore, the financial statement impact is not determinable at this time. ODE and management believe this will result in either a receivable to or a liability of the District. 15. Set-Aside Calculations The District is required by State statute to annually set aside in the General Fund an amount based on a statutory formula for the purchase and construction of capital improvements. Amounts not spent by year end or offset by similarly restricted resources received during the year must be held in cash at year end and carried forward to be used for the same purposes in future years. The following cash basis information describes the changes in the year end set-aside amounts: Capital Acquisition Set-aside cash balance as of June 30, 2016 $ - Current year set-aside requirement 1,002,732 Current year offsets (3,214,428) Qualifying disbursements (189,471) Total $ (2,401,167) Balance carried forward to FY 2018 $ - 52

125 15. Set-Aside Calculations UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) The District had qualifying disbursements during the year that reduced the set-aside amounts below zero for the Capital Acquisition Reserve. However, this amount may not be used to reduce the setaside requirement for future fiscal years. 16. 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. During fiscal year 2017 the District contracted with an independent insurance provider for general liability insurance with an $8 million umbrella coverage. The District maintains property insurance of approximately $179 million. Property and fleet insurance is provided by an independent insurance provider and property holds a $5,000 deductible and the bus fleet and maintenance vehicles have a $1,000 deductible and a $1,000,000 limit per occurrence. A $250,000 employee dishonesty blanket bond is also included for all employees. The Fidelity Depository Company of Maryland maintains a $100,000 public official bond for the Treasurer and Business Manager. There has been no significant reduction in insurance coverage from the prior year. In addition, settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three years. On September 1, 2012 the District became self-insured in connection with a formalized risk management program in an effort to control claims and costs related to injured workers compensation. The District pays into the self-insured fund, which is accounted for in the General Fund, a percentage of the covered employee s salary. The rate is fixed and determined annually based on claims experience. The rate for fiscal year 2017 was 0.24% and is paid by the fund from which the employee is paid. The District contracts with a third party to manage claims and also purchased stoploss coverage for claims exceeding $375,000. A claims liability of $57,976 was recorded at June 30, This amount represents an estimate of incurred but unpaid and unreported claims at year end, known claims, as well as an estimate of the claims liability that was previously administered via the State s Workers Compensation Plan (BWC). This liability is included in the Accounts Payable amounts on the Statement of Net Position at June 30, Changes in the balances of claims liabilities during the past three years are as follows: Unpaid claims - July 1 $ 50,700 $ 67,319 $ Incurred claims 78,782 72, Payment of claims (71,506) (89,144) (116,246) Unpaid claims - June 30 $ 57,976 $ 50,700 $ 67,319 53

126 16. Risk Management (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) Effective January 1, 2014, all enrolled employees are covered under the District's self-insurance plan for health insurance, which is accounted for in the General Fund. The District pays various percentages of premium contributions based on employee classification. These costs are allocated to the fund that pays the salary of the enrolled employee, and are accounted for as expenditures in the paying funds and charges for services in the General Fund. The claims liability of $661,000 at June 30, 2017, is based on an estimate provided by the third party administrators and the requirements of GASB Statement No.10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, as amended by GASB Statement No. 30, Risk Financing Omnibus, which requires that a liability for unpaid claims costs, including estimates of costs relating to incurred but not reported claims, be accrued at the estimated ultimate cost of settling the claims. This liability is included in the Accounts Payable amounts on the Statement of Net Position at June 30, The District purchases excess stop-loss insurance for medical claims exceeding $150,000 per covered person. Prior to January 1, 2017 the District purchased this directly from Athem. Effective January 1, 2017, the District joined the Central Ohio School Stop Loss Organization (COSSO) Regional Council of Governments consortium. COSSO was formed pursuant to Ohio Revised Code Section 167 and enables the District to take advantage of economies of scale to purchase excess reinsurance. Members currently consist of the school districts of Dublin City, Upper Arlington City, Westerville City, and Worthington City. Future membership is open to any public school district in the state of Ohio upon approval by a majority of all current members of the Governing Board. Members may withdraw at any time of an initial two year period provided it notifies each member in writing at least 90 days prior to the renewal of the insurance policy. COSSO is managed by a Governing Board consisting of the Treasurer of each of the founding member Districts, for an initial term expiring June 30, At that point, an election of Governing board representatives will be held and be open to any member District s Treasurer. Additional information regarding COSSO can be obtained by contacting COSSO, 200 East Wilson Bridge Road, Worthington, OH Changes in the balances of claims liabilities during the past three years are as follows: Unpaid claims - July 1 $ 751,915 $ 1,270,000 $ 722,994 Incurred claims 9,510,427 8,822,198 9,624,960 Payment of claims (9,601,342) (9,340,283) (9,077,954) Unpaid claims June 30 $ 661,000 $ 751,915 $ 1,270,000 54

127 17. Interfund Transactions UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) A. Due to/from balances at June 30, 2017 as reported on the fund statements, consist of the following amounts: Receivable Fund Payable Fund Amount General Fund Summer Academy Special Revenue $ 12,467 General Fund Title III LEP Special Revenue $ 343 General Fund Special Education Grants Special Revenue $ 60,409 General Fund Title 1 Grant Special Revenue $ 5,566 General Fund Improving Teacher Quality Special Revenue $ 5,360 The primary purpose of the due to/due from balances is to cover costs in specific funds where revenues were not received by June 30. These interfund balances will be repaid once the anticipated revenues are received. All interfund balances are expected to be repaid within one year. Due to/due from balances between governmental funds are eliminated on the government-wide financial statements; therefore, no internal balances at June 30, 2017 are reported on the Statement of Net Position. B. Interfund balances at June 30, 2017 as reported on the fund statements, consist of the following amounts: Receivable Fund Payable Fund Amount General Fund Food Service -Special Revenue $ 64 General Fund Summer Academy Special Revenue $ 10 General Fund Auxiliary Schools Special Revenue $ 26 General Fund Special Education Grant Special Revenue $ 102 General Fund Title 1 Grant Special Revenue $ 64 The primary purpose of the interfund balances is to cover charges for workers compensation costs. See Note 16 above. Interfund balances between governmental funds are eliminated on the government-wide financial statements; therefore, no internal balances at June 30, 2017 are reported on the Statement of Net Position. C. Interfund transfers for the year ended June 30, 2017, consisted of the following operating transfers from the General Fund to other governmental funds: Debt Service $ 807,237 Food Service Fund 28,000 District Managed Student Activities Fund $ 50, ,587 55

