RATINGS: S&P: AA (Insured) A+ (Underlying) STATE OF CALIFORNIA

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1 NEW ISSUE FULL BOOK-ENTRY RATINGS: S&P: AA (Insured) A+ (Underlying) STATE OF CALIFORNIA COUNTY OF RIVERSIDE In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2014 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2014 Bonds is exempt from State of California personal income tax. See LEGAL MATTERS Tax Matters herein. $7,285,000 BEAUMONT UNIFIED SCHOOL DISTRICT (Riverside County, California) 2014A General Obligation Refunding Bonds (Election of 1998) (Bank Qualified) Dated: Date of Delivery Due: As shown on the inside cover This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meanings set forth herein. The $7,285,000 Beaumont Unified School District, Riverside County, California, 2014A General Obligation Refunding Bonds (Election of 1998) (Bank Qualified) (the 2014 Bonds ) are being issued by the District to (i) refund a portion of the District s outstanding General Obligation Bonds, Election of 1998, Series 2004, (ii) purchase a municipal bond insurance policy and (iii) pay the costs of issuing the 2014 Bonds. See INTRODUCTION Purpose of Issue and THE 2014 BONDS Refunding Plan herein. The 2014 Bonds are general obligation bonds of the District payable solely from ad valorem property taxes levied on taxable property within the District. Each of the Board of Supervisors of Riverside County and the Board of Supervisors of San Bernardino County is empowered and is obligated to levy ad valorem taxes, without limitation as to rate or amount, upon all property within the District subject to taxation by the District (except certain personal property which is taxable at limited rates), for the payment of interest on and principal of the 2014 Bonds when due. The District has other outstanding general obligation bonds which are secured by and payable from ad valorem taxes levied on taxable property within the District. See SECURITY FOR THE 2014 BONDS and TAX BASE FOR REPAYMENT OF THE 2014 BONDS Ad Valorem Property Taxation herein. All general obligation bonds of the District are issued on a parity with each other. The 2014 Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for The Depository Trust Company, New York, New York (collectively referred to herein as DTC ). Payments of principal of and interest on the 2014 Bonds will be paid by Wells Fargo Bank, National Association, as the designated paying agent, authenticating agent and transfer agent (the Paying Agent ), to DTC for subsequent disbursement to DTC Participants (defined herein) who will remit such payments to the beneficial owners of the 2014 Bonds. See THE 2014 BONDS Book-Entry Only System herein. The 2014 Bonds will be dated their date of delivery. Interest on the 2014 Bonds accrues from their dated date and is payable semiannually on March 1 and September 1 of each year, commencing September 1, The 2014 Bonds are not subject to redemption prior to maturity. The scheduled payment of principal of and interest on the 2014 Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the issuance of the 2014 Bonds by Assured Guaranty Municipal Corp. ( AGM or the Insurer ). See BOND INSURANCE herein. THE 2014 BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT AND DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE COUNTY OF RIVERSIDE OR THE COUNTY OF SAN BERNARDINO. NO PART OF ANY FUND OF THE COUNTY OF RIVERSIDE OR THE COUNTY OF SAN BERNARDINO IS PLEDGED OR OBLIGATED TO THE PAYMENT OF THE 2014 BONDS. MATURITY SCHEDULE (See Inside Front Cover) The 2014 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval of legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Certain matters will be passed on for the District by Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel. The 2014 Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company in New York, New York on or about June 4, Dated: May 1, 2014

2 Maturity (September 1) MATURITY SCHEDULE BASE CUSIP NO $7,285,000 BEAUMONT UNIFIED SCHOOL DISTRICT (RIVERSIDE COUNTY, CALIFORNIA) 2014A GENERAL OBLIGATION REFUNDING BONDS (ELECTION OF 1998) (BANK QUALIFIED) Principal Amount Interest Rate Yield CUSIP 2014 $ 90, % 0.300% DQ , DR , DS , DT , DU ,025, DV ,135, DW ,225, DX , DY7 CUSIP is a registered trademark of the American Bankers Association. Copyright Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business. All rights reserved. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter takes any responsibility for the accuracy of such numbers.

3 No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained herein. If given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the 2014 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2014 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expression of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or any other parties described herein since the date hereof. This Official Statement is being submitted in connection with the sale of the 2014 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a plan, expect, estimate, project, budget or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the captions THE DISTRICT, and DISTRICT FINANCIAL MATTERS herein. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. While the District has agreed to provide certain on-going financial and operating data on an annual basis, it does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which statements are based change. See CONTINUING DISCLOSURE and Appendix C FORM OF CONTINUING DISCLOSURE AGREEMENT herein. All information material to the making of an informed investment decision with respect to the 2014 Bonds is contained in this Official Statement. While the District maintains an internet website for various purposes, none of the information on its website is incorporated by reference into this Official Statement. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. WITH RESPECT TO THIS OFFERING, THE UNDERWRITER MAY ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2014 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE 2014 BONDS DESCRIBED HEREIN TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED IN THIS OFFICIAL STATEMENT AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

4 Assured Guaranty Municipal Corp. ( AGM ) makes no representation regarding the 2014 Bonds or the advisability of investing in the 2014 Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading BOND INSURANCE and Appendix G SPECIMEN MUNICIPAL BOND INSURANCE POLICY. THE 2014 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 BEAUMONT UNIFIED SCHOOL DISTRICT Board of Trustees Margaret De Longchamp, President David Sanchez, Vice President Janelle Poulter, Clerk Wayne Hackney, Member Susie Lara, Member School District Administrators Maureen E. Latham, Ed.D., Superintendent Carol Severns, Assistant Superintendent, Business Services Christina Goennier, Ed.D., Assistant Superintendent, Instructional Support Services Terrence Davis, Assistant Superintendent, Personnel Services PROFESSIONAL SERVICES Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Escrow Agent/Paying Agent Wells Fargo Bank, National Association Minneapolis, Minnesota Verification Agent Causey Demgen & Moore, P.C. Denver, Colorado

6 TABLE OF CONTENTS INTRODUCTION... 1 The District... 1 Purpose of Issue... 1 Sources of Payment for the 2014 Bonds... 2 Description of the 2014 Bonds... 2 Tax Matters... 2 Authority for Issuance of the 2014 Bonds... 3 Offering and Delivery of the 2014 Bonds... 3 Bond Insurance... 3 Continuing Disclosure... 3 Forward Looking Statements... 3 Professionals Involved in the Offering... 3 Other Information... 4 THE 2014 BONDS... 4 Authority for Issuance... 4 Security and Sources of Payment... 4 Description of the 2014 Bonds... 5 Paying Agent... 5 Refunding Plan... 5 Application of Tax Revenues Securing the Repayment of the 2014 Bonds... 6 No Redemption of 2014 Bonds... 6 Book-Entry Only System... 6 Defeasance... 6 Supplemental Resolutions... 7 Unclaimed Moneys... 8 BOND INSURANCE... 8 Bond Insurance Policy... 8 Assured Guaranty Municipal Corp ESTIMATED SOURCES AND USES OF FUNDS RIVERSIDE COUNTY TREASURY POOL DEBT SERVICE SCHEDULE SECURITY FOR THE 2014 BONDS TAX BASE FOR REPAYMENT OF THE 2014 BONDS Ad Valorem Property Taxation Historical Data Concerning District Tax Base Tax Levies and Delinquencies Tax Rates Largest Taxpayers THE DISTRICT Introduction Board of Trustees Superintendent and Administrative Personnel Employee Relations Retirement System State Pension Trusts Post-Employment Benefits Insurance DISTRICT FINANCIAL MATTERS State Funding of Education Other Funding Sources Accounting Practices District Budget Process Revenue Sources State Apportionment Funding Other State Revenues Federal Revenues Other Local Revenues Comparative Financial Statements Recent Budget Developments Capital Projects Funds DISTRICT DEBT STRUCTURE Long-Term Debt Short-Term Debt Direct and Overlapping Debt CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA Article XIIIB Articles XIIIC and XIIID Proposition Proposition Propositions 98 and Proposition 1A and Proposition Proposition Jarvis v. Connell Future Initiatives STATE OF CALIFORNIA FISCAL ISSUES General Overview State Budget Future Actions Litigation Challenging Method of School Financing BANK QUALIFIED OBLIGATIONS LEGAL MATTERS Tax Matters Verification CONTINUING DISCLOSURE MISCELLANEOUS Ratings Underwriting Audited Financial Statements Financial Interests ADDITIONAL INFORMATION APPENDIX A FORM OF OPINION OF BOND COUNSEL... A-1 APPENDIX B DISTRICT S AUDITED FINANCIAL STATEMENTS... B-1 APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT... C-1 APPENDIX D INFORMATION CONCERNING THE CITY OF BEAUMONT AND COUNTY OF RIVERSIDE... D-1 APPENDIX E BOOK-ENTRY ONLY SYSTEM... E-1 APPENDIX F RIVERSIDE COUNTY TREASURER S STATEMENT OF INVESTMENT POLICY... F-1 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY... G-1 i

7 $7,285,000 BEAUMONT UNIFIED SCHOOL DISTRICT (Riverside County, California) 2014A General Obligation Refunding Bonds (Election of 1998) (Bank Qualified) INTRODUCTION This Official Statement (which includes the cover page, the Table of Contents and the Appendices attached hereto) is furnished by the Beaumont Unified School District (the District ) to provide information concerning the $7,285,000 Beaumont Unified School District, Riverside County, California, 2014A General Obligation Refunding Bonds (Election of 1998) (Bank Qualified) (the 2014 Bonds ). This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the 2014 Bonds to potential investors is made only by means of the entire Official Statement. Changes to Preliminary Official Statement. In addition to changes resulting from the pricing of the 2014 Bonds, changes have been made to this Official Statement since the publication of the Preliminary Official Statement dated April 25, 2014 to reflect the District s decision to purchase bond insurance for all of the 2014 Bonds. See the captions INTRODUCTION Bond Insurance and BOND INSURANCE herein. Additional changes were made to set forth the book value of the investments in the Riverside County Pooled Investment Fund as of March 31, See RIVERSIDE COUNTY TREASURY POOL. The District The District is located in the northwestern portion of Riverside County at the intersection of the U.S. Interstate 10 and State Route 60 Freeways, with a small portion of the District boundaries extending into San Bernardino County. The District encompasses an area of approximately 110 square miles, and it serves the communities of Beaumont and Cherry Valley and portions of Calimesa and Banning, as well as the surrounding areas. The District was established in 1953 and currently operates 11 school sites which include 6 elementary schools, two middle schools, a comprehensive high school, an adult education school, and a continuation high school. A charter school began operations within the District in fiscal year The District is governed by a five-member Board of Trustees (the Board ), each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. The management and policies of the District are administered by a Board appointed Superintendent who is responsible for the day-to-day operations and the supervision of other key personnel. See THE DISTRICT. Purpose of Issue Proceeds from the 2014 Bonds will be used to: (i) refund a portion of the District s outstanding General Obligation Bonds, Election of 1998, Series 2004, (the 2004 Bonds ), (ii) purchase a municipal bond insurance policy guaranteeing the payment of principal of and interest on the 2014 Bonds when due and (iii) pay the costs of issuing the 2014 Bonds. See THE 2014 BONDS Application and Investment of 2014 Bond Proceeds and Ad Valorem Taxes and ESTIMATED SOURCES AND USES OF FUNDS herein. 1

8 Sources of Payment for the 2014 Bonds Ad Valorem Taxes. The 2014 Bonds are general obligation bonds of the District. Each of the Board of Supervisors of the County of Riverside (the County ) and the Board of Supervisors of the County of San Bernardino, respectively, has the power and is obligated annually to levy ad valorem taxes for the payment of the 2014 Bonds and the interest thereon upon all property in the District within its boundaries, subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates). See SECURITY FOR THE 2014 BONDS herein. THE 2014 BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT AND DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE COUNTY OR THE COUNTY OF SAN BERNARDINO. NO PART OF ANY FUND OF THE COUNTY OR THE COUNTY OF SAN BERNARDINO IS PLEDGED OR OBLIGATED TO THE PAYMENT OF THE 2014 BONDS. Description of the 2014 Bonds Maturity Dates. The 2014 Bonds will mature on September 1 in the years and in the principal amounts set forth on the inside cover page of this Official Statement. Payment Dates. The 2014 Bonds will be dated their date of delivery. Interest on the 2014 Bonds accrues from their dated date at the rates set forth on the inside cover page of this Official Statement and is payable semiannually on each March 1 and September 1 (each, a Bond Payment Date ), commencing September 1, The principal amount of the 2014 Bonds is payable at maturity upon surrender of the applicable 2014 Bond for payment. Registration. The 2014 Bonds will be issued in fully registered form only, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the 2014 Bonds (the Beneficial Owners ) in authorized denominations, under the book-entry only system maintained by DTC, only through brokers and dealers who are or act through direct participants in the DTC system ( DTC Participants ) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the 2014 Bonds. See THE 2014 BONDS Book-Entry Only System and Appendix E BOOK-ENTRY ONLY SYSTEM herein. Denominations. The 2014 Bonds will be issued, and beneficial ownership interests may be purchased by Beneficial Owners, in denominations of $5,000 or any integral multiple thereof. See THE 2014 BONDS Book-Entry Only System. Tax Matters No Redemption. The 2014 Bonds are not subject to redemption prior to maturity. In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions and assuming compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2014 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income tax. In the further opinion of Bond Counsel, interest on the 2014 Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. See LEGAL MATTERS Tax Matters herein. 2

9 Authority for Issuance of the 2014 Bonds The 2014 Bonds are issued pursuant to certain provisions of the State of California Government Code, as well as other applicable law, and pursuant to a resolution adopted by the Board of Trustees of the District. See THE 2014 BONDS Authority for Issuance herein. Offering and Delivery of the 2014 Bonds The 2014 Bonds are offered when, as and if issued, subject to approval as to the validity by Bond Counsel. It is anticipated that the 2014 Bonds will be available for delivery through the facilities of DTC in New York, New York on or about June 4, Bond Insurance The scheduled payment of principal of and interest on the 2014 Bonds when due will be guaranteed under an insurance policy (the Policy ) to be issued concurrently with the execution and delivery of the 2014 Bonds by Assured Guaranty Municipal Corp. ( AGM or the Insurer ). See BOND INSURANCE and APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY. Continuing Disclosure The District will covenant for the benefit of bondholders to make available certain financial information and operating data relating to the District and to provide notices of the occurrence of certain enumerated events in compliance with Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission. The specific nature of the information to be made available and of the notices of enumerated events for which notice will be given is summarized below under the caption CONTINUING DISCLOSURE and Appendix C FORM OF CONTINUING DISCLOSURE AGREEMENT herein. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, budget or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information regarding the District herein. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. Professionals Involved in the Offering Stradling Yocca Carlson & Rauth, a Professional Corporation, is acting as Bond Counsel and Disclosure Counsel to the District with respect to the 2014 Bonds. Causey Demgen & Moore, P.C., Denver, Colorado, is acting as verification agent with respect to the 2014 Bonds. The fees paid to these consultants are contingent upon the sale and delivery of the 2014 Bonds. 3

10 Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of documents referred to herein and information concerning the 2014 Bonds are available from the Superintendent, Beaumont Unified School District, 350 Brookside Avenue, Beaumont, California 92223, telephone: (951) The District may impose a charge for copying, mailing and handling. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the District. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2014 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2014 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties by reference to each of such documents, statutes and constitutional provisions. The information set forth herein, other than that provided by the District, has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the 2014 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. All terms used herein and not otherwise defined shall have the meanings given such terms in the Bond Resolution (as defined below). Authority for Issuance THE 2014 BONDS The 2014 Bonds are being issued pursuant to the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code of the State of California (the Refunding Act ), and pursuant to a resolution adopted by the Board of Trustees of the District on April 8, 2014 (the Bond Resolution ). Security and Sources of Payment The 2014 Bonds are general obligation bonds of the District payable solely from ad valorem property taxes. Such taxes will be levied annually by the Board of Supervisors of the County and the Board of Supervisors of the County of San Bernardino in addition to all other taxes during the period that the 2014 Bonds are outstanding in an amount sufficient to pay the principal of and interest on the 2014 Bonds when due. See SECURITY FOR THE 2014 BONDS and TAX BASE FOR REPAYMENT OF 2014 BONDS. Such taxes, when collected, will be placed by the County and the County of San Bernardino in the Beaumont Unified School District 2014A General Obligation Refunding Bonds Debt Service Fund (the 2014 Debt Service Fund ), which fund is segregated and maintained by the County. The 2014 Debt Service Fund is irrevocably pledged for the payment of principal of and interest on the 2014 Bonds when due. Although the County and the County of San Bernardino are obligated to levy ad valorem taxes for the payment of the

11 Bonds, and the County will maintain the 2014 Debt Service Fund pledged to the repayment of the 2014 Bonds, the 2014 Bonds are not a debt of the County or the County of San Bernardino. Moneys in the 2014 Debt Service Fund, to the extent necessary to pay the principal of and interest on the 2014 Bonds, as such principal and interest becomes due and payable, will be transferred to the Paying Agent (defined below). The Paying Agent will, in turn, transfer the funds to DTC, which is to distribute the principal and interest payments due on the 2014 Bonds to DTC Participants for subsequent disbursement to the Beneficial Owners of the 2014 Bonds. See THE 2014 BONDS Book-Entry Only System. Description of the 2014 Bonds The 2014 Bonds will be dated their date of delivery. Interest on the 2014 Bonds accrues from their dated date at the rates set forth on the inside cover page of this Official Statement and is payable semiannually on each Bond Payment Date. Interest payments on the 2014 Bonds will commence on September 1, The 2014 Bonds are issuable in denominations of $5,000 or any integral multiple thereof. See Book-Entry Only System. Interest will accrue on the 2014 Bonds on the basis of a 360-day year comprised of twelve 30 day months. Paying Agent Wells Fargo Bank, National Association, will act as the designated paying agent, authenticating agent and transfer agent (the Paying Agent ) for the 2014 Bonds. If the Paying Agent resigns or is removed by the District, a successor Paying Agent will be appointed by the District. Any successor Paying Agent selected by the District may be any bank, trust company, national banking association or other financial institution doing business in the State of California and with at least $50,000,000 in net assets. Refunding Plan The 2014 Bonds are being issued to: (i) refund a portion of the 2004 Bonds, (ii) purchase a municipal bond insurance policy, and (iii) pay the costs of issuing the 2014 Bonds. A portion of the proceeds from the sale of the 2014 Bonds will be deposited into an escrow fund (the Escrow Fund ) to refund a portion of the 2004 Bonds. The Escrow Fund is to be created and maintained by Wells Fargo Bank, National Association, as escrow agent (the Escrow Agent ), under the Escrow Agreement (the Escrow Agreement ), by and between the District and the Escrow Agent for the refunding of a portion of the 2004 Bonds. Moneys in the Escrow Fund will be invested in cash and/or non-callable direct obligations of the United States Treasury or other non-callable obligations, the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America. Causey Demgen & Moore, P.C., independent certified public accountants, acting as verification agent (the Verification Agent ) with respect to the Escrow Fund, will certify that the amounts in the Escrow Fund, along with the interest earnings thereon, if any, will be sufficient to redeem on September 1, 2014 the 2004 Bonds being refunded. Amounts on deposit in the Escrow Fund are not available to pay debt service on the 2014 Bonds. 5

12 Application of Tax Revenues Securing the Repayment of the 2014 Bonds The ad valorem taxes levied to repay the 2014 Bonds will be deposited in the 2014 Debt Service Fund, established under the Bond Resolution, are to be used only for payments of principal of and interest on the 2014 Bonds, and may be invested in any one or more investments which are lawful investments for school districts under the laws of the State of California. It is anticipated that moneys in the 2014 Debt Service Fund will be invested in the Riverside County Treasury Pool. See RIVERSIDE COUNTY TREASURY POOL herein. No Redemption of 2014 Bonds The 2014 Bonds are not subject to redemption prior to maturity. Book-Entry Only System One fully registered bond without coupons for each maturity of the 2014 Bonds will be issued and, when issued, will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the 2014 Bonds. Individual purchases may be made in book-entry form only, in the principal amount of $5,000 and integral multiples thereof for each maturity. Purchasers will not receive certificates representing their interest in the 2014 Bonds purchased. Principal and interest will be paid to DTC, which will in turn remit such principal and interest to DTC Participants for subsequent dispersal to the Beneficial Owners of the 2014 Bonds as described herein. See Appendix E BOOK-ENTRY ONLY SYSTEM herein. Defeasance All or a portion of the outstanding 2014 Bonds may be paid and discharged in any one or more of the following ways: (1) Cash: by irrevocably depositing with the Paying Agent, or an independent escrow agent selected by the District, an amount of cash which together with amounts then on deposit in the 2014 Debt Service Fund is sufficient to pay all 2014 Bonds designated for defeasance, including all principal and interest and premium, if any; or (2) Government Obligations: by irrevocably depositing with the Paying Agent, or an independent escrow agent selected by the District, noncallable Government Obligations (as defined below), together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with the interest to accrue thereon and moneys then on deposit in the 2014 Debt Service Fund, together with interest to accrue thereon, be fully sufficient to pay all 2014 Bonds designated for defeasance at or before maturity thereof, including all principal, interest and premium, if any. If a 2014 Bond is defeased as described above, then all obligations of the District under the Bond Resolution with respect to such outstanding 2014 Bond shall cease and terminate, whether or not such 2014 Bond has been surrendered for payment, except only (i) the obligation of the Paying Agent or an independent escrow agent selected by the District to pay or cause to be paid to the Owners of the 2014 Bonds all sums due thereon from the amounts on deposit pursuant to (1) and (2) above and (ii) the obligations of the District with respect to the Rebate Fund (as defined in the Bond Resolution). In the Bond Resolution, Government Obligations are defined as: 6

13 Direct and general obligations of the United States of America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, or prerefunded municipal obligations rated in the same rating category by Moody s Investors Service or Standard & Poor s as direct and general obligations of the United States of America. In the case of direct and general obligations of the United States of America, Government Obligations shall include evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interests must be limited to circumstances where (i) a bank or trust company acts as custodian and holds the underlying direct and general obligations of the United States of America; (ii) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying direct and general obligations of the United States of America; and (iii) the underlying direct and general obligations of the United States of America are held in a special account, segregated from the custodian s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that such obligations are rated by Standard & Poor s Rating Services and Moody s Investors Service in the same rating category as the underlying direct and general obligations of the United States of America. Supplemental Resolutions The Bond Resolution and the rights and obligations of the District and of the Owners of the 2014 Bonds may be modified or amended at any time by a supplemental resolution adopted by the District with the written consent of Owners owning at least 60% in aggregate principal amount of the 2014 Bonds then Outstanding exclusive of 2014 Bonds owned by the District; provided, however, that no such modification or amendment shall, without the express consent of the Owner of each 2014 Bond affected reduce the principal amount of any such 2014 Bond, reduce the interest rate payable thereon, advance the earliest redemption date thereof, extend its maturity or the times for paying interest thereon or change the monetary medium in which principal and interest is payable, nor shall any modification or amendment reduce the percentage of consents required for amendment or modification. No such Supplemental Resolution shall change or modify any of the rights or obligations of any Paying Agent without its written assent thereto. The Bond Resolution and the rights and obligations of the District and of the Owners of the 2014 Bonds may be modified or amended at any time by a supplemental resolution adopted by the District, without the written consent of the Owners: (1) To add to the covenants and agreements of the District in the Bond Resolution other covenants and agreements to be observed by the District which are not contrary to or inconsistent with such resolution as theretofore in effect; (2) To add to the limitations and restrictions in the Bond Resolution, other limitations and restrictions to be observed by the District which are not contrary to or inconsistent with the such resolution as theretofore in effect; (3) To confirm as further assurance any pledge under, and the subjection to any lien or pledge created or to be created by the Bond Resolution, of any moneys, securities or funds, or to establish any additional funds or accounts to be held under such resolution; (4) To cure any ambiguity, supply any omission, or cure to correct any defect or inconsistent provision in the Bond Resolution; or (5) To amend or supplement the Bond Resolution in any other respect, provided such Supplemental Resolution does not adversely affect the interests of the Owners of the 2014 Bonds. 7

14 Any act done pursuant to a modification or amendment so consented to shall be binding upon the Owners of all the 2014 Bonds and shall not be deemed an infringement of any of the provisions of the Bond Resolution whatever the character of such act may be, and may be done and performed as fully and freely as if expressly permitted by the terms of such resolution, and after consent relating to such specified matters has been given, no Owner shall have any right or interest to object to such action or in any manner to question the propriety thereof or to enjoin or restrain the District or any officer or agent of either from taking any action pursuant thereto. Unclaimed Moneys Anything in the Bond Resolution to the contrary notwithstanding, any moneys held by the Paying Agent in trust for the payment and discharge of any of the 2014 Bonds which remain unclaimed for one year after the date when such 2014 Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Paying Agent at such date, or for one year after the date of deposit of such moneys if deposited with the Paying Agent after said date when such bonds become due and payable, shall be repaid by the Paying Agent to the District, as its absolute property and free from trust, and the Paying Agent shall thereupon be released and discharged with respect thereto and the Owners of such 2014 Bonds shall look only to the District for the payment of such 2014 Bonds; provided, however, that before being required to make such payment to the District, the Paying Agent shall, at the expense of District, cause to be mailed to the Owners of all such 2014 Bonds at their respective addresses appearing on the registration books, a notice that said moneys remain unclaimed and that, after a date in said notice, which date shall not be less than 30 days after the date of mailing such notice, the balance of such moneys then unclaimed will be returned to the District. BOND INSURANCE The information under this caption has been prepared by AGM for inclusion in this Official Statement. Neither the District nor the Underwriter has reviewed this information, nor do the District or the Underwriter make any representation with respect to the accuracy or completeness thereof. The following information is not complete and reference is made to Appendix G for a specimen of the Policy. Bond Insurance Policy Concurrently with the issuance of the 2014 Bonds, AGM will issue the Policy. The Policy guarantees the scheduled payment of principal of and interest on the 2014 Bonds when due as set forth in the form of the Policy included as Appendix G to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated AA (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ) and A2 (stable outlook) by Moody s Investors Service, Inc. ( Moody s ). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any 8

15 time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On March 18, 2014, S&P published a Research Update report in which it upgraded AGM s financial strength rating to AA (stable outlook) from AA- (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On February 10, 2014, Moody s issued a press release stating that it had affirmed AGM s insurance financial strength rating of A2 (stable outlook). AGM can give no assurance as to any further ratings action that Moody s may take. For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM At December 31, 2013, AGM s policyholders surplus and contingency reserves were approximately $3,529 million and its net unearned premium reserve was approximately $1,891 million. Such amounts represent the combined surplus, contingency reserves and net unearned premium reserve of AGM and its wholly owned subsidiary Assured Guaranty (Europe) Ltd., plus 60.7% of the contingency reserve and net unearned premium reserve of AGM s indirect subsidiary, Municipal Assurance Corp. Incorporation of Certain Documents by Reference Portions of the following document filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (filed by AGL with the SEC on February 28, 2014). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the 2014 Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52 nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. 9

16 Any information regarding AGM included herein under the caption BOND INSURANCE Assured Guaranty Municipal Corp. or included in a document incorporated by reference herein (collectively, the AGM Information ) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters AGM or one of its affiliates may purchase a portion of the 2014 Bonds or any uninsured bonds offered under this Official Statement and such purchases may constitute a significant proportion of the bonds offered. AGM or such affiliate may hold such 2014 Bonds or uninsured bonds for investment or may sell or otherwise dispose of such 2014 Bonds or uninsured bonds at any time or from time to time. AGM makes no representation regarding the 2014 Bonds or the advisability of investing in the 2014 Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading BOND INSURANCE. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the 2014 Bonds are as follows: Sources of Funds 2014 Bonds Principal Amount of 2014 Bonds $7,285, Original Issue Premium 574, Total Sources of Funds $7,859, Uses of Funds Escrow Fund $7,673, Costs of Issuance (1) 185, Total Uses of Funds $7,859, (1) All costs of issuance including Underwriter s discount and bond insurance premium. RIVERSIDE COUNTY TREASURY POOL The District expects that all amounts in the 2014 Debt Service Fund will be invested in the Riverside County Pooled Investment Fund. The following information concerning the Riverside County Pooled Investment Fund has been provided by the Riverside County Treasurer-Tax Collector (the Treasurer ) and has not been confirmed or verified by the District. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained or incorporated hereby by reference is correct as of any time subsequent to its date. The County Treasurer maintains one Pooled Investment Fund (the PIF ) for all local jurisdictions having funds on deposit in the County Treasury. As of March 31, 2014, the portfolio assets comprising the PIF had a market value of $5,248,803,

17 State law requires that all operating moneys of the County, school districts, and certain special districts be held by the County Treasurer. On June 30, 2013, the Auditor-Controller performed an analysis on the County Treasury which resulted in the identification and classification of mandatory vs. discretionary depositors. Collectively, these mandatory deposits constituted approximately % of the funds on deposit in the County Treasury, while approximately 22.82% of the total funds on deposit in the County Treasury represented discretionary deposits. While State law permits other governmental jurisdictions to participate in the County s PIF, the desire of the County Treasurer is to maintain a stable depositor base for those entities participating in the PIF. All purchases of securities for the PIF are to be made in accordance with the County Treasurer s 2014 Statement of Investment Policy (the Policy Statement ), which is more restrictive than the investments authorized pursuant to Sections and of the California Government Code. The first and primary objective of the Policy Statement is to safeguard investment principal; second, to maintain sufficient liquidity within the PIF to meet daily cashflow requirements; and third, to achieve a reasonable rate of return or yield on the PIF consistent with these objectives. Investments are not authorized in reverse-repurchase agreements except for an unanticipated and immediate cash flow need that would otherwise cause the County Treasurer to sell portfolio securities prior to maturity at a principal loss. The Policy Statement is attached hereto as APPENDIX F. The book value of the investments in the Pooled Investment Fund as of March 31, 2014 was as follows: U.S. Treasury Securities $ 320,026, % Federal Agency Securities 2,886,282, Cash Equivalent and Money Market Funds 859,000, Commercial Paper 964,080, Medium Term Notes Municipal Bonds 86,411, Certificates of Deposit 140,000, Repurchase Agreements Local Agency Obligations (1) 455, Total $5,256,255, % Book Yield: 0.40% Weighted Average Maturity: 1.37 years (1) Represents Local Agency Obligations issued by the Riverside District Court Financing Corporation. As of March 31, 2014, the market value of the PIF was 99.86% of book value. The Treasurer estimates that sufficient liquidity exists within the portfolio to meet daily expenditure needs without requiring any sale of securities at a principal loss prior to their maturity. In keeping with Sections and of the California Government Code, all interest, income, gains and losses on the portfolio are distributed quarterly to participants based upon their average daily balance except for specific investments made on behalf of a particular fund. In these instances, Sections requires that the investment income be credited to the specific fund in which the investment was made. The County Board of Supervisors has established an Investment Oversight Committee in compliance with California Government Code Section Currently, the Committee is composed of the County Finance Director, the County Treasurer-Tax Collector, the County Superintendent of Schools, a school district representative and a public member at large. The purpose of the committee is to review the prudence of the County s investment policy, portfolio holdings and investment procedures, and to make any findings 11

18 and recommendations known to the Board. As of September 29, 2004, the State no longer required the County to have a local oversight committee; however, the County has elected to maintain the committee. The committee is utilized by the County to safeguard public funds and to perform other internal control measures. The County has obtained a rating on the PIF of AAA-bf from Moody s Investors Service and AAA/V1 rating from Fitch Ratings. There is no assurance that such ratings will continue for any given period of time or that any such rating may not be lowered, suspended or withdrawn entirely by the respective rating agency if, in the judgment of such rating agency, circumstances so warrant. Neither the District nor the Underwriter has made an independent investigation of the investments in the County PIF and has made no assessment of the current County Investment Policy. The value of the various investments in the County PIF will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Therefore, there can be no assurance that the values of the various investments in the County PIF will not vary significantly from the values described herein. DEBT SERVICE SCHEDULE The following table sets forth the annual debt service on the 2014 Bonds: Period Ending (September 1) 2014 Bonds Annual Principal Payment 2014 Bonds Annual Interest Payment Total 2014 $ 90, $ 61, $ 151, , , , , , , , , ,052, , , ,098, ,025, , ,161, ,135, , ,220, ,225, , ,281, , , , Total $7,285, $1,223, $8,508, [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12

19 The following table summarizes the aggregate annual debt service requirements for all of the general obligation bonds of the District that will be outstanding following the issuance of the 2014 Bonds: Year Ending (September 1) Beaumont Unified School District Aggregate Annual Debt Service Prior General Obligation Bonds (1) 2014 Bonds Total 2014 $ 3,459, $ 151, $ 3,610, ,666, , ,617, ,771, , ,766, ,892, ,052, ,944, ,018, ,098, ,117, ,155, ,161, ,316, ,297, ,220, ,518, ,439, ,281, ,720, ,346, , ,944, ,326, ,326, ,571, ,571, ,816, ,816, ,087, ,087, ,364, ,364, ,694, ,694, ,999, ,999, ,204, ,204, ,378, ,378, ,559, ,559, ,746, ,746, ,932, ,932, ,119, ,119, ,422, ,422, ,745, ,745, ,079, ,079, ,428, ,428, ,797, ,797, ,187, ,187, ,592, ,592, ,019, ,019, ,970, ,970, Total $167,091, $8,508, $175,600, (1) Excludes the 2004 Bonds to be refunded. 13

20 SECURITY FOR THE 2014 BONDS The 2014 Bonds are general obligation bonds of the District payable solely from ad valorem property taxes levied on taxable property within the District. Each of the Board of Supervisors of the County and the Board of Supervisors of the County of San Bernardino, respectively, on behalf of the District, is empowered and obligated annually to levy ad valorem taxes upon all property in the District and within such county s boundaries, without limitation of rate or amount (except certain personal property which is taxable at limited rates), for the payment of the principal and interest on the 2014 Bonds due and payable in the next succeeding bond year (less amounts on deposit in the 2014 Debt Service Fund established under the Bond Resolution). Pursuant to the provisions of Education Code 15260, the tax shall be levied according to the ratio which the assessed value of the property in the District in any county bears to the total assessed value of the property in the District. In light of this provision, given current assessed valuations, more than 99% of the ad valorem taxes are to be levied on property within the County and less than 1% on property within San Bernardino County. The Education Code further provides that, when collected, the ad valorem taxes shall be paid into the county treasury of the county which levied the taxes, and requires the Treasurer-Tax Collector of San Bernardino County, upon order of the San Bernardino County Auditor, to pay the ad valorem taxes collected to the Treasurer of the County. The Bond Resolution pledges as security for the 2014 Bonds the proceeds from the levy of the ad valorem tax which are collected and allocated to the payment of the 2014 Bonds outstanding thereunder. See TAX BASE FOR REPAYMENT OF 2014 BONDS herein. The District previously issued $16,000,000 of general obligation bonds pursuant to an authorization provided at a special election of the registered voters of the District held on November 3, 1998, including a series of bonds issued in 1998 (the 1998 Bonds ) and the 2004 Bonds. The District also previously issued $49,995, of general obligation bonds (the 2008 Bonds, and with the 1998 Bonds and the 2004 Bonds, the Prior General Obligation Bonds ) pursuant to an authorization provided at a special election of the registered voters of the District held on November 4, 2008 to issue up to $125,000,000 of general obligation bonds (the 2008 Authorization ). See DEBT SERVICE SCHEDULE Aggregate Annual Debt Service above. The Prior General Obligation Bonds are currently outstanding in the aggregate principal amount of $60,442, See Table 15 below. Following the issuance of the 2014 Bonds, the principal amount of Prior General Obligation Bonds outstanding will be $52,922, The District is authorized to issue up to an additional $75,004, in general obligation bonds pursuant to the 2008 Authorization. The Prior General Obligation Bonds that remain outstanding following the issuance of the 2014 Bonds will also be payable solely from ad valorem property taxes levied on taxable property within the District to repay such bonds. The amount of the annual ad valorem tax levied to repay the 2014 Bonds and the Prior General Obligation Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the 2014 Bonds and the Prior General Obligation Bonds in any year. Fluctuations in the annual debt service on the 2014 Bonds and the Prior General Obligation Bonds and the assessed value of taxable property in the District may cause the annual tax rate to fluctuate. Economic and other factors beyond the District s control could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate. These factors include a general market decline in real property values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the federal government, the State of California (the State ) and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by a natural or manmade disaster, such as earthquake, flood or toxic contamination. The assessed valuation of property in the District decreased from fiscal year 2008 through 2012 before increasing in fiscal years 2013 and See TAX BASE FOR REPAYMENT OF THE 2014 BONDS Historical Data Concerning District Tax Base. While the assessed valuations in the District were stable in the most recent two fiscal years, future declines in real estate values in southern California, natural disasters or other factors could result in lower assessed values in the District and, in turn, both a higher annual tax rate within the District and a higher level of delinquencies in tax payments. The County has adopted the Teeter 14