128 17. Interfund Transactions (Continued) UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 (Continued) The above operating transfers were used to supplement the operations of such funds. All transfers are considered allowable in accordance with Ohio Revised Code Sections , , and Subsequent Event On November 7, 2017, the residents of the District passed a continuing 3.75 mill operating levy as well as a $230 million bond issue. Bond proceeds will be used for rebuilding the high school and renovating or rebuilding all five elementary schools. The maximum life of the bonds is 38 years. 56

129 Upper Arlington City Schools Statement of Revenues, Expenditures and Changes In Fund Balance - Budget (Non-GAAP Basis) and Actual General Fund For the Fiscal Year Ended June 30, 2017 Original Budget Final Budget Actual Variance with Final Budget REVENUES: Property and Other Local Taxes $ 69,882,500 $ 71,437,441 $ 71,438,940 $ 1,499 Intergovernmental 12,940,015 13,141,513 13,147,572 6,059 Interest 350, , ,430 2,430 Tuition and Fees 130,000 64,000 64, Rent 250, , ,379 3,379 Extracurricular Activities 183, , ,583 3,983 Gifts and Donations 85,000 Miscellaneous 1,548,000 1,679,500 1,684,603 5,103 Total Revenues 85,368,515 87,561,054 87,583,869 22,815 EXPENDITURES: Current: Instruction: Regular 43,445,697 42,735,008 42,691,751 43,257 Special 10,716,298 10,821,962 10,800,264 21,698 Vocational 174, , ,437 2,433 Student Intervention Services 1,737,801 1,724,100 1,717,478 6,622 Support Services: Pupils 5,887,301 5,823,274 5,797,812 25,462 Instructional Staff 4,335,084 4,185,657 4,165,208 20,449 Board of Education 43,937 45,887 43,528 2,359 Administration 5,131,839 5,248,333 5,230,252 18,081 Fiscal 2,131,701 2,010,852 2,007,083 3,769 Business 558, , ,765 3,886 Operation and Maintenance of Plant 7,686,592 7,137,668 7,112,075 25,593 Pupil Transportation 1,721,943 1,689,938 1,682,936 7,002 Central 1,314,360 1,319,916 1,316,944 2,972 Operation of Non Instructional Services: Food Service Operations 42,950 43,350 42, Extracurricular Activities: Academic Oriented Activities 238, , ,005 1,788 Sport Oriented Activities 1,160,058 1,073,912 1,066,295 7,617 School and Public Service Co Curricular Activities 56,066 57,981 56,623 1,358 Total Expenditures 86,382,445 84,891,152 84,696, ,697 Excess of Revenues Over (Under) Expenditures (1,013,930) 2,669,902 2,887, ,512 OTHER FINANCING SOURCES AND USES: Advances In 184, , ,524 Refund of Prior Year Expenditures 20,000 20,000 20, Transfers Out (165,000) (79,300) (78,350) 950 Advances Out (50,000) (84,000) (83,634) 366 Refund of Prior Year Receipts (50,000) Total Other Financing Sources and Uses (60,527) 34,224 35,777 1,553 Net Change in Fund Balances (1,074,457) 2,704,126 2,923, ,065 Fund Balance (Deficit) at Beginning of Year 38,635,968 38,635,968 38,635,968 Prior Year Encumbrances Appropriated 820, , ,052 Fund Balance (Deficit) at End of Year $ 38,381,563 $ 42,160,146 $ 42,379,211 $ 219,065 57

130 Upper Arlington City Schools Required Supplementary Information Schedule of the District's Proportionate Share of the Net Pension Liability School Employees Retirement System of Ohio Last Four Fiscal Years (1) District's Proportion of the Net Pension Liability % % % % District's Proportionate Share of the Net Pension Liability $ 24,136,992 $ 19,518,737 $ 18,356,445 $ 21,569,081 District's Covered-Employee payroll $ 10,255,307 $ 10,229,901 $ 10,539,531 $ 10,596,026 District's Proportionate Share of the Net Pension Liability as a Percentage of its Covered-Employee Payroll % % % % Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 69.16% 69.16% 71.70% 65.52% (1) Information prior to 2013 is not available. (2) Amounts presented as of the District's measurement date which is the prior fiscal year end 58

131 Upper Arlington City Schools Required Supplementary Information Schedule of the District's Proportionate Share of the Net Pension Liability State Teachers Retirement System of Ohio Last Four Fiscal Years (1) District's Proportion of the Net Pension Liability % % % % District's Proportionate Share of the Net Pension Liability $ 133,385,915 $ 109,632,172 $ 96,563,911 $ 115,023,848 District's Covered-Employee payroll $ 41,974,264 $ 41,387,450 $ 40,562,338 $ 45,885,323 District's Proportionate Share of the Net Pension Liability as a Percentage of its Covered-Employee Payroll % % % % Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 66.80% 72.10% 74.70% 69.30% (1) Information prior to 2013 is not available. (2) Amounts presented as of the District's measurement date which is the prior fiscal year end 59

132 Upper Arlington City Schools Required Supplementary Information Schedule of District's Contributions School Employees Retirement System of Ohio Last Ten Fiscal Years Contractually Required Contributions $ 1,452,196 $ 1,435,743 $ 1,357,527 $ 1,460,779 Contributions in Relation to the Contractually Required Contributions (1,452,196) (1,435,743) (1,357,527) (1,460,779) Contribution Deficiency (Excess) $ - $ - $ - $ - District Covered-Employee Payroll $ 10,372,829 $ 10,255,307 $ 10,299,901 $ 10,539,531 Contributions as a percentage of Covered-Employee Payroll 14.00% 14.00% 13.18% 13.86% 60

133 $ 1,466,490 $ 1,451,961 $ 1,428,021 $ 1,366,593 $ 1,283,480 $ 1,227,360 (1,466,490) (1,451,961) (1,428,021) (1,366,593) (1,283,480) (1,227,360) $ - $ - $ - $ - $ - $ - $ 10,596,026 $ 10,795,249 $ 11,360,549 $ 10,093,006 $ 13,043,496 $ 12,498, % 13.45% 12.57% 13.54% 9.84% 9.82% 61

134 Upper Arlington City Schools Required Supplementary Information Schedule of District's Contributions State Teachers Retirement System of Ohio Last Ten Fiscal Years Contractually Required Contributions $ 6,089,089 $ 5,876,397 $ 5,794,243 $ 5,273,104 Contributions in Relation to the Contractually Required Contributions (6,089,089) (5,876,397) (5,794,243) (5,273,104) Contribution Deficiency (Excess) $ - $ - $ - $ - District Covered-Employee Payroll $ 43,493,493 $ 41,974,264 $ 41,387,450 $ 40,562,338 Contributions as a percentage of Covered-Employee Payroll 14.00% 14.00% 14.00% 13.00% 62