21 Plan (defined below). As a result, the District s receipt of property taxes from the County is not subject to delinquencies. The District is not eligible to participate in the County of San Bernardino s Teeter Plan. See TAX BASE FOR REPAYMENT OF THE 2014 BONDS Ad Valorem Property Taxation Teeter Plan. THE 2014 BONDS ARE GENERAL OBLIGATION BONDS OF THE DISTRICT AND DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE COUNTY OR THE COUNTY OF SAN BERNARDINO. NO PART OF ANY FUND OF THE COUNTY OR THE COUNTY OF SAN BERNARDINO IS PLEDGED OR OBLIGATED TO THE PAYMENT OF THE 2014 BONDS. TAX BASE FOR REPAYMENT OF THE 2014 BONDS The information in this section describes ad valorem property taxation, assessed valuation, and other measures of the tax base of the District. The 2014 Bonds are payable solely from ad valorem taxes levied and collected by the County and the County of San Bernardino on taxable property in the District. Currently, approximately 99% of the ad valorem taxes are collected from property located in the County and the remaining 1% from property located in the County of San Bernardino. The District s General Fund is not a source for the repayment of the 2014 Bonds. Ad Valorem Property Taxation The collection of property taxes is significant to the District and the owners of the 2014 Bonds in two respects. First, the general 1% ad valorem property tax levy, which is levied in accordance with Article XIIIA of the California Constitution and its implementing legislation, funds a portion of the District s revenues which are used to operate the District s educational program. See DISTRICT FINANCIAL MATTERS Revenue Sources below. Second, the Board of Supervisors of the County and the Board of Supervisors of San Bernardino County will levy and collect ad valorem taxes on all taxable parcels in the District and within their respective boundaries which are pledged specifically to the repayment of the 2014 Bonds and the Prior General Obligation Bonds. As described below, the general ad valorem property tax levy and the additional ad valorem property tax levy pledged to repay the 2014 Bonds and the Prior General Obligation Bonds will be collected on the annual tax bills distributed by the County and the County of San Bernardino to the owners of parcels within the boundaries of the District. Method of Property Taxation. Beginning in fiscal year , Article XIIIA and its implementing legislation permitted each county to levy and collect all property taxes (except for levies to support prior voter approved indebtedness) and prescribed how levies on county-wide property values were to be shared with local taxing entities within each county. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law, however, provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. For purposes of allocating a county s 1% base property tax levy, future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, up to 2% inflation) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of base sources from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. The availability of revenue from growth in the tax bases in such entities may be affected by the existence of redevelopment agencies which, under certain circumstances, may be entitled to sources resulting from the increase in certain property values. State law exempts $7,000 of the assessed valuation of an owner-occupied principal residence. This exemption does not result in any loss of revenue to local agencies since an amount equivalent to the taxes that would have been payable on such exempt values is made up by the State. 15

22 Taxes are levied for each fiscal year on taxable real and personal property which is situated in a county as of the preceding January 1. Real property which changes ownership or is newly constructed is revalued at the time the change in ownership occurs or the new construction is completed. The current year property tax rate will be applied to the reassessment, and the taxes will then be adjusted by a proration factor to reflect the portion of the remaining tax year for which taxes are due. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the county assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and if unpaid become delinquent on December 10 and April 10, respectively. A penalty of 10 percent attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5 percent per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Treasurer-Tax Collector of the county levying the tax. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10 percent penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5 p.m. on October 31, an additional penalty of 1.5 percent attaches to them on the first day of each month until paid. A county has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property improvements or possessory interests belonging or assessed to the delinquent taxpayer. District Assessed Valuation. Both the general 1% ad valorem property tax levy and the additional ad valorem levy for the 2014 Bonds and the Prior General Obligation Bonds are based upon the assessed valuation of the parcels of taxable property in the District. Property taxes allocated to the District are collected by the County and the County of San Bernardino at the same time and on the same tax rolls as are county, city and special district taxes. The assessed valuation of each parcel of property is the same for both District and county taxing purposes. The valuation of secured property within the District is established as of January 1, and is subsequently equalized in September of each year, when tax bills are mailed to property owners. Appeals and Adjustments of Assessed Valuations. Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. County assessors may independently reduce assessed values as well based upon the above factors or reductions in the fair market value of the taxable property. In most cases, an appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. Such reductions are subject to yearly reappraisals and may be adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS. 16

23 A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date. The District does not have information regarding pending appeals of assessed valuation of property within the District. No assurance can be given that property tax appeals currently pending or in the future will not significantly reduce the assessed valuation of property within the District. Taxation of State-Assessed Utility Property. A portion of property tax revenue of the District is derived from utility property subject to assessment by the State Board of Equalization. State-assessed property, or unitary property, is property of a utility system with components located in many taxing jurisdictions that are assessed as part of a going concern rather than as individual pieces of real or personal property. The assessed value of unitary and certain other state-assessed property is allocated to the counties by the State Board of Equalization, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. Teeter Plan. The County has implemented an alternative method for the distribution of secured property taxes to local agencies, known as the Teeter Plan. Although San Bernardino County has implemented a Teeter Plan, the District may not elect to proceed under that Teeter Plan because the District s headquarters are not located in San Bernardino County. As a result, with respect to ad valorem taxes levied on parcels within the District and San Bernardino County, the District receives only the amount paid by the owners of such parcels. The Teeter Plan provisions are now set forth in Sections 4701 to 4717 of the California Revenue and Taxation Code. Upon adoption and implementation of this method by a county board of supervisors, local agencies for which the county acts as bank and certain other public agencies and taxing areas located in the county receive annually the full amount of their share of property taxes on the secured roll, including delinquent property taxes which have yet to be collected. While a county benefits from the penalties associated with these delinquent taxes when they are paid, the Teeter Plan is intended to provide participating local agencies with stable cash flow and the elimination of collection risk. To implement a Teeter Plan, the board of supervisors of a county generally must elect to do so by July 15 of the fiscal year in which it is to apply. As a separate election, a county may elect to have the Teeter Plan procedures also apply to assessments on the secured roll. The Board of Supervisors of the County has adopted the Teeter Plan and has elected to include school districts in its Teeter Plan. Thus, the County s Teeter Plan applies to the District. Once adopted, a county s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless prior to the commencement of a fiscal year a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, however, opt to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency. Although the rate of delinquency for a variety of local agencies, including the District, has exceeded the 3% delinquency threshold from time to time, the County has never discontinued the Teeter Plan with respect to any levying agency. 17

24 Upon making a Teeter Plan election, a county must initially provide a participating local agency with 95% of the estimated amount of the then accumulated tax delinquencies (excluding penalties) for that agency. In the case of the initial year distribution of assessments (if a county has elected to include assessments), 100% of the assessment delinquencies (excluding penalties) are to be apportioned to the participating local agency which levied the assessment. After the initial distribution, each participating local agency receives annually 100% of the secured property tax levies to which it is otherwise entitled, regardless of whether the county has actually collected the levies. If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer and auditor of the county. Such adjustment for a decrease in the tax or assessment is treated by the County as an interest-free offset against future advances of tax levies under the Teeter Plan. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18

25 Historical Data Concerning District Tax Base The information provided in Tables 1 through 5 below has been provided by California Municipal Statistics, Inc. Neither the District nor the Underwriter has independently verified this information and does not guarantee its accuracy. Property within the District has a total assessed valuation for fiscal year of $3,671,120,136. Table 1 represents the five-year history of assessed valuations in the District. As a result of declines in the real estate market from fiscal year through in the County and the County of San Bernardino, the assessed valuation in the District declined by 22.0% during that period of time. In fiscal year , the assessed valuation stabilized and was essentially unchanged from fiscal year In fiscal year , the assessed value increased 4.7% from fiscal year It is possible that there may be future reductions of assessed valuations in the District if there is continued weakness in the local real estate market. Table 1 BEAUMONT UNIFIED SCHOOL DISTRICT Assessed Valuations Riverside County Portion Local Secured Utility Unsecured Total $3,805,328,467 $1,184,680 $77,319,994 $3,883,833, ,543,303,002 1,184,680 83,310,095 3,627,797, ,424,325, ,904 74,838,175 3,499,751, ,424,305, ,625 79,879,623 3,504,493, ,590,055, ,625 77,705,586 3,668,069,340 San Bernardino County Portion Local Secured Utility Unsecured Total $3,739,564 $0 $0 $3,739, ,082, ,082, ,007, ,007, ,950, ,950, ,050, ,050,796 Total District Local Secured Utility Unsecured Total $3,809,068,031 $1,184,680 $77,319,994 $3,887,572, ,546,385,546 1,184,680 83,310,095 3,630,880, ,427,332, ,904 74,838,175 3,502,758, ,427,255, ,625 79,879,623 3,507,444, ,593,105, ,625 77,705,586 3,671,120,136 Source: California Municipal Statistics, Inc. 19

26 Tax Levies and Delinquencies Table 2 summarizes the annual secured tax levy within the portions of the District located within the County for its outstanding general obligation bonds and the amount delinquent as of June 30 for the last five fiscal years. Under the terms of the County s Teeter Plan, the District is paid 100% of the secured tax levy each year by the County and the County takes responsibility for collecting delinquencies and keeps penalties and interest. The portion of the secured tax levy for the general obligation bonds levied on property within the County of San Bernardino (less than 1% of the total) is not covered by the Teeter Plan and the District receives only the actual collections plus its share of any penalties and interest payable with respect to delinquent taxes. (1) Table 2 (1) BEAUMONT UNIFIED SCHOOL DISTRICT Secured Tax Charges and Delinquencies Riverside County Portion Secured Tax Charges Levied (1) Delinquent Secured Taxes % Delinquent June $ 649, $56, % ,707, , ,719, , ,611, , ,841, , This table represents the taxes levied in the District for its outstanding general obligation bonds and does not include any delinquencies related to other tax or assessment levies. Source: California Municipal Statistics, Inc. Tax Rates There are a total of 115 tax rate areas in the District. Table 3 summarizes the total ad valorem tax rates levied by all taxing entities in a typical Tax Rate Area within the District for fiscal years through expressed as a percentage of the assessed value of the property upon which such taxes were levied. Table 3 BEAUMONT UNIFIED SCHOOL DISTRICT Summary of Ad Valorem Tax Rates Typical Total Tax Rates (Riverside County Portion (TRA 1-007)) General % % % % % Beaumont Unified School District San Gorgonio Memorial Healthcare District San Gorgonio Pass Water Agency Total % % % % % Source: California Municipal Statistics, Inc. 20

27 Largest Taxpayers Table 4 below lists the 20 largest secured property taxpayers within the District measured by assessed valuation for fiscal year Table 4 excludes the parcels within the County of San Bernardino from the analysis; however, such parcels represent less than 1% of the District s assessed valuation. Property Owner Table 4 BEAUMONT UNIFIED SCHOOL DISTRICT Twenty Largest Local Secured Property Taxpayers Riverside County Portion Primary Land Use Assessed Valuation Percentage of Total (1) 1. CT Beaumont Partners Commercial $ 36,896, % 2. High Desert Partners Commercial 36,801, San Gorgonio Land Undeveloped 34,760, Frederick J. Hanshaw Commercial 34,520, Loma Linda University Medical Center 24,821,509 (2) Pardee Homes Residential Development 24,674, Cathay Bank Commercial 24,393, Wal Mart Real Estate Business Trust Commercial 20,621, Dura Plastic Products Inc. Industrial 19,967, Lowes HIW Inc. Commercial 18,372, Kohl s Dept. Stores Inc. Commercial 13,789, CV Communities Undeveloped 11,652, Home Depot Center Commercial 10,182, Childhelp Inc. Commercial 10,002, Baldi Bros. Inc. Commercial 9,753, M&R Beaumont Partners Commercial 9,608, Beaver Kirkmulon LLC Commercial 9,349, Beaumont Group Commercial 9,334, Plantation Co. Commercial 8,971, Aim All Storage I 10 Industrial 8,600, $ 377,074, % (1) Local Secured Assessed Valuation (Riverside County Portion Only): $3,590,055,129. (2) Net taxable value. Source: California Municipal Statistics, Inc. 21

28 Table 5 below describes the District s total secured assessed valuation measured by land use type in fiscal year Table 5 excludes the parcels within the County of San Bernardino from the analysis; however, such parcels represent less than 1% of the District s assessed valuation. Table 5 BEAUMONT UNIFIED SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use (1) Riverside County Portion Assessed Valuation (2) No. of Parcels % of Total % of Total Non-Residential: Agricultural $ 40,578, % % Commercial 240,282, Vacant Commercial 50,289, Professional/Office 31,850, Industrial 91,681, Recreational 42,666, Government/Social/Institutional 3,639, Vacant Other 11,138, Subtotal Non-Residential $ 512,125, % 2, % Residential: Single Family Residence $ 2,425,016, % 13, % Condominium/Townhouse 32,418, Mobile Homes and Mobile Home Lots 60,287, , Mobile Home Park 29,357, Residential Units/Apartments 56,040, Miscellaneous Residential Improvements 1,784, Vacant Residential 473,023, , Subtotal Residential $ 3,077,929, % 20, % Total $ 3,590,055, % 22, % (1) (2) Some totals may not add up due to rounding. Local secured assessed valuation, excluding tax-exempt property (Riverside County Portion only). Source: California Municipal Statistics, Inc. Introduction THE DISTRICT The District is located in the northwestern portion of Riverside County at the intersection of the U.S. Interstate 10 and State Route 60 Freeways, with a small portion of the District boundaries extending into San Bernardino County. The District encompasses an area of approximately 110 square miles, and it serves the communities of Beaumont and Cherry Valley and portions of Calimesa and Banning, as well as the surrounding areas. The District was established in 1953 and currently operates 11 school sites which include 6 elementary schools, two middle schools, a comprehensive high school, an adult education school, and a continuation high school. A charter school began operations within the District in fiscal year The total enrollment during fiscal year is projected to be 8,918 students, and is expected to remain approximately the same in fiscal year

29 Board of Trustees The District is governed by a five member Board of Trustees (the Board ). Members are elected to serve alternating four-year terms. Table 6 BEAUMONT UNIFIED SCHOOL DISTRICT Board of Trustees Name Term Expires Margaret De Longchamp, President November 2014 David Sanchez, Vice President November 2016 Janelle Poulter, Clerk November 2014 Wayne Hackney, Member November 2016 Susie Lara, Member November 2014 Source: Beaumont Unified School District. Superintendent and Administrative Personnel The District Superintendent (the Superintendent ) is the chief executive officer of the District and is appointed by the Board to manage the day-to-day operations of the District. Dr. Maureen Latham serves as the Superintendent. Brief biographical information for the Superintendent and other senior management of the District is set forth below. Dr. Maureen Latham, Superintendent. Dr. Latham was hired as the Assistant Superintendent of Instructional Support Services for the District on August 1, 2007 and was appointed as the Superintendent on October 1, Dr. Latham has 38 years of experience in public education. She previously served as the Director of Curriculum, Instruction and Professional Development for the Alvord Unified School District in Riverside, the Principal of Yucaipa High School in Yucaipa, the Assistant Principal of Curriculum and Instruction at Yucaipa High School in Yucaipa, the School-To-Career Coordinator at Apple Valley High School in Apple Valley, a Resource Specialist at Apple Valley High School, in Apple Valley, a Special Day Class Teacher at Yucca Loma Elementary School in Apple Valley, a Kindergarten Teacher at Helendale Elementary School in Helendale, a Reading Specialist at Pell Lake Elementary School in Lake Geneva, Wisconsin, and a Second Grade Teacher at Hempstead Elementary School in St. Louis, Missouri. Dr. Latham completed her Ed.D. in Educational Justice at the University of Redlands. She holds an M.A. from California State University San Bernardino, San Bernardino, California and a B.A. from Webster University, St. Louis, Missouri. She earned Administrative, Special Education, Multiple Subjects and Community College California Service Credentials from California State University San Bernardino and Azusa Pacific University. In addition she holds the Reading Specialist Certification from the University of Wisconsin, Whitewater. Carol Severns, Assistant Superintendent of Business Services. Mrs. Severns was appointed the Assistant Superintendent of Business Services for the District effective April 1, 2013 after acting as the Interim Assistant Superintendent of Business Services from October 1, 2012 through March 31, Mrs. Severns began her career at the District in She has held multiple positions during her 30 years with the District including 10 years at school sites and 19 years in Business Services. Mrs. Severns earned her Bachelor s of Science in Business Administration from the University of Phoenix. 23

30 Employee Relations In the fall of 1974, the State Legislature enacted a public school employee collective bargaining law known as the Rodda Act, which became effective in stages in The law provides that employees are to be divided into appropriate bargaining units which are to be represented by an exclusive bargaining agent. The teachers of the District (certificated personnel) are represented by the Beaumont Teacher s Association (the BTA ). The BTA contract with the District expired on June 30, The District and the BTA are currently negotiating over the terms of a new contract. During the negotiations, the parties continue to operate under the terms of the existing contract, as modified by a few revisions agreed upon by the parties. Members of the BTA last received a salary increase in fiscal year ; however, the District expects to provide a salary increase in fiscal year with such increase retroactive to July 1, As of June 30, 2013, the District employed 359 BTA certificated employees with a total covered payroll of approximately $29,472,985, and an additional 26 non-bta certificated employees. As of April 24, 2014, the District employed 371 BTA certificated employees full time. Table 7 below lists the number of certificated employees for the previous five fiscal years. (1) Table 7 BEAUMONT UNIFIED SCHOOL DISTRICT Certificated Employees Fiscal Year Number of BTA Employees (1) Number of Non-BTA Employees On a full-time equivalent basis through the General Fund. Source: The District. The California School Employees Association ( CSEA ) has been selected as the exclusive bargaining agent for non-teaching (classified) personnel. The contract with CSEA expires on June 30, Members of CSEA last received a salary increase in fiscal year and the District does not anticipate providing any salary increase in the near future. As of June 30, 2013, the District employed 244 CSEA classified employees with a total covered payroll of approximately $10,408,971, and an additional 27 non-csea employees. As of April 24, 2014, the District employed 240 CSEA classified employees full time. Table 8 below lists the number of classified employees for the previous five fiscal years. 24

31 (1) Table 8 BEAUMONT UNIFIED SCHOOL DISTRICT Classified Employees Fiscal Year Number of CSEA Employees (1) Number of Non-CSEA Employees On a full-time equivalent basis through the General Fund. Source: The District. Retirement System The District participates in the State of California Teachers Retirement System ( STRS ) which provides benefits to full-time certificated personnel. The District also participates in the State of California Public Employees Retirement System ( PERS ) which provides benefits to full-time classified personnel and part-time employees who are employed more than 1,000 hours during the year. The District contributed from its General Fund to STRS a total of $2,253,997 during the fiscal year ended June 30, 2013, as set forth in Table 9 below. The District contributed to PERS from its General Fund during the fiscal year ended June 30, 2013 a total of $919,985, as set forth in Table 9 below. For fiscal year , the District projects a STRS contribution of $2,403,534 and a PERS contribution of $1,018,512 from its General Fund. The District s STRS contributions are fixed by statute at 8.25% of the covered payroll. The District s PERS contributions are determined on an actuarial basis as determined by PERS, which rate was % in fiscal year Source: The District. Table 9 BEAUMONT UNIFIED SCHOOL DISTRICT Retirement Contributions from the General Fund for Fiscal Year Number of Employees Covered Total Employer Contributions Employer Contribution as a Percentage of Covered Payroll STRS 561 $ 2,253, % PERS , The District also contributes to the Accumulation Program for Part-Time and Limited Service Employees ( APPLE ), which is a defined contribution plan. Under APPLE, the District contributes 0.5% of an employee s gross earnings and the employee contributes 7.0%. For the year ended June 30, 2013, the District contributed $4,099 to the contribution plan. See Note 11 to the District s June 30, 2013 Financial Statements set forth in Appendix B hereto for further information on the District s contributions to its retirement systems. 25

32 State Pension Trusts The following information on STRS and PERS has been obtained from publicly available sources and has not been independently verified by the District or the Underwriter and is not guaranteed as to accuracy or completeness by the District or the Underwriter. General Background. Both STRS and PERS have substantial unfunded liabilities in the tens of billions of dollars based on current actuarial assumptions. As of June 30, 2011, STRS reported that its unfunded actuarial obligation was $63.8 billion (with a funded ratio of 69%) based on an actuarial value of assets and $68.4 billion (with a funded ratio of 67%) based on a market value of assets. As of June 30, 2012, STRS reported that its unfunded actuarial obligation was $70.5 billion (with a funded ratio of 67%) based on an actuarial value of assets and $80.4 billion (with a funded ratio of 63%) based on a market value of assets. On April 3, 2014, STRS reported that its unfunded actuarial obligation as of June 30, 2013 was $73.7 billion based on an actuarial value of assets and $74.4 billion based on a market value of assets; however, STRS has yet to issue its funded ratio percentages as of June 30, PERS operates a number of retirement plans including the Public Employees Retirement Fund ( PERF ). PERF is a multiple-employer defined benefit retirement plan. In addition to the State, employer participants at June 30, 2013 included 1,580 public agencies and schools (representing more than 2,500 entities). PERS acts as the common investment and administrative agent for the member agencies. The State and schools (for classified employees, which generally consist of school employees other than teachers) are required by law to participate in PERF. Other public agencies can elect whether or not to participate in PERF or administer their own plans. Members of PERF generally become fully vested in their retirement benefits earned to date after five years of credited service. One of the plans operated by PERS is for schools throughout the State (the Schools Pool ). As of June 30, 2011, PERS reported that the Schools Pool portion of the Public Employees Retirement Fund had an unfunded accrued actuarial liability of $12.5 billion with a funded ratio of 78.7% based on a market value of assets. As of June 30, 2012, PERS reported that the Schools Pool portion of the Public Employees Retirement Fund had an unfunded accrued actuarial liability of $14.6 billion with a funded ratio of 75.5% based on a market value of assets. At a meeting on April 16, 2014, the PERS Board of Administration (the PERS Board ) released certain actuarial information to be incorporated into the June 30, 2013 actuarial valuation to be released in late summer Based upon this information, as of June 30, 2013, the Schools Pool portion of the Public Employees Retirement Fund had an unfunded accrued actuarial liability of $12.0 billion with a funded ratio of 80.5% based on a market value of assets. Future actual contribution rates for employers such as the District will depend on a variety of factors, including, but not limited to, investment returns, actuarial assumptions, experience, retirement benefit adjustments and, in the case of STRS, whether legislation is enacted requiring changes in contribution rates. At its April 16 and 17, 2013 meetings, the PERS Board approved a plan to replace the current 15-year asset-smoothing policy with a 5-year direct-rate smoothing process and replace the current 30-year rolling amortization of unfunded liabilities with a 30-year fixed amortization period. The PERS chief actuary said the approach provides a single measure of funded status and unfunded liabilities, less volatility in extreme years, a faster path to full funding, and more transparency to employers about future contribution rates. These changes will accelerate the repayment of unfunded liabilities (including the fiscal year investment losses) in the near term; however, the exact magnitude of the potential contribution-rate increases is not known at this time, but may be significant. Under the PERS Board action, actual rates for employers will not be set using the new methods until fiscal year , reflected in the PERS June 30, 2014 valuation. 26

33 On February 20, 2014, the PERS Board adopted new mortality and retirement assumptions as part of a regular review of demographic experience. Key assumption changes included longer post-retirement life expectancy, earlier retirement ages and higher-than-expected wage growth for certain government employees. The impact of the assumption changes will be phased in over three years, with a twenty year amortization, beginning in fiscal year The new assumptions will likely increase the District s contribution rates in the future. In the case of STRS, unlike typical defined benefit programs, neither the STRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. However, in recent years, the combined employer, employee and State contributions to STRS have not been sufficient to pay actuarially required amounts. As a result, and due to significant investment losses, the unfunded actuarial liability of STRS has increased significantly and is expected to continue to increase in the absence of legislation changing required employer or employee contributions. In September 2013, STRS projected that the STRS defined benefit program s assets would be depleted in 31 years assuming existing contribution rates continue, and other significant actuarial assumptions are realized. The chief executive for STRS has recommended raising employer contributions by the State and, indirectly, by school districts within the State. On February 14, 2013, STRS submitted a report to the State Legislature stating that the definitive approach to addressing the long-term funding needs of the [STRS defined benefit program] is to fully fund the program over a period of 30 years or less and that if implemented on July 1, 2014, the total contribution rate from all sources would have to increase by the equivalent of a projected 15.1% of compensation to fully fund the program in 30 years. The report went on to state that it is projected that such a change would require an increased initial total annual contribution at that time of about $4.5 billion from all combined sources. The report concluded that a delay in addressing the [STRS defined benefit program] funding shortfall places the program at greater risk, particularly if there is another substantial market downturn. The District is unable to predict what its PERS or STRS liabilities will be in the future, or whether legislation or new actuarial assumptions or adjustments will be enacted or imposed to require the District to make larger contributions in the future. STRS and PERS each issue separate comprehensive annual financial reports that include financial statements and required supplementary information. Copies of the STRS annual financial report and most recent actuarial valuation may be obtained from STRS, P.O. Box 15275, Sacramento, California , and at copies of the PERS annual financial report and most recent actuarial valuation may be obtained from the CalPERS Financial Services Division, P.O. Box , Sacramento, California , and at and additional information regarding STRS and PERS is available in the State of California s most recent Official Statement which may be obtained at The information presented in these reports and Official Statement and on these websites is not incorporated by reference in this Official Statement. Actuarial assessments are forward-looking information that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans. California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into law the California Public Employee s Pension Reform Act of 2013 (the Reform Act ), which makes changes to both STRS and PERS, most substantially affecting new employees hired after January 1, 2013 (the Implementation Date ). For STRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor (the age factor is the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. Similarly, for non-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increases the eligibility requirement for the maximum age factor of 2.5% to age 67. Among the other changes to PERS and STRS, the Reform Act also: (i) requires all new participants enrolled in PERS and STRS after the Implementation Date to contribute 27

34 at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (ii) requires STRS and PERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (currently 12 months for STRS members who retire with 25 years of service), and (iii) caps pensionable compensation for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for members not participating in Social Security, while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off. GASB Statement Nos. 67 and 68. On June 25, 2012, the Governmental Accounting Standards Board ( GASB ) approved two new standards ( Statements ) with respect to pension accounting and financial reporting standards for state and local governments and pension plans. The new Statements, No. 67 and No. 68, will replace GASB Statement No. 27 and most of Statements No. 25 and No. 50. The changes will impact the accounting treatment of pension plans in which state and local governments participate. Major changes include: 1) the inclusion of unfunded pension liabilities on the government s balance sheet (currently, such unfunded liabilities are typically included as notes to the government s financial statements); 2) more components of full pension costs being shown as expenses regardless of actual contribution levels; 3) lower actuarial discount rates being required to be used for underfunded plans in certain cases for purposes of the financial statements; 4) closed amortization periods for unfunded liabilities being required to be used for certain purposes of the financial statements; and 5) the difference between expected and actual investment returns being recognized over a closed five-year smoothing period. In addition, according to GASB, Statement No. 68 means that, for pensions within the scope of the Statement, a cost-sharing employer that does not have a special funding situation is required to recognize a net pension liability, deferred outflows of resources, deferred inflows of resources related to pensions and pension expense based on its proportionate share of the net pension liability for benefits provided through the pension plan. Because the accounting standards do not require changes in funding policies, the full extent of the effect of the new standards on the District is not known at this time. The reporting requirements for pension plans will take effect for the fiscal year beginning July 1, 2013 and the reporting requirements for government employers, including the District, will take effect for the fiscal year beginning July 1, Post-Employment Benefits The District provides post-employment health care benefits, in accordance with the District s employment contracts, to all employees who retire from the District on or after attaining the a certain age with certain years of service. All employees hired on or prior to March 11, 2008 who retire from the District will receive these benefits upon attaining the age of 60 with 15 years of service, though certain employees hired at least 5 and in some cases 10 years prior to March 11, 2008 will be eligible to receive benefits upon attaining the age of 55 based upon their position and length of continuous service with the District. All employees hired after March 11, 2008 who retire from the District will receive these benefits upon attaining the age of 60 with 20 years of service. As of June 30, 2013, 30 retired employees met those eligibility requirements and the District employed 617 active participants. For non-management retirees, the District contributes a maximum of $10,000 per year of the amount of premiums incurred by each such retiree and his or her dependents and the retiree contributes the remainder; for management retirees and their dependents, the District contributes the entire amount of premiums. A retiree will receive these health care benefits to the end of the month in which the retiree turns 65. Expenditures for post-employment benefits are recognized by the District on a pay-asyou-go basis, as retirees report claims paid. 28

35 Beginning with its fiscal year ending June 30, 2009, the District was required to comply with GASB Statement 45 relating to other post-employment benefits ( OPEB ), which requires the District to recognize the expenses and related liabilities and assets for any OPEB provided by the District in its government-wide financial statements of net assets and activities. The District is required to conduct a report on its unfunded actuarial liability every two years with respect to its OPEBs. As of July 1, 2012, the most recent actuarial valuation date for the OPEB, the District s actuarial liability for its OPEB was $11,757,430. This amount represented the present value of all benefits projected to be paid by the District for current and future retirees. As of that date, the District did not have a funded plan and had an unfunded actuarial accrued liability of $6,217,344 based on certain assumptions, which amount constitutes the portion of the actuarial liability arising from the past service of the District s current and future retirees. The District s annual required contribution (the ARC ) for the post-employment health benefits plan calculated in accordance with the parameters of GASB Statement 45 was $899,291 for the fiscal year beginning July 1, 2012 and was projected to be $921,288 for the fiscal year beginning July 1, During fiscal year , the District contributed $349,165, or 38.8%, of its ARC, and it expects to contribute $378,773, or 41.1%, of its ARC in fiscal year The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities over a period not to exceed 30 years. At June 30, 2013, the District s net OPEB obligation was $3,437,215 and the District projects that its net OPEB obligation will be $3,907,475 at June 30, See Note 12 to the District s June 30, 2013 Financial Statements set forth in Appendix B hereto. Insurance The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. The District currently receives property and liability insurance coverage through the Riverside Schools Insurance Authority, a public entity risk pool which insures a number of school districts in Riverside County and Southern California Regional Excess Liability Fund Joint Powers Authorities. Settled claims have not exceeded this commercial coverage in any of the past three years. To obtain workers compensation insurance, the District participates in the Riverside Schools Risk Management Authority ( RSRMA ) public entity risk pool. The intent of RSRMA is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in RSRMA. The workers compensation experience of the participating districts is calculated and applied to a common premium rate. Participation in RSRMA is limited to local educational agencies that can meet RSRMA selection criteria. State Funding of Education DISTRICT FINANCIAL MATTERS School district revenues consist primarily of State moneys required to be paid to school districts under the California Constitution, local ad valorem property taxes and funds received from the State in the form of categorical aid under ongoing programs of local assistance. All State aid is subject to the appropriation of funds in the State s annual budget. Revenue Limit Funding. Prior to fiscal year , school districts operated under general purpose revenue limits established by the State Department of Education ( SBE ). In general, revenue limits were calculated for each school district by multiplying the average daily attendance ( ADA ) for such district by a base revenue limit per unit of ADA. Revenue limit calculations were generally adjusted annually in accordance with a number of factors designed to provide cost of living adjustments ( COLAs ) and to equalize revenues among school districts of the same type. Funding of a school district s revenue limit was provided by a mix of ad valorem property taxes and State apportionments of basic and equalization aid. Beginning in fiscal 29

36 year , school districts began being funded based on uniform rates determined on the basis of grade spans. See Local Control Funding Formula below. Local Control Funding Formula. State Assembly Bill 97 (Stats. 2013, Chapter 47) ( AB 97 ), enacted as part of the State budget, established a new system for funding school districts, charter schools and county offices of education. Certain provisions of AB 97 were amended and clarified by Senate Bill 91 (Stats. 2013, Chapter 49). The primary component of AB 97 is the implementation of the Local Control Funding Formula ( LCFF ), which replaces the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. Beginning in fiscal year , the bulk of State allocations to school districts began to be provided on the basis of target base funding grants per unit of ADA (each, a Base Grant ) assigned to each of four grade spans. Each Base Grant is subject to certain adjustments, as discussed below. Full implementation of the LCFF is expected to occur over a period of several fiscal years. Beginning in fiscal year , an annual transition adjustment will be calculated for each school district equal to such district s proportionate share of appropriations included in the State budget to close the gap between the prioryear funding level and the target allocations following full implementation of the LCFF. In each year, school districts are to see the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district s funding gap. For fiscal year , State budgetary legislation has allocated $2.1 billion of funding to begin implementation of the LCFF. See State Budget Measures herein. For fiscal year , the Base Grants per unit of ADA, for each grade span, are as follows: (i) $6,952 for grades K-3; (ii) $7,056 for grades 4-6; (iii) $7,266 for grades 7-8; and (iv) $8,419 for grades In each subsequent year, the Base Grants are to be updated for COLAs. Following full implementation of the LCFF, the provision of COLAs will be made only if appropriation for such adjustment is included in the annual State budget. The differences among Base Grants are linked to differentials in the fiscal year statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels. The District has experienced a constant increase in ADA over the last five fiscal years. From fiscal year to , the District s ADA grew from 7,807 to 8,485, representing an increase of approximately 8.7%. The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and support college and career readiness programs in high schools. Following full implementation of the LCFF, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer students in grades K-3 at each school site in order to continue receiving the adjustment to the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. Additional add-ons are also provided to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement and Home-to-School Transportation programs during fiscal year For certain school districts that would have received greater funding levels under the prior revenue limit system, AB 97 provides for a permanent economic recovery target ( ERT ) add-on to such districts Base Grants, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year , and the target LCFF allocations owed to such districts in the same year. To derive the projected funding level under the revenue limit system, AB 97 assumes the discontinuance of deficit revenue limit funding, implementation of a COLA in each year through fiscal year (1.57% for fiscal year ), and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the eight-year implementing period of the LCFF. The District does not qualify for the ERT add-on. 30

37 School districts that serve students of limited English proficiency ( EL students), students from low income families that are eligible for free or reduced priced meals ( LI students) and foster youth ( FY ) are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI. Foster youth automatically meet the eligibility requirements for free or reduced priced meals, and are therefore not discussed herein separately. A supplemental grant add-on (each, a Supplemental Grant ) is authorized for school districts that serve EL/LI students, equal to 20% of the applicable Base Grant multiplied by such districts percentage of unduplicated EL/LI student enrollment. In addition, school districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a Concentration Grant ) equal to 50% of the applicable adjusted Base Grant multiplied by the percentage of such district s unduplicated EL/LI student enrollment in excess of the 55% threshold. The District qualifies for funding from Supplemental Grants and Concentration Grants, which it projects will be in the approximate amounts of $317,302 and $81,525, respectively, in fiscal year Table 10 below shows a breakdown of the District s ADA by grade span, total enrollment and the percentage of EL/LI student enrollment for fiscal years and (1) Table 10 BEAUMONT UNIFIED SCHOOL DISTRICT ADA, ENROLLMENT AND EL/LI ENROLLMENT PERCENTAGE Fiscal Years and Average Daily Attendance (1) Fiscal Year K Total ADA Total Enrollment (2) Enrollment % of EL/LI Enrollment (2) ,700 1,933 1,267 2,463 8,363 8,834 N/A (3) ,743 1,964 1,288 2,490 8,485 8, % P-2 ADA. (2) As of October report submitted to the California Basic Educational Data System ( CBEDS ). For purposes of calculating Supplemental and Concentration Grants, a school district s fiscal year percentage of unduplicated EL/LI students will be expressed solely as a percentage of its total fiscal year total enrollment. For fiscal year , the percentage of unduplicated EL/LI enrollment will be based on the two-year average of EL/LI enrollment in fiscal years and Beginning in fiscal year , a school district s percentage of unduplicated EL/LI students will be based on a rolling average of such district s EL/LI enrollment for the then-current fiscal year and the two immediately preceding fiscal years. (3) Because the LCFF was not implemented until fiscal year , the District did not track its EL/LI enrollment in prior fiscal years. Source: The District. The sum of a school district s adjusted Base Grants, Supplemental Grants and Concentration Grants will be multiplied by such district s P-2 ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. For example, State apportionment funding represented 75.2% of the District s General Fund revenues in fiscal year and is projected to be approximately 81.3% in fiscal year See Table 13 below. As a result, decreases in State revenues may significantly affect appropriations made by the Legislature to school districts. Certain schools districts, known as basic aid districts, have allocable local property tax collections that equal or exceed such districts LCFF target allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the basic aid requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution.