135 $ 5,965,092 $ 5,828,724 $ 5,860,956 $ 5,826,576 $ 5,761,764 $ 4,955,139 (5,965,092) (5,828,724) (5,860,956) (5,826,576) (5,761,764) (4,955,139) $ - $ - $ - $ - $ - $ - $ 45,885,323 $ 44,836,338 $ 45,084,277 $ 44,819,815 $ 44,321,262 $ 38,116, % 13.00% 13.00% 13.00% 13.00% 13.00% 63

136 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION FOR THE FISCAL YEAR ENDED JUNE 30, 2017 A. Budgetary Information All governmental funds are subject to annual expenditures budgets. The Board follows the procedures outlined below in establishing the expenditures budget data: (1) A Tax Budget of estimated cash receipts and disbursements is submitted to the Franklin County Auditor, as secretary of the County Budget Commission, by January 20 of each year, for the fiscal year commencing the following July 1. The Upper Arlington Board of Education holds a budget hearing when it normally adopts the Tax Budget at the first regular meeting in January, following the budget hearing. (2) The County Budget Commission certifies its actions to the District by March 1. As part of this certification, the District receives the official certificate of estimated resources which states the projected receipts of each fund. On or about July 1, this certificate is amended to include any unencumbered balances from the preceding year. (3) An annual appropriation measure must be passed by October 1 of each year for the period July 1 to June 30. Unencumbered appropriations lapse at year-end and encumbered appropriations are reported as expenditures in the current year. The Upper Arlington Board of Education adopted its 2017 permanent appropriation measure at its September 13, 2016 regular meeting. The Board of Education adopted at the June 28, 2016 regular meeting a temporary appropriation measure to allow the District to operate until its annual appropriations were adopted. The appropriation measure may be amended or supplemented during the year as new information becomes available. Individual buildings and/or departments may transfer funds within their budgets. Revised appropriations are presented during the year and include the transfers requested by staff and any amendments to fund unanticipated expenditures. Appropriations may not exceed estimated resources and expenditures may not exceed appropriations at the fund level. B. Reconciling Budgetary Basis and GAAP The District prepares its budget on a basis of accounting that differs from generally accepted accounting principles (GAAP). The actual results of operations are presented in the Budgetary Comparison Schedule General Fund in accordance with the budget basis of accounting. The major differences between the budgetary basis of accounting and GAAP are that: A. Revenues are recorded when received in cash (budget basis) as opposed to when susceptible to accrual (GAAP basis); B. Expenditures are recorded when encumbered (budget basis) as opposed to when the liability is incurred (GAAP basis); and C. Encumbrances are recorded as the equivalent of expenditures (budget basis) as opposed to fund balance (GAAP basis). 64

137 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY, OHIO NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (Continued) A reconciliation of the General Fund results of operations at the end of the year on the GAAP basis to the budget basis follows: Change in net position $ 3,748,178 Adjustments: Due to revenues 765,718 Due to expenditures (313,849) Due to other financing sources 114,127 Funds budgeted as other funds (1,390,983) Excess of revenues and other financing sources over expenditures and other financing uses (Budget Basis) $ 2,923,191 65

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139 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 FEDERAL GRANTOR Federal Pass Through Grantor CFDA Total Federal Program / Cluster Title Number Expenditures U.S. DEPARTMENT OF AGRICULTURE Passed Through Ohio Department of Education Child Nutrition Cluster: Non-Cash Assistance (Food Donation) $ 36,686 National School Lunch Program Cash Assistance: National School Lunch Program ,266 Total Child Nutrtion Cluster 89,952 Total U.S. Department of Agriculture 89,952 U.S. DEPARTMENT OF EDUCATION Passed Through Ohio Department of Education Title I Grants to Local Educationl Agencies ,941 Special Education Cluster: Special Education Grants to States ,209,957 Special Education Preschool Grants ,266 Total Special Education Cluster 1,228,223 English Language Acquisition State Grants ,936 Improving Teacher Quality State Grants ,221 Total U.S. Department of Education 1,771,321 Total Expenditures of Federal Awards $ 1,861,273 The accompanying notes are an integral part of this schedule. 67

140 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 2 CFR (b)(6) FOR THE YEAR ENDED JUNE 30, 2017 NOTE A BASIS OF PRESENTATION The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal award activity of Upper Arlington City School District (the District) under programs of the federal government for the year ended June 30, The information on this Schedule is prepared in accordance with the 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). Because the Schedule presents only a selected portion of the operations of the District, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the District NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the cash basis of accounting. The District has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. NOTE C - CHILD NUTRITION CLUSTER The District commingles cash receipts from the U.S. Department of Agriculture with similar State grants. When reporting expenditures on this Schedule, the District assumes it expends federal monies first. NOTE D FOOD DONATION PROGRAM The District reports commodities consumed on the Schedule at the fair value. The District allocated donated food commodities to the respective program that benefitted from the use of those donated food commodities. 68

141 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS REQUIRED BY GOVERNMENT AUDITING STANDARDS Upper Arlington City School District Franklin County 1950 North Mallway Drive /Upper Arlington, Ohio To the Board of Education: We have audited, in accordance with auditing standards generally accepted in the United States and the Comptroller General of the United States Government Auditing Standards, the financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of Upper Arlington City School District, Franklin County, Ohio, (the District) as of and for the year ended June 30, 2017 and the related notes to the financial statements, which collectively comprise the District s basic financial statements and have issued our report thereon dated November 21, Internal Control Over Financial Reporting As part of our financial statement audit, we considered the District s internal control over financial reporting (internal control) to determine the audit procedures appropriate in the circumstances to the extent necessary to support our opinions on the financial statements, but not to the extent necessary to opine on the effectiveness of the District s internal control. Accordingly, we have not opined on it. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, when performing their assigned functions, to prevent, or detect and timely correct misstatements. A material weakness is a deficiency, or combination of internal control deficiencies resulting in a reasonable possibility that internal control will not prevent or detect and timely correct a material misstatement of the District s financial statements. 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 internal control deficiencies that might be material weaknesses or significant deficiencies. Given these limitations, we did not identify any deficiencies in internal control that we consider material weaknesses. However, unidentified material weaknesses may exist. Compliance and Other Matters As part of reasonably assuring whether the District s financial statements are free of material misstatement, we tested its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could directly and materially affect the determination of financial statement amounts. However, opining on compliance with those provisions was not an objective of our audit and accordingly, we do not express an opinion. The results of our tests disclosed no instances of noncompliance or other matters we must report under Government Auditing Standards. 88 East Broad Street, Tenth Floor, Columbus, Ohio Phone: or