38 The implication for basic aid districts is that the legislatively determined allocations to school districts, and other politically determined factors, are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. The District does not currently qualify as a basic aid district. Accountability. School districts that receive Supplemental Grants or Concentration Grants are required to increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such EL/LI students. The SBE has promulgated regulations regarding how such supplemental or concentration funds are to be allocated which include the conditions under which school districts can use supplemental or concentration funding on a schoolwide basis. School districts are also required to adopt local control and accountability plans ( LCAPs ) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by the LCFF. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs are required to be adopted every three years, beginning in fiscal year , and updated annually thereafter. The State Board of Education developed and adopted a template LCAP on January 16, 2014 for use by school districts. Support and Intervention. AB 97 establishes a new system of support and intervention to assist school districts meet the performance expectations outlined in their respective LCAPs. School districts are required adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and within five days thereof submit the LCAPs to their respective county superintendents of schools. Prior to August 15 of each year, a county superintendent may seek clarification in writing regarding the contents of a district s LCAP, and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit recommendations for amending the LCAP, and such recommendations must be considered by the respective school district at a public hearing within 15 days. The recommendations, however, are not mandatory. A district s LCAP must be approved by the respective county superintendent by October 8 of each year if such superintendent determines that (i) the LCAP adheres to the State template, and (ii) the district s budgeted expenditures are sufficient to implement the strategies outlined in the LCAP. A school district is required to receive additional support if its respective LCAP is not approved, if the district requests assistance from its respective county superintendent, or if the district does not improve outcomes in more than one State priority area for at least one student subgroup. Such support can include a review of a district s strengths and weaknesses in the eight State priority areas, the assignment of an academic expert to assist a district implement programs likely to improve outcomes, or the assistance of the California Collaborative for Educational Excellence ( CCEE ), a new state agency created by AB 97 and charged with assisting school districts achieve the goals set forth in their LCAPs. By October 1, 2015, the SBE is required to develop rubrics to assess school district performance and the need for support and intervention. The State Superintendent of Public Instruction (the State Superintendent ) is further authorized, with the approval of the SBE, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized (i) to modify a district s LCAP, (ii) impose budget revisions designed to improve student outcomes, and (iii) stay or rescind actions of the local governing board that would prevent such district from improving student outcomes; provided, however, that the State Superintendent is not authorized to rescind an action required by a local collective bargaining agreement. 32

39 Other State Sources. In addition to State allocations determined pursuant to the LCFF, the District receives other State revenues consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year , categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was folded into the LCFF. Categorical funding for 14 programs was excluded from the LCFF including, among others, child nutrition, after school education and safety, special education, and state preschool and school districts will continue to receive restricted State revenues to fund these programs. Other Funding Sources The federal government provides funding for several of the District s programs, including special education programs, programs under the No Child Left Behind Act, and specialized programs such as Drug Free Schools, Innovative Strategies, and Vocational & Applied Technology. In addition, the District receives additional local revenues beyond local property tax collections, such as leases and rentals, interest earnings, interagency services, developer fees and other local sources. Accounting Practices The accounting policies of the District conform to generally accepted accounting principles and are in accordance with the policies and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all State school districts. District Budget Process The District is required by provisions of the California Education Code to maintain each year a balanced budget in which the sum of expenditures plus the ending fund balance cannot exceed the revenues plus the carry over fund balance from the previous year. The California State Department of Education imposes a uniform budgeting format for each school district in the State. School districts must adopt a budget no later than June 30 of each year. The budget must be submitted to the County Superintendent of Schools (the County Superintendent ) within five days of adoption or by July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September 1 that is subject to State mandated standards and criteria. The revised budget must reflect changes in projected income and expenses subsequent to July 1. The single budget is only readopted if it is disapproved by the County Superintendent, or as needed. For both dual and single budgets submitted on July 1, the County Superintendent will (a) examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Trustees and identify technical corrections necessary to bring the budget into compliance, (b) determine if the budget allows the district to meet its current obligations, and (c) determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the County Superintendent will approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by August 15 of the County Superintendent s recommendations for revision and reasons for the recommendations. The County Superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the recommendations. The committee must report its findings no later than August 20. Any recommendations made by the County Superintendent must be made available by the district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than August 20, the County Superintendent must notify the State Superintendent of Public Instruction (the State Superintendent ) of all school districts whose budget has been disapproved. 33

40 Any district whose budget has been disapproved must revise and readopt its budget by August 20, reflecting changes in projected income and expenses since July 1, including responding to the County Superintendent s recommendations. The County Superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets, and, not later than October 8, must approve or disapprove the revised budgets. If the budget is disapproved, the County Superintendent will call for the formation of a budget review committee pursuant to Education Code Section Until a district s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. After approving the districts budgets, the County Superintendent will monitor, throughout the fiscal year, each school district under his or her jurisdiction pursuant to its adopted budget to determine on a continuing basis if the district can meet its current or subsequent year financial obligations. If a County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent may do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations, or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent must so notify the State Superintendent, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district s budget and operations; (ii) develop and impose, also after consulting with the district s board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of any collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority. At minimum, school districts file with their County Superintendent and the State Department of Education a First Interim Financial Report by December 15 covering financial operations from July 1 through October 31 and a Second Interim Financial Report by March 15 covering financial operations from November 1 through January 31. Section of the Education Code requires that each interim report be certified by the school board as either (a) positive, certifying that the district, based upon current projections, will meet its financial obligations for the current fiscal year and subsequent two fiscal years, (b) qualified, certifying that the district, based upon current projections, may not meet its financial obligations for the current fiscal year or two subsequent fiscal years, or (c) negative, certifying that the district, based upon current projections, will be unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A certification by a school board may be revised by the County Superintendent. If either the First or Second Interim Report is not positive, the County Superintendent may require the district to provide a Third Interim Financial Report covering financial operations from February 1 through April 30 by June 1. If not required, a Third Interim Financial Report is not prepared. Each interim report shows fiscal year to date financial operations and the current budget, with any budget amendments made in light of operations and conditions to that point. After the close of the fiscal year on June 30, an unaudited financial report for the fiscal year is prepared and filed without certification with the County Superintendent and the State Department of Education. The District became a unified district in 1993 and since that time has never received a negative or qualified certification with respect to its First or Second Interim Reports. Since it became a unified district in 1993, the District has always submitted a balanced budget each June and has never missed the June 30 deadline for filing a balanced budget. Pursuant to State law, the District adopted a budget on June 12, 2013 (the Adopted Budget ) which set forth revenues and expenditures such that appropriations during fiscal year are not projected to exceed the sum of revenues plus the July 1, 2013 beginning fund balance. The portion of the Adopted Budget relating to the General Fund is included as Table 13 below. 34

41 Revenue Sources California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues significantly affect appropriations made by the legislature to school districts. Until recently, the State experienced several years of economic depression which adversely affected State funding of education. Similar circumstances in the future could adversely affect funding for local school districts, including the District. See STATE OF CALIFORNIA FISCAL ISSUES herein. The District categorizes its General Fund revenues into four sources: (1) state apportionment funding (this was funded from revenue limit sources through fiscal year and thereafter pursuant to the LCFF); (2) federal sources; (3) other State sources; and (4) other local sources. Each of these revenue sources is described below. The projections for fiscal year are based on what the District believes it will receive under the LCFF as of January 31, State Apportionment Funding The primary source of District funding prior to fiscal year came from the State in the form of base revenue limit funding per unit of ADA. In fiscal year , revenue limit sources totaled $42,967,191, accounting for approximately 72.1% of the General Fund revenues. In fiscal year , revenue limit sources totaled $44,221,163, accounting for approximately 75.2% of the General Fund revenues. In fiscal year , state apportionment funding changed as a result of the LCFF. See DISTRICT FINANCIAL INFORMATION State Funding of Education. Under the LCFF, the District will receive a Supplemental Grant to increase the per ADA funding by 20% for each EL, LI or foster youth student. Additionally, the Base Grant per ADA is increased by 50% for each student that is EL, LI or foster youth student in excess of 55% of total enrollment; the District s unduplicated EL, LI and FY count is 61.3% of the student population. For fiscal year , the District projects that it will receive $53,578,188 under the LCFF, representing 81.3% of its budgeted General Fund revenues. Other State Revenues In addition to State apportionment funding discussed above, the District receives substantial other State revenues ( State Sources ). In fiscal years and , State Sources equaled approximately 13.4% and 13.6%, respectively, of total General Fund revenues and, in fiscal year , State Sources are projected to equal approximately 7.0% of total General Fund revenues. Federal Revenues The federal government provides funding for several District programs, including special education programs, programs under the Educational Consolidation and Improvement Act, and specialized programs such as Drug-Free Schools. The federal revenues, most of which are restricted, equaled approximately 7.7% and 4.9% of such revenues in fiscal years and , respectively, and are projected to equal approximately 6.3% of such revenues in fiscal year

42 Other Local Revenues In addition to property taxes, the District receives additional local revenues consisting of revenues from other governmental agencies, lease revenues, fee revenues and other amounts. These other local revenues equaled approximately 6.8% and 6.3% in fiscal years and , respectively, and are projected to equal approximately 5.3% in fiscal year Comparative Financial Statements Table 11 below summarizes the District s Summary of General Fund Revenues, Expenditures and Changes in Fund Balance for fiscal years through The figures in Table 11 are taken from the District s audited financial statements. See Appendix B DISTRICT S AUDITED FINANCIAL STATEMENTS for further detail on the District s financial condition as of June 30, [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 36

43 (1) Table 11 BEAUMONT UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balance Audited Audited Audited Audited Audited Revenues: State Apportionment Funding $ 43,591,962 $ 39,210,191 $ 42,612,980 $ 42,967,191 $ 44,221,163 Federal Revenues 5,496,702 4,780,714 3,050,012 4,590,326 2,859,599 Other State Revenues 7,871,243 7,630,582 7,456,811 7,992,892 7,976,028 Other Local Revenue 6,429,665 4,692,183 3,701,866 3,975,348 3,745,108 Total Revenues $ 63,389,573 $ 56,313,670 $ 56,837,940 $ 59,525,757 $ 58,801,898 Expenditures: Instruction $ 34,978,825 $ 33,196,175 $ 34,222,425 $ 35,044,416 $ 33,907,726 Instruction Related Services 6,687,351 5,978,666 5,842,519 6,183,518 6,305,103 Pupil Services 4,610,253 3,956,997 4,246,989 4,531,501 4,326,807 General Administration 3,865,717 3,930,774 3,721,371 3,929,977 4,389,576 Plant Services 6,928,362 5,956,122 6,106,228 6,305,445 6,580,166 Facilities Acquisition and Construction 104,370 65,685 5,494 5, Ancillary Services 394, , , , ,784 Community Services 35,543 21,522 23,492 23,735 17,599 Enterprise Activities 340,344 17,864 21,383 27,377 28,228 Other Outgo 195, , , ,549 1,925,700 Total Expenditures $ 58,139,852 $ 53,888,807 $ 55,037,514. $ 56,973,373 $ 58,003,689 Excess of (Deficiency) of Revenues Over Expenditures $ 5,249,721 $ 2,424,863 $ 1,800,426 $ 2,552,384 $ 798,209 Other Financing Sources (Uses) $ 91,859 $ (380,993) $ (232,456) $ 25,099 $ (250,082) Net Increase (Decrease) in Fund Balance $ 5,341,580 $ 2,043,870 $ 1,567,970 $ 2,577,483 $ 548,127 Fund Balance (Deficit), July 1 $ 5,645,672 $ 10,987,252 $ 13,031,122 $ 19,440,149 (1) $ 22,017,632 (2) Fund Balance (Deficit), June 30 $ 10,987,253 $ 13,031,122 $ 19,440,149 (1) $ 22,017,632 (2) $ 22,565,759 (3) Reflects an increase in assets of $4,841,057 due to a restatement of a certain fund balance to conform to GASB Statement No. 54 s definition of governmental funds. The District s Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, was combined with the General Fund for presentation in the audited financial statements as such fund, while legally established by the District, does not meet the accounting criteria to be reported apart from the General Fund. (2) Includes $4,872,902 on deposit in the District s Special Reserve Fund for Other Than Capital Outlay Projects, in accordance with GASB Statement No. 54. (3) Includes $4,877,666 on deposit in the District s Special Reserve Fund for Other Than Capital Outlay Projects, in accordance with GASB Statement No. 54. See the District s Audited Financial Statements included in Appendix B hereto. Source: Beaumont Unified School District Audited Financial Statements for fiscal years through

44 Table 12 below sets forth the District s General Fund balance sheet for fiscal years through Table 12 BEAUMONT UNIFIED SCHOOL DISTRICT Summary of Combined General Fund Balance Sheet Audited Audited Audited Audited Audited Assets Deposits and Investments $ 7,072,809 $ 7,984,619 $ 8,422,427 $ 5,899,508 $ 13,488,434 Accounts Receivable 8,349,070 9,691,351 13,687,606 16,716,871 10,098,336 Due from Other Funds 283, , , , ,586 Inventory/Prepaid Expenditures ,136 Total Assets $ 15,705,609 $ 18,196,393 $ 22,310,391 (1) $ 22,863,329 (2) $ 23,934,492 (3) Liabilities and Fund Equity Liabilities Accounts Payable $ 1,293,911 $ 2,213,729 $ 1,166,762 $ 801,245 $ 959,870 Due to Other Funds 2,850,657 2,706, ,036 8, ,117 Deferred Revenue 573, ,547 1,461,444 36, ,746 Total Liabilities $ 4,718,357 $ 5,165,271 $ 2,870,242 $ 845,697 $ 1,368,733 Fund Balances Reserved $ 3,715,309 $ 1,756,784 $ 1,622,380 $ 2,315,054 $ 1,283,251 Unreserved 7,271,943 11,274,338 17,817,769 19,702,578 21,282,508 Total Fund Equity $ 10,987,252 $ 13,031,122 $ 19,440,149 $ 22,017,632 $ 22,565,759 Total Liabilities and Fund Balances $ 15,705,609 $ 18,196,393 $ 22,310,391 $ 22,863,329 $ 23,934,492 (1) Reflects an increase in assets of $4,841,057 due to a restatement of a certain fund balance to conform to GASB Statement No. 54 s definition of governmental funds. The District s Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, was combined with the General Fund for presentation in the audited financial statements as such fund, while legally established by the District, does not meet the accounting criteria to be reported apart from the General Fund. (2) Includes $4,872,902 on deposit in the District s Special Reserve Fund for Other Than Capital Outlay Projects, in accordance with GASB Statement No. 54. (3) Includes $4,877,666 on deposit in the District s Special Reserve Fund for Other Than Capital Outlay Projects, in accordance with GASB Statement No. 54. See the District s Audited Financial Statements included in Appendix B hereto. Source: Beaumont Unified School District Audited Financial Statements for fiscal years through [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 38

45 Table 13 below compares the District s fiscal year General Fund Budget to its actual revenues and expenditures for fiscal year and its Adopted Budget to its projected revenues and expenditures for fiscal year as of January 31, Table 13 BEAUMONT UNIFIED SCHOOL DISTRICT Comparison of Budgeted to Actual Revenues and Expenditures and Budgeted to Projected Revenues and Expenditures (1) (1) Budget Audit Budget Second Interim Revenues State Apportionment Funding $ 43,443,594 $ 44,221,163 $ 43,806,938 $ 53,578,188 Federal 2,421,532 2,859,599 2,966,976 4,211,075 Other State 7,016,154 7,976,028 7,206,858 4,608,848 Other Local 2,007,139 3,745,108 3,153,324 3,472,269 Total Revenues $ 54,888,419 $ 58,801,898 $ 57,134,096 $ 65,870,380 Expenditures Certified Salaries $ 26,242,637 $ 27,680,811 $ 28,163,613 $ 28,872,763 Classified Salaries 8,396,832 8,871,194 9,203,454 9,108,507 Employee Benefits 11,060,635 11,197,990 11,223,519 11,518,880 Books and Supplies 4,507,337 2,072,607 5,585,543 10,261,819 Services and Other Operating Expenditures 6,063,037 6,324,354 6,834,224 8,073,863 Transfers of Indirect Costs (231,169) (138,178) (278,030) (292,971) Capital Outlay 266,242 1,604, , ,046 Other Outgo 390, , , ,023 Total Expenditures $ 56,695,574 $ 58,003,689 $ 61,257,210 $ 68,567,930 Excess (Deficiency) of Revenues over (Under) Expenditures $ (1,807,155) $ 798,209 $ (4,123,114) $ (2,697,550) Total Other Financing Sources (Uses) $ 1,622,443 $ (250,082) $ 1,620,593 $ (945,306) Net Increase (Decrease) in Fund Balance $ (184,712) $ 548,127 $ (2,502,521) $ (3,642,856) Fund Balance (Deficit), July 1 $ 14,437,270 $ 17,144,729 $ 16,252,401 $ 17,513,823 Fund Balance (Deficit), June 30 $ 14,252,558 $ 17,688,093 $ 13,749,880 $ 14,045,238 (1) Does not include the financial activity of the Special Reserve for Other Than Capital Outlay Projects. Source: Beaumont Unified School District Adopted Budget for fiscal years and , the Audited Financial Statements for fiscal year and the Second Interim Report for fiscal year Recent Budget Developments The District s revenues are derived in large part from funding provided by the State. For several years prior to fiscal year , the State experienced significant budget shortfalls that led to reduced funding for school districts in California and to deferrals in the timing of payments from the State to school districts. See STATE OF CALIFORNIA FISCAL ISSUES herein. However, due in large part to the passage of Proposition 30 on November 6, 2012 and the resulting implementation of the LCFF, the State had a budget surplus for fiscal year , and it projects a larger budget surplus for fiscal year As a result, the District expects to receive an increase in State funding in fiscal year as compared to fiscal year See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 30. For several fiscal years prior to , the District was proactive in responding to the reductions in State funding which enabled it to continue to maintain substantial budget reserves. In anticipation of reduced State funding, the District increased its reserves in fiscal years through expecting to spend some of the balances to offset reduced State funding in future fiscal years. With the implementation of the LCFF in fiscal year , the revenues received by the District from the State increased and such increased State 39