142 Upper Arlington City School District Franklin County Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Required by Government Auditing Standards Page 2 Purpose of this Report This report only describes the scope of our internal control and compliance testing and our testing results, and does not opine on the effectiveness of the District s internal control or on compliance. This report is an integral part of an audit performed under Government Auditing Standards in considering the District s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Dave Yost Auditor of State Columbus, Ohio November 21,

143 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO THE MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Upper Arlington City School District Franklin County 1950 North Mallway Drive Upper Arlington, Ohio To the Board of Education: Report on Compliance for Each Major Federal Program We have audited the Upper Arlington City School District s, Franklin County, Ohio, (the District) compliance with the applicable requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could directly and materially affect the Upper Arlington City School District s major federal program for the year ended June 30, The Summary of Auditor s Results in the accompanying schedule of findings identifies the District s major federal program. Management s Responsibility The District s Management is responsible for complying with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal program. Auditor s Responsibility Our responsibility is to opine on the District s compliance for the District s major federal program based on our audit of the applicable compliance requirements referred to above. Our compliance audit followed auditing standards generally accepted in the United States of America; the standards for financial audits included in the Comptroller General of the United States Government Auditing Standards; 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). These standards and the Uniform Guidance require us to plan and perform the audit to reasonably assure whether noncompliance with the applicable compliance requirements referred to above that could directly and materially affect a major federal program 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 our audit provides a reasonable basis for our compliance opinion on the District s major program. However, our audit does not provide a legal determination of the District s compliance. Opinion on the Major Federal Program In our opinion, the Upper Arlington City School District complied, in all material respects with the compliance requirements referred to above that could directly and materially affect its major federal program for the year ended June 30, East Broad Street, Tenth Floor, Columbus, Ohio Phone: or

144 Upper Arlington City School District Franklin County Independent Auditor s Report on Compliance with Requirements Applicable to the Major Federal Program and on Internal Control Over Compliance Required By the Uniform Guidance Page 2 Report on Internal Control Over Compliance The District s management is responsible for establishing and maintaining effective internal control over compliance with the applicable compliance requirements referred to above. In planning and performing our compliance audit, we considered the District s internal control over compliance with the applicable requirements that could directly and materially affect a major federal program, to determine our auditing procedures appropriate for opining on each major federal program s compliance and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not to the extent needed to opine on the effectiveness of internal control over compliance. Accordingly, we have not opined on the effectiveness of the 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, when performing their assigned functions, to prevent, or to timely detect and correct, noncompliance with a federal program s applicable compliance requirement. 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 federal program compliance requirement will not be prevented, or timely detected and corrected. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with federal program s applicable compliance requirement 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 would not necessarily 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 consider to be material weaknesses. However, material weaknesses may exist that have not been identified. This report only describes the scope of our internal control over compliance tests and the results of this testing based on Uniform Guidance requirements. Accordingly, this report is not suitable for any other purpose. Dave Yost Auditor of State Columbus, Ohio November 21,

145 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY SCHEDULE OF FINDINGS 2 CFR JUNE 30, SUMMARY OF AUDITOR S RESULTS (d)(1)(i) Type of Financial Statement Opinion Unmodified (d)(1)(ii) (d)(1)(ii) (d)(1)(iii) (d)(1)(iv) (d)(1)(iv) (d)(1)(v) Were there any material weaknesses in internal control reported at the financial statement level (GAGAS)? Were there any significant deficiencies in internal control reported at the financial statement level (GAGAS)? Was there any reported material noncompliance at the financial statement level (GAGAS)? Were there any material weaknesses in internal control reported for major federal programs? Were there any significant deficiencies in internal control reported for major federal programs? Type of Major Programs Compliance Opinion No No No No No Unmodified (d)(1)(vi) Are there any reportable findings under 2 CFR (a)? No (d)(1)(vii) Major Programs (list): Special Education Cluster (d)(1)(viii) Dollar Threshold: Type A\B Programs Type A: > $ 750,000 Type B: all others (d)(1)(ix) Low Risk Auditee under 2 CFR ? Yes None. None. 2. FINDINGS RELATED TO THE FINANCIAL STATEMENTS REQUIRED TO BE REPORTED IN ACCORDANCE WITH GAGAS 3. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS 73

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147 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY CLERK S CERTIFICATION This is a true and correct copy of the report which is required to be filed in the Office of the Auditor of State pursuant to Section , Revised Code, and which is filed in Columbus, Ohio. CLERK OF THE BUREAU CERTIFIED NOVEMBER 30,

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149 APPENDIX C FIVE-YEAR PROJECTION OF OPERATIONAL REVENUES AND EXPENDITURES Upper Arlington City School District Franklin County, Ohio Following is a summary of a five-year financial projection prepared by the Treasurer of the School District through June 30, 2022, in compliance with Revised Code Section (see discussion in APPENDIX A under FINANCES OF THE SCHOOL DISTRICT Five-Year Projection ). The projection is based upon certain assumptions required to be made in accordance with rules promulgated by the Department, including the assumption that no revenues from future voterapproved tax levies will be available. A complete version of the projection may be obtained from the Treasurer s office or from the Department. Readers of this Official Statement are cautioned that actual circumstances may differ from the assumptions required to be used in preparation of this projection. As a result, the actual future financial situation of the School District may be materially different from that stated in this projection, and investors are cautioned not to place undue reliance on such forward-looking statements. C-1