46 funding is projected to continue in the next several fiscal years. The District has used these increased revenues, and drawn from its accumulated reserves, to restore programs and increase expenditures. As of January 31, 2014, the District projects that its fiscal year General Fund expenditures will exceed General Fund revenues by approximately $2.7 million. Combined with intrafund transfers from the General Fund, the District projects the General Fund balance will be approximately $14.0 million at June 30, Historically, State law has required the District to maintain General Fund reserves equal to at least 3% of General Fund expenditures and to project General Fund reserves at this level for each of the next two fiscal years. In its Second Interim Report, dated as of January 31, 2014 (the Second Interim Report ), the District projects that it will have General Fund reserves of 11.3% in fiscal years , and Because of an anticipated increase in expenditures in the next two fiscal years, the District projects that its General Fund ending fund balance will decrease slightly in each of the next two fiscal years from the projected General Fund ending balance at June 30, The State deferred the payment of certain fiscal year revenues to fiscal year In accordance with the provisions of the California School Accounting Manual, the District uses an accrual method of accounting and, accordingly, the information in Tables 11 through 13 does not reflect any deferral of revenues to future fiscal years. The District believes that it will have adequate cash on hand to pay its expenditures without the need for external borrowing in the current and next fiscal year. See STATE OF CALIFORNIA FISCAL ISSUES herein. Capital Projects Funds The District maintains a Special Reserve Fund for Capital Outlay Projects, separate and apart from the General Fund, to account for developer fees collected by the District. The District s developer fees may be utilized for any capital purpose related to growth. The District also maintains a Building Fund and a Deferred Maintenance Fund separate and apart from the General Fund related to the construction and maintenance of school facilities. As of June 30, 2013, there was a balance of $194,914 in the District s Special Reserve Fund for Capital Outlay Projects, a balance of $21,486,620 in the Building Fund and a balance of $750,774 in the Deferred Maintenance Fund. As of January 31, 2014, the District projects that as of June 30, 2014 it will have a balance of $4,883,166 in the Special Reserve Fund for Capital Outlay Projects, a balance of $18,443,558 in the Building Fund and a balance of $0 in the Deferred Maintenance Fund. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 40

47 DISTRICT DEBT STRUCTURE Long-Term Debt A schedule of changes in the District s long-term debt for the year ended June 30, 2013 is set forth in Table 14 below. For more information on the District s long-term debt, see Note 7 in the District s Audited Financial Statements attached as Appendix B hereto. Since June 30, 2013, the District has not issued any bonds or certificates of participation. (1) General Long-Term Debt Account Group Table 14 BEAUMONT UNIFIED SCHOOL DISTRICT Long-Term Debt (in millions) Balance July 1, 2012 Balance June 30, 2013 Variance General obligation bonds (1) $65.9 $66.6 $ 0.7 Certificates of participation (0.3) Early Retirement Incentive (0.3) Compensated absences Other post-employment benefits (0.5) Total $76.2 $76.7 $ 0.5 Includes accreted interest on capital appreciation bonds. Source: The District. Short-Term Debt The District currently has no short-term debt outstanding, and the District does not expect to issue any tax and revenue anticipation notes for fiscal year or fiscal year If any tax and revenue anticipation notes are issued, they will be payable from General Fund revenues and other lawfully available funds of the District and must mature in not more than 15 months from their issuance. Direct and Overlapping Debt Contained within the District are numerous overlapping local agencies providing public services. These local agencies have outstanding debt issued in the form of general obligation, lease revenue and special tax and assessment bonds. The direct and overlapping debt of the District is shown in Table 15 below. Tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds, and non-bonded capital lease obligations are excluded from the debt statement. The information in Table 15 has been furnished by California Municipal Statistics, Inc. The District does not guarantee the accuracy of the information set forth in Table 15. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 41

48 Assessed Valuation: $3,671,120,136 Table 15 BEAUMONT UNIFIED SCHOOL DISTRICT Estimated Direct and Overlapping Bonded Debt As of April 1, 2014 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 4/1/14 San Bernardino Valley Joint Community College District 0.006% $ 26,578 Beaumont Unified School District ,442,653 (1) San Gorgonio Memorial Healthcare District ,796,638 City of Beaumont Community Facilities District No ,690,830 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $338,956,699 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Riverside County General Fund Obligations 1.750% $11,804,273 Riverside County Pension Obligations ,854,013 Riverside County Board of Education Certificates of Participation ,250 San Bernardino County General Fund Obligations ,671 San Bernardino County Pension Obligations ,783 San Bernardino County Flood Control District General Fund Obligations ,021 Mt. San Jacinto Community College District General Fund Obligations ,115 Beaumont Unified School District Certificates of Participation ,302,505 City of Banning Certificates of Participation ,056 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $23,913,687 Less: Riverside County supported obligations 176,790 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $23,736,897 OVERLAPPING TAX INCREMENT DEBT: Banning Redevelopment Agency 2.056% $774,804 TOTAL OVERLAPPING TAX INCREMENT DEBT $774,804 GROSS COMBINED TOTAL DEBT $363,645,190 (2) NET COMBINED TOTAL DEBT $363,468,400 (1) (2) Excludes accreted interest of capital appreciation bonds. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($60,442,653) % Total Overlapping Tax and Assessment Debt % Combined Direct Debt ($65,745,158) % Gross Combined Total Debt % Net Combined Total Debt % Ratios to Redevelopment Incremental Valuation ($342,253,518): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. 42

49 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS The principal of and interest on the 2014 Bonds are payable solely from the proceeds of an ad valorem tax levied by the Board of Supervisors of the County and the Board of Supervisors of the County of San Bernardino for the payment thereof. (See SECURITY FOR THE 2014 BONDS herein.) Articles XIIIA, XIIIB, XIIIC and XIIID of the Constitution, Propositions 22, 39, 46, 98, 111 and 1A and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the District to have taxes levied for payment of the 2014 Bonds. The ad valorem tax to be levied for payment of the 2014 Bonds was approved by the District s voters in compliance with Article XIIIA, Article XIIIC, and all applicable laws. Article XIIIA On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean the county assessor s valuation of real property as shown on the 1975/76 tax bill under full cash value, or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition. Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of base revenue from the tax rate area. Each year s growth allocation becomes part of each agency s allocation the following year. The District is unable to predict the nature or magnitude of future revenue sources that may be provided by the State to replace lost property tax revenues. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIIIB On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the state to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The base year for establishing such appropriation 43

50 limit is the fiscal year. Increases in appropriations by a governmental entity are also permitted (a) if financial responsibility for providing services is transferred to the governmental entity, or (b) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations subject to Article XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January 1, 1979 on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to any entity of government from (a) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (b) the investment of tax revenues and (c) certain State subventions received by local governments. Article XIIIB includes a requirement that if an entity s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years. As amended in June 1990, the appropriations limit for local governments in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the local government s option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ( K-14 ) districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate proceeds of taxes received by the District over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Any proceeds of taxes received by the District in excess of the appropriations limit are absorbed into the State s allowable limit. The District does not currently have and does not anticipate having proceeds of taxes in excess of its appropriations limit. Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years. Pursuant to statute, if a school district receives any proceeds of taxes in excess of its appropriations limit, it may, by resolution of the governing board, increase its appropriations limit to equal the amount received, provided that the State has sufficient excess appropriations limit in that fiscal year. Articles XIIIC and XIIID On November 5, 1996, California voters approved Proposition 218 Voters Approval for Local Government Taxes Limitation on Fees, Assessments, and Charges Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Among other things, Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes (imposed for general governmental purposes) or special taxes (imposed for specific purposes); prohibits special purpose government agencies, including school districts, from levying general taxes; and prohibits any local agency from imposing, extending or increasing any special tax beyond its 44

51 maximum authorized rate without a two-thirds vote. Proposition 218 also provides that no tax maybe assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. A portion of the District s revenues are received annually from property taxes. The State Constitution and the laws of the State impose a mandatory, statutory duty on officials of the County and the County of San Bernardino to levy a property tax sufficient to pay debt service on the 2014 Bonds coming due in each year. There is no court case which directly addresses whether the initiative power may be used to reduce or repeal the ad valorem taxes pledged to repay general obligation bonds. See DISTRICT FINANCIAL MATTERS General Fund Revenue Sources. In the case of Bighorn-Desert View Water Agency v. Virjil (Kelley) (the Bighorn Decision ), the California Supreme Court held that water service charges may be reduced or repealed through a local voter initiative subject to Article XIIIC. The Supreme Court did state that it was not holding that the initiative power is free of all limitations. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure that would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District. No developer fees imposed by the District are pledged or expected to be used to make payments with respect to the 2014 Bonds. The provisions of Article XIIIC and XIIID may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. 45

52 Proposition 46 On June 3, 1986, California voters approved Proposition 46, which provided an additional exemption to the 1% tax limitation imposed by Article XIIIA. Under this amendment to Article XIIIA, local governments and school districts may increase the property tax rate above 1% for the period necessary to retire new general obligation bonds, if two-thirds of those voting in a local election approve the issuance of such bonds and the money raised through the sale of the bonds is used exclusively to purchase or improve real property. Proposition 39 On November 7, 2000, California voters approved Proposition 39, called the Smaller Classes, Safer Schools and Financial Accountability Act (the Smaller Classes Act ) which amends Section 1 of Article XIIIA, Section 18 of Article XVI of the California Constitution and Section of the California Education Code and allows an alternative means of seeking voter approval for bonded indebtedness by 55 percent of the vote, rather than the two-thirds majority required under Section 18 of Article XVI of the Constitution. The 55 percent voter requirement applies only if the bond measure submitted to the voters includes, among other items: (1) a restriction that the proceeds of the bonds may be used for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, (2) a list of projects to be funded and a certification that the school district board has evaluated safety, class size reduction, and information technology needs in developing that list and (3) that annual, independent performance and financial audits will be conducted regarding the expenditure and use of the bond proceeds. Section 1(b)(3) of Article XIIIA has been added to exempt from the one percent ad valorem tax limitation under Section 1(a) of Article XIIIA of the Constitution levies to pay bonds approved by the 55 percent of the voters, subject to the restrictions explained above. The Legislature enacted AB 1908, Chapter 44, which became effective upon passage of Proposition 39 and amends various sections of the Education Code. Under amendments to Section and of the Education Code, the following limits on ad valorem taxes apply in any single election: (1) for a school district, indebtedness shall not exceed $30 per $100,000 of taxable property, (2) for a unified school district, indebtedness shall not exceed $60 per $100,000 of taxable property, and (3) for a community college district, indebtedness shall not exceed $25 per $100,000 of taxable property. Finally, AB 1908 requires that a citizens oversight committee must be appointed to review the use of the bond funds and inform the public about their proper usage. Propositions 98 and 111 On November 8, 1988, California voters approved Proposition 98, a combined initiative, constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act ( Proposition 98 ). Proposition 98 changed State funding of public education below the university level and the operation of the State s appropriations limit, primarily by guaranteeing K-14 schools a minimum share of State General Fund revenues. Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), K-14 schools are guaranteed the greater of (a) 40.9% of State General Fund revenues (the first test ), or (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost-of-living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ), or (c) a third test which would replace the second test in any year when the percentage growth in per capita State General Fund revenues from the prior year plus 1/2 of 1% is less than the percentage growth in California per capita personal income. Under the third test, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test would become a credit to schools which would be paid in future years when State General Fund revenue growth exceeds personal income growth. 46

53 Proposition 98 permits the Legislature by two-thirds vote of both houses, with the Governor s concurrence, to suspend the K-14 schools minimum funding formula for a one-year period, and any corresponding reduction in funding for that year will not be paid in subsequent years. However, in determining the funding level for the succeeding year, the formula base for the prior year will be reinstated as if such suspension had not taken place. In certain fiscal years, the State Legislature and the Governor have utilized this provision to avoid having the full Proposition 98 funding paid to support K-14 schools. Proposition 98 also changes how tax revenues in excess of the State Appropriations Limit are distributed. Excess tax revenues are determined based on a two-year cycle, so that the State could avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year were under its limit. After any two-year period, if there are excess State tax revenues, 50% of the excess would be transferred to K-14 schools with the balance returned to taxpayers. Further, any excess State tax revenues transferred to K-14 schools are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit will not be increased by this amount. Since Proposition 98 is unclear in some details, there can be no assurance that the Legislature or a court might not interpret Proposition 98 to require a different percentage of State General Fund revenues to be allocated to K-14 districts, or to apply the relevant percentage to the State s budgets in a different way than is proposed in the Governor s Budget. In any event, some fiscal observers expect Proposition 98 to place increasing pressure on the State s budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State ability to fund such other programs by raising taxes. The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. One major reason is that Proposition 98 minimums under the first test and the second test described above are dependent on State General Fund revenues. In several recent fiscal years, the State made actual allocations to K-14 districts based on an assumption of State General Fund revenues at a level above that which was ultimately realized. In such years, the State has considered the amounts appropriated above the minimum as a loan to K-14 districts, and has deducted the value of these loans from future years estimated Proposition 98 minimums. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State s authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Beginning in , the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights Many of the provisions of Proposition 1A have been superseded by Proposition 22 enacted in November 47

54 Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State s general fund and transportation funds, the State s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst s Office (the LAO ) on July 15, 2010, the longer-term effect of Proposition 22, according to the LAO s analysis, will be an increase in the State s general fund costs by approximately $1 billion annually for several decades. On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos, finding California Assembly Bill x1 26 to be constitutional and California Assembly Bill x1 27 to be unconstitutional. As a result, all redevelopment agencies in California were dissolved on February 1, 2012, and the property tax revenue which previously flowed to the redevelopment agencies is now instead going to other local governments, including school districts. It is likely that the dissolution of redevelopment agencies has mooted the effects of Proposition 22. Proposition 30 On November 6, 2012, voters approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as Proposition 30 ), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, 2017, for storage, use, or other consumption in the State. This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending January 1, 2019, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $680,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $608,000 for joint filers). The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See Propositions 98 and 111. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted perstudent funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs. 48

55 Jarvis v. Connell On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California). The Court of Appeal held that either a final budget bill, an emergency appropriation, a self-executing authorization pursuant to state statutes (such as continuing appropriations) or the California Constitution or a federal mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are self-executing authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, and Propositions 22, 26, 30, 39, 46, 98, 111 and 1A were each adopted as measures that qualified for the ballot pursuant to California s initiative process. From time to time other initiative measures could be adopted, further affecting school districts revenues or such districts ability to expend revenues. There can be no assurance that the California electorate will not at some future time adopt other initiatives or that the Legislature will not enact legislation that will amend the laws or the Constitution of the State of California resulting in a reduction of amounts legally available to the District. STATE OF CALIFORNIA FISCAL ISSUES The following information concerning the State s budget has been obtained from publicly available information which the District believes to be reliable; however, the District does not guaranty the accuracy or completeness of this information and has not independently verified such information. The following information has been adapted from information provided by the State in connection with its issuance of certain of its bonds, by the Legislative Analyst s Office and by the State Department of Finance in its summaries of the adopted State budget and the Governor s Proposed Budget. General Overview Recent Financial Stress on State Budget. In 2008, the State began experiencing the most significant economic downturn and financial pressure since the Great Depression of the 1930s. As a result of continuing weakness in the State economy, State tax revenues declined precipitously, resulting in large budget gaps and cash shortfalls. In response to the severe economic downturn, the State implemented substantial spending reductions, program eliminations, revenue increases, and other solutions in order to close an estimated $60 billion budget gap over the combined and fiscal year and to close a combined budget gap of $26.6 billion for fiscal years and A number of budget assumptions in the State s budget were not achieved and in May 2012, the Governor announced that the State was facing a budget deficit of $15.7 billion through June 30, On June 27, 2012, the Governor signed the State budget for fiscal year which the Governor projected would close the $15.7 billion deficit and provide a $1 billion reserve at June 30, On June 27, 2013, the Governor signed the State budget for fiscal year (the Budget ) which contained a $254 million reserve at July 1, 2013 and a reserve of approximately $1.1 billion at June 30, See State Budget. 49

56 The Governor s Proposed Budget (the Proposed Budget ) released in January 2014 projects that the State s budget will remain balanced through fiscal year Despite the recent significant budgetary improvements, there remain a number of major risks and pressures that threaten the State s financial condition, including the need to repay approximately $25 billion of obligations which were deferred to balance budgets during the economic downturn and large unfunded liabilities totaling more than $200 billion for PERS, STRS and the State s adopted healthcare benefits plan. In addition, the State s revenues (particularly the personal income tax) can be volatile and correlate to overall economic conditions. There can be no assurances that the State will not face fiscal stress and cash pressures again, or that other changes in the State or national economies will not materially adversely affect the financial condition of the State. Cash Management by State and Impact on Schools. To conserve cash in light of declining revenues, the State has enacted several statutes deferring the payment of amounts owed to public schools, until a later date in the current, or in a subsequent, fiscal year. This technique had been used in all of the State s budget bills from fiscal year through fiscal year Some of these statutory deferrals were made permanent, and others were implemented only for one fiscal year. These deferrals have reduced amounts paid to K-12 districts and resulted in deferred payments now totaling more than $10 billion. These deferrals have also created cash flow shortages for certain K-12 districts which have required an increased level of cash flow borrowings. The Budget proposes to eliminate new deferrals in fiscal year and to pay down the accrued deferrals by the end of the fiscal year State Budget On June 27, 2013, the Governor signed into law the Budget. Except as otherwise noted, the following information is drawn from the State Department of Finance summary of the Budget. Additional information regarding the Budget is available from the State Department of Finance at The Budget is based on revenue projections previously included in the Governor s May Revision to the proposed budget. General fund revenues for fiscal year are projected to be $98.2 billion, while general fund expenditures are projected to be $95.7 billion. The Budget projects that the State will end the fiscal year with a $254 million general fund surplus. For fiscal year , general fund revenues are projected at $97.1 billion and expenditures are projected at $96.3 billion, leaving the State with a projected general fund surplus for fiscal year of approximately $1.1 billion. The Budget includes total funding of $70 billion ($39.6 billion for the general fund and $30.4 billion for other funds) for all K-12 education programs. Proposition 98 funding increases to a total of $56.5 billion in , an increase of $2.9 billion over the 2012 Budget Act. In , the Proposition 98 funding guarantee is $55.3 billion, an increase of more than $8 billion over the level. Proposition 98 funding for K-12 education is projected to grow by almost $20 billion from the fiscal year to the fiscal year, representing an increase of more than $2,800 per student. The Budget introduced the LCFF, a new school funding allocation system to replace the current school finance system. The LCFF included the following components: A base grant for each local education agency equivalent to $7,643 per unit of ADA. This amount includes an adjustment of 10.4% to the previously proposed base grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in high schools. A 20-percent supplemental grant for English learners, students from low-income families, and foster youth to reflect increased costs associated with educating those students. 50