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151 UPPER ARLINGTON CITY SCHOOL DISTRICT FRANKLIN COUNTY Schedule Of Revenue, Expenditures and Changes In Fund Balances Actual and Forecasted Operating Fund ACTUAL FORECASTED Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Revenue: General Property Tax (Real Estate) 67,512,299 67,328,326 68,856,634 72,466,817 75,977,259 76,297,287 76,820,261 77,310, Public Utility Personal Property 2,517,325 2,581,464 2,582,307 2,682,895 2,750,988 2,723,478 2,696,243 2,669, Unrestricted Grants in Aid 4,103,875 4,037,269 4,140,220 4,128,624 4,135,466 4,140,416 4,145,366 4,150, Restricted Grants in Aid 109,798 44,499 42,810 39,514 39,514 39,514 39,514 39, Property Tax Allocation 8,954,959 8,955,922 8,964,542 9,066,530 9,177,137 9,221,017 9,288,800 9,356, All Other Operating Revenues 2,417,810 3,147,091 2,997,358 2,527,500 2,393,500 2,193,500 2,118,500 2,193, Total Revenue 85,616,066 86,094,571 87,583,871 90,911,880 94,473,864 94,615,212 95,108,685 95,720,299 Other Financing Sources: Transfers In 1,165, Advances In 388,058 69, ,524 83,634 85,000 85,000 85,000 85, All Other Financing Sources 20, ,098 20,236 20,000 20,000 20,000 20,000 20, Total Other Financing Sources 1,574, , , , , , , , Total Revenues and Other Financing Sources 87,190,387 86,275,325 87,781,631 91,015,514 94,578,864 94,720,212 95,213,685 95,825,299 Expenditures: Personnel Services 50,789,646 50,476,460 50,868,565 53,562,000 55,387,000 57,555,000 59,595,000 61,646, Employees' Retirement/Insurance Benefits 16,764,430 17,521,436 18,389,255 19,055,000 20,038,400 21,230,000 22,500,000 23,800, Purchased Services 9,715,280 10,174,662 11,391,740 12,022,462 12,377,960 12,907,160 13,417,399 13,902, Supplies and Materials 2,020,058 2,108,409 1,853,599 2,281,624 2,354,602 2,429,902 2,507,902 2,588, Capital Outlay 442, , ,986 39, , , , , Other Objects 913,191 1,235,473 1,304,899 1,378,489 1,409,599 1,441,499 1,474,199 1,507, Total Expenditures 80,645,421 81,837,177 83,926,044 88,339,101 91,889,962 95,699,162 99,630, ,580,801 Other Financing Uses Operating Transfers Out 3,618, ,366 78,350 85,000 90,000 95, , , Advances Out 69, ,473 83,634 85,000 85,000 85,000 85,000 85, All Other Financing Uses ,000 10,000 10,000 10,000 10, Total Other Financing Uses 3,688, , , , , , , , Total Expenditures and Other Financing Uses 84,333,999 82,430,016 84,088,028 88,519,101 92,074,962 95,889,162 99,825, ,780,801 Excess of Rev & Other Financing Uses Over (Under) Expenditures and Other Financing Uses 2,856,388 3,845,309 3,693,603 2,496,413 2,503,903 (1,168,950) (4,611,616) (7,955,502) Cash Balance July 1 Excluding Proposed Renewal/ Replacement and New Levies 32,754,318 35,610,706 39,456,015 43,149,618 45,646,031 48,149,934 46,980,984 42,369, Cash Balance June 30 35,610,706 39,456,015 43,149,618 45,646,031 48,149,934 46,980,984 42,369,368 34,413, Estimated Encumbrances June 30 1,158, , , , , , , ,000 Reservations of Fund Balance: Budget Reserve 20,161,355 20,459,294 20,824,011 22,085,000 22,972,000 23,925,000 24,908,000 25,895, Unreserved Fund Balance June 30 14,290,711 18,176,669 21,555,195 22,736,031 24,327,934 22,180,984 16,561,368 7,593,866 See accompanying summary of significant forecast assumptions and accounting practices. Board Approved /2017

152 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes OVERVIEW The Five-Year Forecast (Forecast) is required to be completed twice a year (October & May) for the General Fund and submitted to the Ohio Department of Education. Assumptions contained in this Forecast are based on information that is deemed the best available as of the time of preparation. Actual amounts may differ significantly from those contained in the Forecast. All school districts in the state of Ohio report on a fiscal year. A fiscal year (FY) begins July 1 st and ends June 30 th. For example FY14 begins July 1, 2013 and ends June 30, This Forecast includes the general operating fund of the District, called the General Fund. Enrollment Annually, the District contracts with a third party to complete enrollment projections. For the third consecutive year, the enrollment projections indicate more than a 10% increase in enrollment ten years out. The third party is currently preparing their Fall annual enrollment projections. This enrollment growth will impact future staffing and space needs of the District (see notes Line 3.01 Personnel Services for more details). Actual Actual Projected Projected Projected Projected Projected FY16 FY17 FY18 FY19 FY20 FY21 FY22 K-5 2,692 2,752 2,819 2,845 2,909 2,968 3, ,407 1,416 1,424 1,444 1,494 1,516 1, ,819 1,820 1,882 1,893 1,870 1,927 1,961 Total 5,918 5,988 6,125 6,182 6,273 6,411 6,499 Source: Enrollment obtained from "Enrollment Projections Report" dated October 2017 Planning Advocates Levy In November 2012, the District s 5.8 mil operating levy was defeated, which was the first levy defeat in approximately 20 years. This failure resulted in approximately $3 million of budget cuts/cost avoidance starting in FY14. In November 2013, the District s residents approved a 4.0 mil operating levy. Revenue collection related to this levy started in calendar year 2014, impacting the second half of FY14. The 4.0 mil levy generates approximately $6.2 million annually. In November 2017, the District s residents approved a 3.75 mil operating levy and a $230 million bond for replacement/renovation of six of its educational buildings. The revenue related to the bond is not included in this forecast as it is not reported in the general fund but rather a capital project fund. The 3.75 mil levy generates approximately $6.5 million annually, impacting the second half of FY18. 1/22

153 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Biennium Budget A new school funding formula was introduced in HB59 which started in FY14. This funding formula had little impact on the District during FY14 and FY15. The formula included a guarantee that allowed districts to receive at least the same GROSS funding as they received in FY13. HB 64 was passed in June 2015 and impacts FY16 and FY17. This House Bill continued the concept of the Transitional Aid Guarantee (Guarantee). This District continues to be on the Guarantee through this biennium budget; thus, no material change in state funding is expected during these years. The State s Legislature and the Governor s Office approved the FY18/FY19 biennium budget in June As in past biennium budgets the District continues to be on a guarantee, receiving the same amount of funding as in prior years. College Credit Plus (CCP) CCP is a State Program that was required to be implemented by all school districts in FY16. This Program required districts to work with institutions of higher education (IHE) to create 15 and 30 semester hour pathways for students to obtain college credit in high school. Costs of these programs will vary based on participation and contracts with IHEs. The District experienced a 200% increase (or $53,000) in FY17 and estimates a range of 10% to 27% increases in future years. This program has the potential to grow exponentially. Budget Stabilization During the November 2013 levy, the administration recommended to the Board of Education to continue the informal practice of maintaining three months of expenditures as a cash reserve. The intent of this reserve is to help stabilize the budget for unanticipated events. The Board formally adopted this practice into policy on May 10, Additional details of this budget stabilization reserve are included in note Line 9.03 Budget Reserve. Digital Conversion As part of the District s personalization goal in its strategic plan, the District implemented a plan for students to have direct one-to-one access to a technological device that appropriately supports and maximizes their learning. The implementation for secondary students occurred in FY16 and had minimal impact on this forecast, as lease payments will not be paid out of the general fund. However, in FY17 the District implemented this plan for elementary students. The lease payments for these technological devices are paid out of the general fund through a reallocation of current funds (see notes Line 3.03 Purchased Services, Line 3.04 Supplies and Materials and Line 3.05 Capital Outlay). 2/22

154 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes REVENUE The graphs below illustrate the allocation of actual revenue amounts between categories for FY17 and the projected allocation between revenue categories for FY22 based on forecasted amounts. BASED ON ACTUAL REVENUE 2016 Real Estate 78.0% Othr Sources 0.2% All Othr Op Rev 3.6% Prop Tax Alloc 10.4% State Funding 4.7% Public Utility 3.0% BASED ON PROJECTED REVENUE See detail notes on revenue categories on pages /22

155 Line Real Estate Tax UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes ** are actual amounts and are projected amounts. The three reasons real estate tax revenue increase are: new levy, new construction and, to a lesser degree, appraisals. Levies As mentioned previously, the District s residents approved a 3.75 mill new operating levy in November This levy generates an additional $6.5 million annually. Revenue collection for this levy start in calendar year 2018; thus, approximately half the collection amount was recorded in FY18 and a full year of collection was reported in FY19. New Construction The District is landlocked with very few vacant lots; thus, the majority of residential new construction, which is minimal, consists mostly of remodeling existing homes. Residential new construction has resulted in assessed valuation increasing between 0.30% and 1.28% since Residential new construction increased assessed valuation by.5% in calendar year 2018 and Assessed valuation is projected to increase by.5% in calendar years New construction of.5% generates approximately $322,000 of additional revenue in calendar year 2018 (includes the State s amount for homestead and rollback). Appraisals The County Auditor performs appraisals every three years. The latest appraisal by the county was conducted in the fall of 2017 and resulted in a 12.1% increase in total residential valuation for calendar year The previous appraisal occurred in calendar year 2015 which impacted fiscal years 2015 and The 2015 appraisal resulted in a residential valuation increase of 7.77%. Due to the number of valuation challenges filed by homeowners requesting decreases in valuation throughout the years, the District s valuation is projected to decrease by.15% during non-appraisal years. See the Class I Variance Graph for past fluctuations and future projections on appraisals. 4/22

156 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line Real Estate Tax, continued Overall, Upper Arlington maintained its property values during challenging economic times. However, it is important to realize that increased or decreased valuation due to the appraisal process has little impact on District s revenue due to HB 920. In its simplest form, HB 920 means as district valuation increases, most tax rates decrease (or vice versa) so districts receive the same revenue as the year before. The only exception to this rule is something called inside millage which is not reduced or increased. The inside millage rate was set decades ago. For Upper Arlington, the inside millage rate is 5.65 mills. As valuations increase the district receives additional revenue generated from inside mills and as valuations decrease the district loses revenue. The estimated impact of a 12% increase in valuation due to the reappraisal in calendar year 2018 is approximately $1,000,000 (includes the State s amount for homestead and rollback), not a 12% increase in total residential tax revenue. This graph illustrates the history and future projections of inflationary increases on residential valuations. 20% Class I Variance due to Board of Revision, Reappraisal or Update 15% 10% 5% 0% 5% *Tax Years are actual percentages and are projections. Other The District records all Tax Incremental Financing (TIF) and Payment in lieu of Tax (PILOT) receipts in Other Revenue. Property values recorded in the TIF area are reclassified and revenue generated from these areas are reported as Other Revenue instead of Real Estate Tax. See note Line 1.06 All Other Revenue for additional information. 5/22

157 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Lines 1.02 Public Utility Personal Property Tax ** are actual amounts and are projected amounts. In FY13 and forward, the only amounts reported in line 1.02 are revenue related to public utility personal property tax (PUPPT) and delinquent PPT payments related to prior years. Utility companies continue to lobby for a decrease in these taxes; however, to date no changes have occurred. The District has very little PUPPT valuation, however, in calendar year 2013 the District s PUPPT valuation increased by approximately 50% which was rare. This increase was mostly due to a new power transmission line that runs through the District. This new valuation increased revenue by almost $800,000; beginning in calendar year 2013 (half of FY13 and half of FY14). The District will reduce PUPPT 1% starting in calendar year 2019 to account for the depreciation of utility assets generating this revenue. PUPPT also increased in calendar year 2014 due to a new 4.0 mil operating levy and calendar year 2018 due to a new 3.75 mil operating levy that was discussed previously. ** are actual amounts and are projected amounts. 6/22

158 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line Unrestricted Grants-in-Aid ** are actual amounts and are projected amounts. The District receives approximately the same amount of state foundation support as it did more than 10 years ago. FY14 & FY15 HB 59 was passed in June 2013 and created a new school funding formula which impacted FY14 and FY15. The new funding formula included a caveat that a district receiving less state funds from the new formula than what was received in FY13 would be kept whole. This concept is called the Transitional Aid Guarantee (Guarantee). This District is one of many districts on this Guarantee. Also, as part of HB59, Preschool funding now flows through the District versus being paid directly to the Education Service Center of Central Ohio (ESC), the provider of early learning for the District. This change increased revenue by approximately $224,000. Overall, the impact on the bottom line is minimal because expenditures also increased since the funding now flows through the District. The State Legislature designated 34% of tax receipts generated from casinos to school districts across the state starting in calendar year The District received casino receipts of approximately $298,000 in FY17 and projects approximately $300,000 each fiscal year thereafter. This revenue stream is highly volatile; however, overall fluctuations will not have a material impact on the District s financial position. FY16, FY17, FY18 & FY19 The budget bills passed in June 2015 (impacting FY16 & FY17) and June 2017 (impacting FY18 & FY19) had little impact on the district s funding as both budget bills continued the concept of the Transitional Aid Guarantee (Guarantee). The minimal increase seen in the chart above is due to increased enrollment in special needs preschool; however, this additional funding is paid to a third party providing services to the District s special needs preschool students. FY20, FY21 & FY22 As funding in these fiscal years will be defined by future biennium budgets the District has assumed the Transitional Aid Guarantee will stay in place over these years and minimal changes in the funding formula will occur. However, it is important to realize that in these later years the District could come off the Guarantee and be funded through the funding formula. However, this will not have a material impact on the District s financial position. 7/22

159 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line Property Tax Allocation ** are actual amounts and are projected amounts. Rollback & Homestead are State of Ohio programs which reduce an individual s share of property taxes. The Homestead exemption requires the state to pay a portion of property taxes for lower income senior citizens. The Rollback exemption requires the state to pay approximately 12.5% of an individual s property taxes. Effective November 2013, the State will no longer pay this Rollback exemption on any new levies. Revenue related to both Homestead and Rollback exemptions will increase as valuations increase; however, only revenue generated from the Homestead exemption will increase related to any new levies. 8/22