57 An additional concentration grant of up to 22.5% of a local education agency s base grant, based on the number of English learners, students from low-income families, and foster youth served by the local agency that comprise more than 55% of enrollment. An Economic Recovery Target to ensure that almost every local education agency receives at least its pre-recession funding level, adjusted for inflation, at full implementation of the LCFF. Of the more than $25 billion in new funding to be invested through the formula over the next eight years, the vast majority of new funding will be provided for base grants. Specifically, of every dollar invested through this formula, 84 cents will go to base grants, 10 cents will go to supplemental grants, and 6 cents will go to concentration grants. Under the Budget, the average base grant is $7,643, which is $2,375 more than the current average revenue limit. Other significant features of the Budget related to funding of K-12 education included: Other Effects of LCFF An increase of $2.1 billion in Proposition 98 funding for school districts and charter schools, and $32 million in Proposition 98 funding for county offices of education, to support first-year funding provided through the LCFF. Common Core Implementation An increase of $1.25 billion in one-time Proposition 98 funding to support the implementation of the Common Core new standards for evaluating student achievement in English-language arts and math. Funding will be distributed to local education agencies on the basis of enrollment to support necessary investments in professional development, instructional materials, and technology. Local education agencies will be required to develop a plan to spend this money over the next two years and hold a public hearing on the plan. Career Technical Education Pathways Grant Program An increase of $250 million in Proposition 98 funding for one-time competitive capacity-building grants for K-12 school districts and community colleges to support programs focused on work-based learning. K-12 schools and community colleges must obtain funding commitments from program partners to support ongoing program costs. K-12 Mandates Block Grant An increase of $50 million in Proposition 98 funding to reflect the inclusion of the Graduation Requirements mandate within the block grant program. This increase will be distributed to school districts, county offices of education and charter schools with enrollment in grades Repayment of K-12 Deferrals An increase of $1.6 billion in Proposition 98 funding in and an increase of $242.3 million in Proposition 98 funding in for the repayment of inter-year budgetary deferrals. When combined, total funding over the two-year period will reduce K-12 interyear deferrals to $5.6 billion by the end of the fiscal year. This will reduce total outstanding deferrals by more than 40% of their peak value, when more than $9.5 billion was deferred. Proposition 39 Implementation The Budget allocates certain supplemental corporate tax revenues raised by Proposition 39 (approved at the November 2012 general election) to K-12 schools and community colleges. The Budget allocates $381 million Proposition 98 general fund to K-12 local education agencies to support energy efficiency projects approved by the California Energy Commission. Of this amount, 85% will be distributed based on ADA and 15% will be distributed based on free and reduced-price meal eligibility. The Budget establishes minimum grant levels of $15,000 and $50,000 for small and exceptionally small local education agencies and allows these agencies to receive an advance on a future grant allocation. The Budget will provide other local education agencies the greater of $100,000 or their weighted distribution amount. The Budget also provides $28 million for interest-free revolving loans to assist eligible energy projects at schools and community colleges. Additionally, the Budget appropriates $3 million to the California Workforce Investment Board to develop and 51

58 implement a competitive grant program for eligible workforce training organizations that prepare disadvantaged youth or veterans for employment in energy related fields. Special Education Funding Reform The Budget includes several consolidations for various special education programs in an effort to simplify special education finance and provide Special Education Local Plan Areas with additional funding flexibility. For additional information regarding the State s budgets and revenue projections and a more detailed description of the Budget, see the State Department of Finance website at and the website of the Legislative Analyst s Office at The information presented in such websites is not incorporated herein by reference. Fiscal Outlook Report. In November 2013, the LAO released a summary of its revised projections for State general fund tax revenues and related spending (the Fiscal Outlook Report ). The following information is drawn from the Fiscal Outlook Report. The Fiscal Outlook Report provided the LAO s projections of the State s general fund revenues and expenditures for fiscal years through under current law. The LAO s projections primarily reflected current-law spending requirements and tax provisions, while relying on the LAO s independent assessment of the outlook for the State s economy, demographics, revenues, and expenditures. The LAO projects that the State will have a $5.6 billion general fund reserve at the end of fiscal year This projected reserve is the sum of (i) a $234 million ending reserve for fiscal year , (ii) a $2.2 billion projected operating surplus in fiscal year and (iii) a $3.2 billion projected operating surplus in fiscal year The LAO currently projects that State general fund revenue for fiscal year will be $99.8 billion (approximately $1.65 billion higher than projected in the State s Budget). This increase is principally due to higher than expected personal income tax collections. As a result the LAO currently projects that the Proportion 98 minimum funding guarantee for fiscal year will be $58.2 billion (approximately $1.74 billion more than was projected in the Budget), including $42.2 billion of support from the State s general fund (approximately $1.75 billion more than was assumed in the Budget). The higher State revenues result in more than a dollar-for-dollar increase in the Proposition 98 minimum funding guarantee due to the State s decision to make maintenance factor payments under Test 1 of Proposition 98. The State will be making a $5.4 billion maintenance factor payment in fiscal year , which will leave approximately $5.6 billion in outstanding maintenance factor. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Proposition 98 and 111 herein. For fiscal year , the LAO projects an operating surplus of approximately $1.1 billion higher than was assumed in the Budget. This projection is based primarily on $4.7 billion in higher revenues, largely due to (i) approximately $5.2 billion in higher-than-assumed personal income tax collections, (ii) approximately $3.1 billion in higher-than-assumed general fund Proposition 98 spending, and (iii) $300 million in higher-thanassumed non-proposition 98 general fund spending. The LAO currently that Proposition 98 minimum funding guarantee for fiscal year will be $57.96 billion (approximately $2.67 billion more than was projected in the Budget), including $42.1 billion of support from the State s general fund (approximately $3.07 billion more than was assumed in the Budget). This projected increase in the general fund Proposition 98 funding is due in part to the LAO s forecast that local property taxes will be $393 million lower than assumed in Budget. In fiscal year , the LAO estimates that a $941 million maintenance factor will be created (increasing the State s outstanding maintenance factor to approximately $6.8 billion). For fiscal year , the LAO projects an operating surplus of approximately $3.2 billion. This projection is based primarily on the LAO s assumption that: (i) general fund revenues will increase to $ billion ($5.8 billion more than projected general fund revenues of $ billion), (ii) approximately $3.3 billion in higher general fund Proposition 98 minimum funding spending over the projected fiscal year

59 14 levels and (iii) $1.5 billion in higher non-proposition 98 general fund spending over projected fiscal year levels. The LAO projects that Proposition 98 minimum funding guarantee for fiscal year will be $62.2 billion, including $45.4 billion of support from the State s general fund. The Fiscal Outlook Report provides projections through fiscal year While the LAO projects that the Proposition 98 minimum funding guarantee will increase to $73.7 billion in fiscal year , the LAO also projects that the general fund contribution to Proposition 98 funding over that period will only increase to $49.1 billion due to expected increases in property tax revenues. The LAO also notes that under its current forecast the State will be unable to meet the time frame it set for full implementation of the LCFF. By , the LAO forecasts that the State can only fund approximately 90% of the full LCFF cost. See DISTRICT FINANCIAL MATTERS State Funding of Education herein. Additional information regarding the Fiscal Outlook Report may be obtained from the LAO at However, such information is not incorporated herein by any reference. Governor s Proposed Budget. On January 9, 2014, the Governor released the Proposed Budget. The LAO has released two reports summarizing the provisions of the Proposed Budget, entitled Budget: Overview of the Governor s Budget and The Budget: Proposition 98 Education Analysis. The following information is drawn from such reports. The Proposed Budget projects that, for fiscal years and combined, general fund revenues and transfers will be $4.8 billion higher than that projected by the Budget. In addition, the Proposed Budget provides for a $558 million upward fund balance adjustment to the ending balance for fiscal year , and certain other prior years, related mainly to revenue accruals. The Proposed Budget assumes that the current economic recovery will accelerate in fiscal year , leading to broad-based improvements in the State and federal economies. As a result, the Proposed Budget projects that State general fund revenues will exceed expenditures over the next three fiscal years, resulting in a projected general fund surplus of $2.3 billion by fiscal year The Proposed Budget assumes, for fiscal year , total general fund revenues of $100.1 billion and total expenditures of $98.5 billion. The State is projected to end the fiscal year with a general fund surplus of $3 billion. For fiscal year , the Proposed Budget assumes total general fund revenues of $106.1 billion (including the deposit to the Budget Stabilization Account discussed herein) and authorizes expenditures of $106.8 billion. The State is projected to end the fiscal year with a $2.3 billion general fund surplus. This projected reserve is a combination of $693 million in the State s general fund traditional reserve, and an authorized deposit of $1.6 billion into the Budget Stabilization Account (the BSA ) established by the California Balanced Budget Act of 2004 (also known as Proposition 58). The Proposed Budget provides an $11.8 billion total increase in Proposition 98 spending over three fiscal years. Of this amount, $3.7 billion is retroactively allocated to fiscal years and , resulting in revisions to the Proposition 98 minimum funding guarantee for these years. For fiscal year , the guarantee is revised at $58.3 billion, an increase of $1.9 billion over the level set by the fiscal year budget. The increase is due to higher State general fund revenues and an increase in baseline property tax revenues. For fiscal year , the Proposition 98 minimum funding guarantee is revised to $56.8 billion, an increase of $1.5 billion over the prior level. This increase is due to the adjustment to the fiscal year minimum funding guarantee, as well as a higher year-to-year growth in per capital general fund revenues. For both fiscal years, the Proposed Budget allocates the bulk of the increased funding to retire outstanding K-12 apportionment deferrals, as further discussed herein. For fiscal year , the Proposed Budget sets the minimum funding guarantee at $61.6 billion, including $45.1 billion from the general fund. This reflects an increase of $4.7 billion, or 8%, from the revised level for fiscal year The increase is driven by a strong year-to-year growth in general fund revenues and increases in property tax collections. With respect to K-12 education, total funding is set at $54.3 billion, 53

60 including $40.1 billion from the general fund. This represents an increase of $4.3 billion, or 9%, from the prior year. Overall, K-12 per-student funding would increase from $7,936 in fiscal year to $8,724 in fiscal year , an increase of $788 (or 10%). Significant proposals or adjustments with respect to K-12 education funding include the following: Repayment of K-12 Deferrals. $2.2 billion in fiscal year Proposition 98 funding which, together with the $3.3 billion from increased funding allocable to fiscal years and (as discussed above), would be used to eliminate all remaining outstanding K-12 apportionment deferrals. Local Control Funding Formula. $4.5 billion of Proposition 98 funding to school districts and charter schools to continue the implementation of the LCFF, reflecting an increase of 11% from the prior year. This amount is estimated to close approximately 28% of the remaining funding gap between fiscal year funding levels and the full LCFF implementation rates. The Proposed Budget would also add two categorical programs (specialized secondary programs and agricultural education grants) to the LCFF. Under the Governor s proposal, school districts receiving funds for these two programs in fiscal year would have those funds counted towards their LCFF allocations beginning in fiscal year The Proposed Budget also provides an increase of $26 million of Proposition 98 funding to fully implement the LCFF funding rates for county offices of education. Finally, the Governor proposes statutory language that would require that a percentage of annual Proposition 98 funding automatically be dedicated to the LCFF each year. Increases in LCFF funding beyond the prior-year appropriation are currently made at the discretion of the Legislature and must be approved in the annual budget. Specifically, the Proposed Budget would require that, in fiscal year , 76% of Proposition 98 funding would be required to go towards the LCFF. Beginning in fiscal year , and until the LCFF target rates are fully funded, 79% of Proposition 98 funding would go towards the LCFF. Other Outstanding State Debt. The Proposed Budget makes a final payment $316 million required by the Quality Education Investment Act of 2006, which implemented the terms of a legal settlement requiring funding for low-performing schools and community college districts for career technical education. The Proposed Budget also provides $188 million to fund a required deposit to the State Emergency Repair Program. Student Assessments. An increase of $46 million in Proposition 98 funding to reflect the increased cost of administering new standardized tests aligned to the Common Core State Standards ( CCSS ). The Proposed Budget also provides $7.6 million to develop a new English proficiency exam aligned with the CCSS. Categorical Programs. $33 million to support a 0.86% COLA for K-12 categorical programs outside of the LCFF, including the Special Education, Child Nutrition, American Indian Education Centers, and American Indian Early Childhood Education Programs. Budgetary Stabilization Account. As part of the Proposed Budget, the Governor proposes a constitutional amendment to strengthen existing provisions of law that require the State to adopt a balanced budget in each year and deposit a portion of State general fund revenues into the BSA. The Proposed Budget would increase the size of the required deposit to the BSA to 10% of estimated general fund revenues. The Governor s proposal would use capital gains-related revenues the principal source of State revenue volatility to determine the required deposit. In addition, the Proposed Budget would create a dedicated Proposition 98 reserve with the BSA to smooth out yearto-year school spending. The deposit to this dedicated reserve would be based on increases to the Proposition 98 minimum funding guarantee in each year caused by increases in capital gains revenues. This reserve deposit would count towards the guarantee in each year, resulting in less total 54

61 appropriations to school districts and community college districts. In years where the growth in the minimum funding guarantee is insufficient to cover any specified growth or required COLAs, funds from the reserve would be applied. For any portion of the BSA outside of the Proposition 98 reserve, the Proposed Budget would places limits on the amounts that could be withdrawn in the first year of a revenue downturn. Proposition 39. A $101 million reduction in funding for Proposition 39 energy projects, stemming from lower-than-projected corporate tax revenue collections. To accommodate the reduction, the Proposed Budget provides no additional funding in fiscal year for the revolving loan program and reduces school district and community college district grants by $65 million and $8 million, respectively. School Facilities Funding. The Proposed Budget authorizes the transfer of $211 million of remaining State bonding authority from four targeted school facility programs to the school facility core new construction and modernization programs. The Proposed Budget also dedicates $188 million of onetime Proposition 98 funding to the State s Emergency Repair Program to provide grants or reimbursement to local educational agencies for the cost of repairing or replacing building systems that pose a health and safety threat to students and staff at eligible school sites. Redevelopment Agency Revenues. The Proposed Budget revises the projected collection of passthrough tax increment revenues for fiscal year ; the Proposed Budget now projects such collections will be $405 million lower than previously estimated. The Governor anticipates that court rulings will delay the distribution of some redevelopment agency assets that were assumed to provide State general fund savings in fiscal year For additional information regarding the State s Proposed Budget, see the State Department of Finance website at and the LAO s website at However, the information presented on such websites is not incorporated herein by reference. Litigation Regarding Dissolution of Redevelopment Agencies. On July 18, 2011, the California Redevelopment Association, the League of California Cities, and the Cities of Union City and San Jose filed petition for a writ of mandate (the CRA Petition ) with the Supreme Court of California alleging that ABx1 26 and ABx1 27 violated the California Constitution, as amended by Proposition 22. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING SCHOOL DISTRICT REVENUES Proposition 1A and Proposition 22. The petitioners alleged, among other things, that ABx1 26 and ABx1 27 sought to illegally divert tax increment revenue from redevelopment agencies by threatening such agencies with dissolution if payments are not made to support the State s obligation to fund education. On December 29, 2011, the Supreme Court upheld the legality of ABx1 26, reasoning that the Legislature has broad powers to establish or dissolve local agencies as it sees fit. The Court, however, invalidated ABx1 27 on the grounds that the payments required of redevelopment agencies in order to remain in existence could not be characterized as voluntary, and thus violated Proposition 22. As a result, all redevelopment agencies in the State were dissolved effective February 1, 2012 and their affairs are being wound down by successor agencies; in most cases, the city or county in which such redevelopment agencies were located. The State has projected that the dissolution of redevelopment agencies will result in reduced State contributions required under Proposition 98 and thus savings to the State. These savings may be delayed or reduced as a result of litigation that has been brought by a number of successor agencies. 55

62 Future Actions The District cannot predict what actions will be taken in the future by the State legislature and the Governor to address changing State revenues and expenditures. The District also cannot predict the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions or results could produce a significant shortfall of revenue and cash, and could consequently impair the State s ability to fund schools. Continued State budget shortfalls in future fiscal years may also have an adverse financial impact on the financial condition of the District. Litigation Challenging Method of School Financing In Robles-Wong, et al. v. State of California (Alameda County Superior Court, Case No. RG ), plaintiffs challenge the state s education finance system as unconstitutional. Plaintiffs, consisting of 62 minor school children, various school districts, the California Association of School Administrators and the California School Boards Association, allege the state has not adequately fulfilled its constitutional obligation to support its public schools, and seek an order enjoining the state from continuing to operate and rely on the current financing system and to develop a new education system that meets constitutional standards as declared by the court. In a related matter, Campaign for Quality Education et al. ( CQE ) v. State of California (Alameda County Superior Court, Case No. RG ), plaintiffs also challenge the constitutionality of the State s education finance system. The court issued a ruling that there was no constitutional right to a particular level of school funding. The court allowed plaintiffs to amend their complaint with respect to alleged violation of plaintiffs right to equal protection. Both of these cases were dismissed by the trial court and the plaintiffs have appealed the rulings. The District cannot predict the outcome of this litigation or its possible impact on the District s financial condition. BANK QUALIFIED OBLIGATIONS The District has designated the 2014 Bonds as qualified tax-exempt obligations, thereby allowing certain financial institutions that are holders of such qualified tax-exempt obligations to deduct a portion of such institution s interest expense allocable to such qualified tax-exempt obligations, all as determined in accordance with Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. Tax Matters LEGAL MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2014 Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2014 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2014 Bonds may be included as an adjustment in calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. 56

63 In the opinion of Bond Counsel, the difference between the issue price of a 2014 Bond (the first price at which a substantial amount of the 2014 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2014 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner s basis in the applicable 2014 Bond. The amount of original issue discount that accrues to the Beneficial Owner of the 2014 Bonds is excluded from the gross income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. Bond Counsel s opinion as to the exclusion from gross income for federal income tax purposes of interest on the 2014 Bonds (including any original issue discount) is based upon certain representations of fact and certifications made by the District, the Underwriter and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the Code ) that must be satisfied subsequent to the issuance of the 2014 Bonds to assure that interest on the 2014 Bonds (including any original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2014 Bonds (including any original issue discount) to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2014 Bonds. The District will covenant to comply with all such requirements. The amount by which a Beneficial Owner s original basis for determining loss on sale or exchange in the applicable 2014 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the Beneficial Owner s basis in the applicable 2014 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a Beneficial Owner realizing a taxable gain when a 2014 Bond is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2014 Bond to the Beneficial Owner. Purchasers of the 2014 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the 2014 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2014 Bonds might be affected as a result of such an audit of the 2014 Bonds (or by an audit of similar bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2014 Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2014 Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE 2014 BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE INTEREST ON THE 2014 BONDS OR THE MARKET VALUE OF THE 2014 BONDS. LEGISLATIVE CHANGES HAVE BEEN PROPOSED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME TAX BEING IMPOSED ON CERTAIN OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2014 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2014 BONDS. NO ASSURANCE CAN BE GIVEN THAT, SUBSEQUENT TO THE EXECUTION AND DELIVERY OF THE 2014 BONDS, SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 2014 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR 57