160 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 1.06 All Other Operating Revenue ** are actual amounts and are projected amounts. This category consists of a number of revenue sources including: investment income, tuition, extracurricular fees, tax incremental financing receipts, and others. Investment earnings are related to current and expected market conditions. The passage of the levy in 2013 allowed the District to invest more and for a longer term at higher rates which increases revenue. The District s investment income for FY17 was $607,000 compared to $99,000 in FY14. However, as cash balances decrease in future years, investment earnings are also projected to decrease. Tuition and other revenues are expected to remain consistent during the five-year projection, while rental income is expected to decrease starting in FY19 as a major weekend tenant plans to relocate. The majority of revenue in this classification relates to Tax Incremental Financing (TIF) and Payment In Lieu of Tax (PILOT) receipts. TIF financing redirects routine property taxes to various projects. In most TIF cases, the District s portion of TIF collections is equal to property tax collections without a TIF; however, because the project is classified as a TIF the District records the revenue separate from real estate taxes. In FY15, the District received TIF payments for seven projects in the City of Upper Arlington. In FY16, one TIF project was completed and another project (hotel/condominiums/commercial project) came on line resulting in a net increase of almost $400,000. This increase is misleading as the new TIF included back payments from a previous year, thus resulting in the smaller amount in FY17. Additionally, FY17 included a one-time payment that is not expected in FY18 and beyond. The following amounts are specifically related to TIF revenue: Actual Actual Actual Projected Projected Projected Projected Projected FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 $ 1,307,000 $ 1,795,000 $ 1,439,000 $ 1,152,000 $ 1,173,000 $ 1,173,000 $ 1,173,000 $ 1,173,000 9/22

161 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 2.06 All Other Financing Sources ** are actual amounts and are projected amounts. This category includes advances and transfers from other funds. Minimal fluctuations have occurred over the years except in FY15. In FY15, the District removed the restriction on $1.17 million and transferred it into the general fund. This was later transferred out of the general fund and into the permanent improvement fund to be used for a building addition at Tremont Elementary. Additionally, in FY15 the general fund received repayments of $388,000 from various grant funds that were advanced money in the previous year (FY14). This is a common practice when dealing with reimbursable grants; however, the amount advanced to other funds in FY14 was larger than normal due to one-time reimbursable grants received in FY14. 10/22

162 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes EXPENDITURES The graphs below illustrate the allocation of actual expenditure amounts between categories for FY17 and the projected allocation between expenditure categories for FY22 based on forecasted amounts. BASED ON ACTUAL EXPENDITURES 2016 Salaries 61.2% Othr Uses 0.7% Othr Objects 1.5% Capital Outlay 0.4% Supp & Mat 2.6% Purch Serv 12.3% Benefits 21.3% BASED ON PROJECTED EXPENDITURES See detail notes on expenditure categories on pages /22

163 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.01 Personnel Services ** are actual amounts and are projected amounts. Salaries and wages for staff are based on negotiated agreements expiring in June 2020 for support personnel and June 2018 for teachers. For projection purposes, the District expects increases in wages in FY19 and beyond to be market driven. Other factors related to wages are costs associated with changes in education categories and annual advancement (steps) on the salary schedule. The teachers association contract included no increases on the salary schedule for calendar years 2012 and 2013, a 1% increase on the salary schedule in 2014, no increases on the salary schedule from January 2015 to July 2017 and a 2% increase starting in August The support personnel s contract included no increases on the salary schedule from January 2014 through December 2016, a 2.5% increase starting January 2017 for 18 months, a 2% increase starting in July 2018 and a 1.75% increase starting in July In both of these contracts, automatic step increases occurred. The District had large groups of retirees (25) in FY14 and (19) in FY15. Many of these retirees took advantage of the early separation agreement the District offers which impacts the following fiscal year. As experienced teachers retired, skilled but less experienced teachers filled the open positions thus decreasing personnel expenditures. Fewer staff retired the last two years, six in FY16 and nine in FY17. The District is projecting five staff retirements per year for the remaining years of the forecast. The decreased expenditures in FY14 was due to the elimination of 30 staff positions as part of the approximate $3 million in reductions after a failed levy. In FY15, the District added approximately seven special education teachers in order to meet the needs of students. Additionally, the District eliminated 13 positions from payroll (mostly permanent substitute positions and nonclassroom teachers) and contracted with the ESC to provide these supervisory and similar services (reported as purchased services in FY15). Reductions in this expenditure category related to these 13 positions is offset by increased retirement/separation incentive costs, step increases, and the seven additional staff. As enrollment continues to grow additional staff is necessary. The enrollment increase in FY17 & FY18 caused specific grade levels at specific buildings to become too large thus requiring additional staff in the classroom and supporting the classroom, along with additional needs in the special education program. The District added 9 staff members in FY17 and 10 staff members in FY18. The District has included 4-5 additional staff in each of the next four years. 12/22

164 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.01 Personnel Services, continued This chart illustrates the percent change in personnel expenditures from one year to the next. ** are actual amounts and are projected amounts. 13/22

165 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.02 Employees Benefits ** are actual amounts and are projected amounts. The decrease in FY14 benefit expenditures relates to staffing reductions made in FY14, as mentioned in the previous note (Line 3.01 Personnel Services). Insurance (54% of employees benefit expenditures) Annual health insurance renewals and future negotiated agreements will affect this category. District had abnormally low claims in 2012 which led to a premium decrease of 6.8% for calendar year This is highly unusual and the District does not anticipate this type of renewal in future years. In 2014, the District became self-insured for its medical coverage. This change resulted in premium increases of 6.2% (a 3.8% savings in premium quotes for fully insured programs). The increase in medical premiums for 2015 was 5%. Overall, premium increases since 2011 have been less than the industry trend. Unfortunately, in 2015 the District s claims exceeded expectations. These large claims greatly impacted the premium increase for The medical premium for 2016 increased 26%. Fortunately, the claims in 2016 were less than projected which led to no increase in insurance premiums for 2017 and a 2.5% increase in premiums for Future premium increases for calendar years are projected at 7% based on current trend and adjustments to insurance plan. Additionally, the number of staff utilizing the insurance plans is expected to increase as staffing increases due to enrollment. See line 3.01 Personnel Services for additional detail on staffing. The District will continue to review insurance plans and processes for future savings. Other Benefits Pension (41% of employees benefit expenditures) The Ohio Revised Code requires all districts to contribute 14% of total employees payroll into a state pension system (i.e. State Teachers Retirement System (STRS) or School Employees Retirement System (SERS)). 14/22

166 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.02 Employees Benefits, continued Workers Compensation The District became self-funded related to workers compensation in September This decision has benefited the District, as it now has more control over its premiums. In FY16 the District reduced its rates by 35% and followed this decrease by decreases of 35% in FY17 and 50% in FY18. ** are actual amounts and are projected amounts. 15/22

167 Line 3.03 Purchased Services UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes ** are actual amounts and are projected amounts. GENERAL TRENDS This line includes items such as charter school payments, autism scholarships, tuition owed to other public entities for District students attending programs at these entities, transportation of pupils, property insurance, legal services, utilities, technology contracts/leases, substitutes, professional development and others. It also includes a contract with the Education Service Center of Central Ohio (ESC) for staffing and various student programs related to special education. The District expects the various types of purchased services to increase between 2-10% dependent on the service in FY19-FY22. Natural gas costs increased 72% or $140,000 in FY15 ($60,000 related to prior year). Natural gas consumption increased in FY14 due to an abnormally cold winter; however, the increase in cost did not impact expenditures until FY15 based on consortium budget procedures at the time. Utilities (natural gas, electric and water) are expected to increase approximately 5% a year starting in FY18. As enrollment continues to increase in the District it also increases ESC costs due to additional enrollment in various ESC programs. This increase is most notable in the special education services for preschool. The costs associated with this program increased by approximately $200,000 in FY17 as an additional classroom was added. ESC programs are projected to increase 4-5% a year due to program enrollment and staffing costs with the exception of FY20 where the increase is estimated at 8% due to the anticipated addition of another preschool classroom. As mentioned in personnel services, the District contracted with the ESC for permanent substitutes and supervisory positions in FY15. This eliminated approximately $718,000 from personnel services and benefits and increased purchased services by approximately the same amount. Additionally, costs associated with paraprofessionals increased greater than 20% due to 13 months of expenses in FY15 (timing of invoices), additional staff needed for extended school year services and throughout the year as dictated by student needs. As noted in the Overview on page 1, the District implemented a digital conversion program in FY16 as part of its Strategic Plan. In FY17, the District made its first lease payment (approximately $500,000) related to technology devices for all elementary students. This amount was reallocated from the supplies, other purchased services and capital outlay expenditure lines (see note Line 3.04 Materials and Supplies and Line 3.05 Capital Outlay for more detail). 16/22

168 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.03 Purchased Services, continued As mentioned in the Overview on page 1, the creation of the College Credit Plus program by the legislature in FY16 was expected to impact on purchased services in FY16; however, the impact was delayed until FY17 due to timing of payments. The cost related to post-secondary in FY17 increased 200% (or $53,000) and the District estimates a range of 10% to 27% increases in future years. This program has the potential to grow exponentially. Finally, an area of cost uncertainty in the future is tuition/other payments required to be paid for District students attending other entities such as STEM schools, charter schools, Franklin County Board of Development Disabilities, and other special education programs. In FY17, the cost of these programs increased approximately $400,000, or greater than 25%. Costs are estimated to increase 5% annually starting in FY18. 17/22

169 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.04 Supplies & Materials ** are actual amounts and are projected amounts. These items include textbooks, software, instructional materials, and building budget items that go toward classroom and office supplies, teacher training, classroom equipment, and library materials. In FY14, the District made few textbook/classroom textbook purchases and postponed other planned purchases as it was reviewing priorities. In FY15, the District purchased approximately $200,000 in classroom materials related to literacy. Similar purchases are expected in future years as the District continues to evaluate its curriculum and use of various software. FY17 is approximately $150,000 less than FY16, largely due to the reallocation of funds for the lease payment related to the elementary technology devices. In FY18, textbook/software purchases are expected to increase due to required curriculum resource updates by AP/IB and enrollment increases throughout most grade levels. Increases of approximately 2.0% are expected for supplies in FY19-FY22. 18/22

170 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 3.05 Capital Outlay ** are actual amounts and are projected amounts. Expenditures in this category include equipment, furniture, technology, vehicles, etc. Technology purchases are expected to fluctuate year to year based on computer replacement needs of the District. In FY14, the District made few technology purchases and postponed other planned purchases as it was reviewing its priorities. In FY15 and FY16, the District purchased approximately $400,000 and $300,000 in technology related equipment. In FY17, the District reallocated $200,000 from capital outlay to purchase services related to the leasing of technology instead of purchasing it (see note Line 3.03 Purchased Services for more detail). Technology equipment purchases are expected to be minimal in FY18 due to the leasing of computers/ipads for the students instead of one time purchases. In FY19, the District plans on beginning replacing various non-leased technology devices (i.e laptops, servers, projectors, etc). Most capital outlay expenditures for building improvements and maintenance are reported in the District s Permanent Improvement Fund which is not included in the Forecast. This fund was created in 2007 thanks to the District s residents passing a 2.0 mill permanent improvement levy. These funds cannot be used for employees salaries and benefits. 19/22

171 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line 4.3 Other Objects ** are actual amounts and are projected amounts. The primary item is auditor/treasurer fees for collection of taxes. In FY15 the County Auditor reduced tax collection fees by approximately $230,000. This reduction is not expected to occur in FY18-FY22. In calendar year 2014, Franklin County implemented a new fee in order to create funds for a county land bank. The County charges a 5% fee on all delinquent tax collections and related penalties. 20/22

172 UPPER ARLINGTON CITY SCHOOL DISTRICT December 2017 Five-Year Forecast Assumptions/Notes Line Transfers Out and Line 5.02 Advances Out ** are actual amounts and are projected amounts. Permanent transfers to other funds are expected to be evaluated on an annual basis. In FY13, the District issued a five year energy conservation note which helped decrease future utility costs. The District transferred funds to the debt service fund over three years to pay off this note. In FY15, the District paid off the remaining outstanding balance of approximately $1.2 million 2 years early. Also in FY15, as mentioned earlier in Line 2.06 All Other Financing Sources, the District removed the restriction on $1.17 million and transferred it into the general fund. This was later transferred out of the general fund and into the permanent improvement fund to be used for a building addition at Tremont Elementary. In FY16, the District made a one-time transfer of $253,000 to the permanent improvement fund for building planning. Temporary advances are anticipated for grant funds that have negative cash balances at the end of the year as the District awaits reimbursement from the granting agency. FY14 was an abnormally large year for advances as the District received three new state grants that were not reimbursed by year s end, thus requiring advances of approximately $388,000 (see note Line 2.06 All Other Financing Sources for more detail). In FY18 and beyond transfers and advances are projected to be approximately $180, /22