64 JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2014 BONDS. Bond Counsel s opinion may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Bond Resolution and the Tax Certificate relating to the 2014 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) with respect to any 2014 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel will render an opinion that interest on the 2014 Bonds (including any original issue discount) is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the accrual or receipt of interest on the 2014 Bonds (including any original issue discount) may otherwise affect the tax liability of the recipient. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the 2014 Bonds. Verification A copy of the proposed form of opinion of Bond Counsel for the 2014 Bonds is attached in Appendix A. Upon delivery of the 2014 Bonds, Causey Demgen & Moore P.C. will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to it by the Underwriter relating to the adequacy of the amounts in the Escrow Fund to pay the redemption price and premium of, and interest on, the 2004 Bonds to be refunded. CONTINUING DISCLOSURE In connection with the issuance of the 2014 Bonds, the District will covenant for the benefit of bondholders (including Beneficial Owners of the 2014 Bonds) to provide certain financial information and operating data relating to the District (the Annual Reports ) by not later than February 1 following the end of the District s fiscal year (which currently ends June 30), commencing with the report for fiscal year 2014, and to provide notices of the occurrence of certain enumerated events. The Annual Reports and notices of enumerated events will be filed by the District in accordance with the requirements of Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ). The specific nature of the information to be contained in the Annual Reports or the notices of enumerated events is included in Appendix C FORM OF CONTINUING DISCLOSURE AGREEMENT attached hereto. These covenants have been made in order to assist the Underwriter in complying with the Rule. In recent years, the District has utilized the services of a dissemination agent to assist it with complying with its continuing disclosure undertakings. A third-party review of the District s compliance with its continuing disclosure undertakings was conducted in April 2014 and it was found that over the past five years the District had timely filed its Annual Reports but was untimely in filing certain notices of rating change resulting from downgrades and upgrades to various municipal bond insurers insuring certain of the District s obligations. The District believes that it is now current in all of its required filings with respect to its previous continuing disclosure undertakings. 58

65 MISCELLANEOUS Ratings Upon delivery of the Policy, Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ) will assign the 2014 Bonds the rating of AA. See BOND INSURANCE herein. In addition, S&P has assigned the underlying rating of A+ to the 2014 Bonds independent of the delivery of the Policy. The ratings reflect only the views of such organization and an explanation of the significance of such ratings may be obtained from S&P. Generally, a rating agency bases its ratings on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that the ratings for the 2014 Bonds will continue for any given period of time or that any such ratings will not be revised downward or withdrawn entirely by a rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the 2014 Bonds. Underwriting The 2014 Bonds are being purchased by Piper Jaffray & Co. (the Underwriter ). The Underwriter has agreed to purchase the 2014 Bonds pursuant to a Bond Purchase Contract with the District (the Purchase Contract ) at the initial purchase price of $7,786, (being equal to the aggregate principal amount of the 2014 Bonds, less an Underwriter s discount of $72,850.00, plus an original issue premium of $574,487.30). The Purchase Contract provides that the Underwriter will purchase all of the 2014 Bonds if any are purchased and that the obligation to make such purchase is subject to certain terms and conditions set forth in the Purchase Contract. The Underwriter may offer and sell the 2014 Bonds to certain dealers and others at prices lower than the offering prices stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriter. Audited Financial Statements The District s audited financial statements for fiscal year included in this Official Statement have been audited by Nigro & Nigro, PC (the Auditor ), independent auditors. Attention is called to the scope limitation described in the Auditor s report accompanying the financial statements. The Auditor has not been requested to consent to the inclusion of its report in this Official Statement. The Auditor has not undertaken to update the audited financial statements for fiscal year or its report, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated December 13, See Appendix B DISTRICT S AUDITED FINANCIAL STATEMENTS herein. Financial Interests The fees being paid to the Underwriter and Bond Counsel are contingent upon the issuance and delivery of the 2014 Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the 2014 Bonds. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to purchasers of the 2014 Bonds. Quotations from and summaries and explanations of the 2014 Bonds and of the statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions. 59

66 Piper Jaffray & Co. is acting as the Underwriter of the 2014 Bonds and has received a variety of District reports. These reports include audits and budgets. Any 2014 Bond Owner may obtain copies of such reports, as available, from the District at 350 Brookside Avenue, Beaumont, California The District may impose a charge for copying, mailing and handling. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the 2014 Bonds. The delivery of this Official Statement has been duly authorized by the District. BEAUMONT UNIFIED SCHOOL DISTRICT By: /s/ Maureen E. Latham Superintendent S-1

67 APPENDIX A FORM OF OPINION OF BOND COUNSEL On the date of issuance of the 2014 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to issue its approving opinion relating to the 2014 Bonds in substantially the following form: June 4, 2014 Honorable Members of the Board of Trustees Beaumont Unified School District Beaumont, California Re: $7,285,000 Beaumont Unified School District (Riverside County, California) 2014A General Obligation Refunding Bonds (Election of 1998) (Bank Qualified) Dear Honorable Members of the Board of Trustees: We have examined the Constitution and the laws of the State of California, a certified record of the proceedings of the Beaumont Unified School District (the District ) taken in connection with the authorization and issuance of the District s 2014A General Obligation Refunding Bonds (Election of 1998) (Bank Qualified), in the aggregate principal amount of $7,285,000 (the 2014A Bonds ), and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the County of Riverside (the County ), the District, the initial purchaser of the 2014A Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The 2014A Bonds have been issued by the District pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California and pursuant to a resolution adopted by the Board of Trustees of the District on April 8, 2014 (the 2014A Bond Resolution ). The 2014A Bonds mature on the dates and in the amounts referenced in the 2014A Bond Resolution. The 2014A Bonds are dated their date of delivery and bear interest payable semiannually on each March 1 and September 1, commencing September 1, 2014, at the rates per annum referenced in the 2014A Bond Resolution. The 2014A Bonds are registered bonds as set forth in the 2014A Bond Resolution. Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The 2014A Bonds have been duly and validly authorized and constitute the legal, valid and binding obligations of the District enforceable in accordance with the terms of the 2014A Bond Resolution, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by limitations on legal remedies against public agencies in the State of California. The 2014A Bonds are obligations of the District but are not a debt of the County, the State of California or any other political subdivision thereof within the meaning of any constitutional or statutory limitation, and neither the faith and credit nor the taxing power of the County, the State of California, or any such political subdivisions is pledged for the payment thereof. A-1

68 (2) The 2014A Bond Resolution has been duly adopted by the Board of Trustees of the District and constitutes the legal, valid and binding obligation of the District. The 2014A Bond Resolution is enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws relating to or affecting generally the enforcement of creditors rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by limitations on legal remedies against public agencies in the State of California, provided, however, we express no opinion as to the enforceability of provisions of the 2014A Bond Resolution as to indemnification, penalty, contribution, choice of law, choice of forum or waiver contained therein. (3) The 2014A Bonds are secured by the proceeds of ad valorem taxes levied upon taxable property in the District on which the Board of Supervisors of the County and the Board of Supervisors of the County of San Bernardino have the power to levy and are obliged by statute to levy without limit as to rate or amount (except as to certain personal property which is taxable at limited rates) for payment of the 2014A Bonds and the interest thereon. (4) Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) on the 2014A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations, such interest (and original issue discount) may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. (5) Interest (and original issue discount) on the 2014A Bonds is exempt from State of California personal income tax. (6) The difference between the issue price of a 2014A Bond (the first price at which a substantial amount of the 2014A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2014A Bond (to the extent the redemption price at maturity is more than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2014A Bond owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2014A Bond owner will increase the 2014A Bond owner s basis in the applicable 2014A Bond. Original issue discount that accrues for the 2014A Bond owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph 4 above) and is exempt from State of California personal income tax. (7) The amount by which a 2014A Bond owner s original basis for determining loss on sale or exchange in the applicable 2014A Bond (generally the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the Code ); such amortizable bond premium reduces the bond owner s basis in the applicable 2014A Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2014A Bond owner realizing a taxable gain when a 2014A Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the 2014A Bond to the owner. The opinions expressed in paragraphs (4) and (6) above as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2014A Bonds are subject to the condition that the District complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the 2014A Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2014A Bonds to be included in gross income for A-2

69 federal income tax purposes retroactive to the date of issuance of the 2014A Bonds. The District has covenanted to comply with all such requirements. Except as set forth in paragraphs (4), (5), (6) and (7) above, we express no opinion as to any tax consequences related to the 2014A Bonds. Certain agreements, requirements and procedures contained or referred to in the 2014A Bond Resolution and the Tax Certificate executed by the District with respect to the 2014A Bonds may be changed and certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax exempt obligations. We express no opinion as to the effect on exclusion from gross income for federal income tax purposes of the interest (and original issue discount) on any 2014A Bonds if any such change occurs or action is taken or omitted upon advice or approval of bond counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. The opinions expressed herein and the exclusion of interest on the 2014A Bonds from gross income for federal income tax purposes may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement as bond counsel to the District terminates upon the issuance of the 2014A Bonds. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2014A Bonds or other offering material relating to the 2014A Bonds and expressly disclaim any duty to advise the owners of the 2014A Bonds with respect to matters contained in the Official Statement. Respectfully submitted, A-3

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71 APPENDIX B DISTRICT S AUDITED FINANCIAL STATEMENTS B-1

72 BEAUMONT UNIFIED SCHOOL DISTRICT AUDIT REPORT For the Fiscal Year Ended June 30, 2013

73 BEAUMONT UNIFIED SCHOOL DISTRICT For the Fiscal Year Ended June 30, 2013 Table of Contents FINANCIAL SECTION Page Independent Auditors Report... 1 Management s Discussion and Analysis... 3 Basic Financial Statements: Government wide Financial Statements: Statement of Net Position Statement of Activities Governmental Funds Financial Statements: Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Fiduciary Fund Financial Statement: Statement of Net Position Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule General Fund Schedule of Funding Progress Notes to the Required Supplementary Information SUPPLEMENTARY INFORMATION Local Educational Agency Organization Structure Schedule of Average Daily Attendance Schedule of Instructional Time Schedule of Financial Trends and Analysis Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial and Budget Report with Audited Financial Statements Note to the Supplementary Information... 48

74 BEAUMONT UNIFIED SCHOOL DISTRICT For the Fiscal Year Ended June 30, 2013 Table of Contents OTHER INDEPENDENT AUDITORS REPORTS Page Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors' Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Independent Auditors Report on State Compliance FINDINGS AND QUESTIONED COSTS Schedule of Audit Findings and Questioned Costs: Summary of Auditors Results Current Year Audit Findings and Questioned Costs Summary Schedule of Prior Audit Findings Management Letter... 60

75 Financial Section

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77 INDEPENDENT AUDITORS REPORT Board of Trustees Beaumont Unified School District Beaumont, California We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Beaumont Unified School District, as of and for the fiscal year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and Standards and Procedures for Audits of California K 12 Local Educational Agencies Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Beaumont Unified School District, as of June 30, 2013, and the respective changes in financial position thereof for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America. 1

78 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 3 through 10, budgetary comparison information on page 39, and schedule of funding progress on page 40 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Beaumont Unified School District s basic financial statements. The other supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. The other supplementary information listed in the table of contents, including the Schedule of Expenditures of Federal Awards, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 13, 2013 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. December 13,

79 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 This discussion and analysis of Beaumont Unified School District s financial performance provides an overview of the District s financial activities for the fiscal year ended June 30, Please read it in conjunction with the District s financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS The District s net position of governmental activities decreased 0.7% over the course of the year. Overall revenues were $71.3 million, $0.3 million less than expenses. The total cost of basic programs was $71.6 million. Because a portion of these costs was paid for with charges, fees, and intergovernmental aid, the net cost that required taxpayer funding was just $56.0 million. The District increased its outstanding long term debt $0.6 million or 0.8%. This was primarily due to an increase in other postemployment benefits and accreted interest on capital appreciation bonds. Average daily attendance (ADA) in grades K 12 increased by 192, or 2.3%. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts management discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are district wide financial statements that provide both short term and longterm information about the District s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District s operations in more detail than the district wide statements. The governmental funds statements tell how basic services like regular and special education were financed in the short term as well as what remains for future spending. Fiduciary funds statement provides information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others to whom the resources belong. Figure A 1. Organization of Beaumont Unified School District s Annual Financial Report The financial statements also include notes that explain some of the information in the statements and provide more detailed data. Figure A 1 shows how the various parts of this annual report are arranged and related to one another. Management s Discussion and Analysis District Wide Financial Statements Basic Financial Information Fund Financial Statements Required Supplementary Information Notes to Financial Statements SUMMARY DETAIL 3

80 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 OVERVIEW OF THE FINANCIAL STATEMENTS (continued) Figure A 2 summarizes the major features of the District s financial statements, including the portion of the District s activities they cover and the types of information they contain. Figure A 2. Major Features of the District Wide and Fund Financial Statements Type of Statements District Wide Governmental Funds Fiduciary Funds Scope Entire District, except fiduciary activities Required financial statements Accounting basis and measurement focus Type of asset/liability information Type of inflow/outflow information Statement of Net Position Statement of Activities Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, short term and long term All revenues and expenses during year, regardless of when cash is received or paid The activities of the District that are not proprietary or fiduciary, such as special education and building maintenance Balance Sheet Statement of Revenues, Expenditures & Changes in Fund Balances Modified accrual accounting and current financial resources focus Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter Instances in which the District administers resources on behalf of someone else, such as scholarship programs and student activities monies Statement of Net Position Accrual accounting and economic resources focus All assets and liabilities, both short term and longterm; The District s funds do not currently contain non financial assets, though they can All revenues and expenses during the year, regardless of when cash is received or paid The remainder of this overview section of management s discussion and analysis highlights the structure and contents of each of the statements. District Wide Statements The district wide statements report information about the District as a whole using accounting methods similar to those used by private sector companies. The statement of net position includes all of the District s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two district wide statements report the District s net position and how it has changed. Net Position the difference between the District s assets and liabilities is one way to measure the District s financial health or position. 4

81 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 OVERVIEW OF THE FINANCIAL STATEMENTS (continued) District Wide Statements (continued) Over time, increases and decreases in the District s net position are an indicator of whether its financial position is improving or deteriorating. To assess the overall health of the District, you need to consider additional non financial factors such as changes in the District s property tax base and the condition of school buildings and other facilities. In the district wide financial statements, the District s activities are categorized as Governmental Activities. Most of the District s basic services are included here, such as regular and special education, transportation, and administration. Property taxes and state formula aid finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the District s most significant funds not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by State law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (like repaying its long term debt) or to show that it is properly using certain revenues. The District has two kinds of funds: Governmental funds Most of the District s basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year end that are available for spending. Consequently, the governmental funds statements provide a detailed short term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long term focus of the districtwide statements, we provide additional information on a separate reconciliation page that explains the relationship (or differences) between them. Fiduciary funds The District is the trustee, or fiduciary, for assets that belong to others, namely, the student activities funds. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District s fiduciary activities are reported in a separate statement of fiduciary net position. We exclude these activities from the district wide financial statements because the District cannot use these assets to finance its operations. 5

82 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Position. The District s combined net position was lower on June 30, 2013, than it was the year before decreasing 0.7% to $197.3 million (See Table A 1). Table A 1 Variance Governmental Activities Increase * (Decrease) Current assets $ 58,055,525 $ 62,108,630 $ (4,053,105) Non current assets 1,821,473 1,906,993 (85,520) Capital assets 216,472, ,482,897 2,989,895 Total assets 276,349, ,498,520 (1,148,730) Current liabilities 2,311,346 4,007,131 (1,695,785) Long term liabilities 76,694,472 75,831, ,882 Total liabilities 79,005,818 79,838,721 (832,903) Net position Net investment in capital assets 169,955, ,424,369 2,530,739 Restricted 12,941,106 15,049,904 (2,108,798) Unrestricted 14,447,758 15,185,526 (737,768) Total net position $ 197,343,972 $ 197,659,799 $ (315,827) * As restated Changes in net position, governmental activities. The District s total revenues decreased 16.4% to $71.3 million (See Table A 2). The decrease is due primarily to a $10.7 million state school facilities grant received in , which was only $1.3 million in The total cost of all programs and services decreased 5.7% to $71.6 million. The District s expenses are predominantly related to educating and caring for students, 69.6%. The purely administrative activities of the District accounted for just 6.2% of total costs. A significant contributor to the decrease in costs was the end of multiple construction projects. Table A 2 Variance Governmental Activities Increase (Decrease) Total Revenues $ 71,284,703 $ 85,262,967 $ (13,978,264) Total Expenses 71,600,530 75,931,997 (4,331,467) Increase (decrease) in net positions $ (315,827) $ 9,330,970 $ (9,646,797) 6

83 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The financial performance of the District as a whole is reflected in its governmental funds as well. As the District completed this year, its governmental funds reported a combined fund balance of $56.4 million, which is below last year s ending fund balance of $59.2 million. The primary cause of the decreased fund balance is the capital outlay expenditures from Measure "Z" bond funds. General Fund Budgetary Highlights Over the course of the year, the District revised the annual operating budget several times. The major budget amendments fall into these categories: Revenues increased by approximately $5.2 million due to the District expecting to receive additional federal, state, and local funds. Expenditures increased by $5.9 million primarily due to certificated salaries and operating expenses. Other non capital expenditures increased by $2.0 million to rebudget carryover funds and revise operational cost estimates. The District's final budget for the General Fund was adjusted to actual so that anticipated revenues exceeded expenditures by about $0.8 million. CAPITAL ASSET AND DEBT ADMINISTRATION By the end of the District had invested $7.4 million in new capital assets, related to the District s ongoing modernization program. (More detailed information about capital assets can be found in Note 6 to the financial statements). Total depreciation expense for the year exceeded $4.3 million. Table A 3: Capital Assets at Year End, net of depreciation Governmental Activities (In millions) Variance Increase (Decrease) Land $ 30.8 $ 30.8 $ Improvement of sites (1.2) Buildings (2.7) Equipment (0.3) Construction in progress Total $ $ $ 2.9 Long Term Debt At year end the District had $76.7 million in general obligation bonds, certificates of participation, early retirement incentives, postemployment benefits, and compensated absences an increase of 0.8% from last year as shown in Table A 4. (More detailed information about the District s long term liabilities is presented in Note 7 to the financial statements). 7

84 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 CAPITAL ASSET AND DEBT ADMINISTRATION (continued) Table A 4: Outstanding Long Term Debt at Year End Governmental Activities (In millions) Variance Increase * (Decrease) General obligation bonds $ 66.6 $ 65.9 $ 0.7 Certificates of participation (0.3) Compensated absences Early retirement incentive (0.3) Other postemployment benefits Total $ 76.7 $ 76.1 $ 0.6 *As restated FACTORS BEARING ON THE DISTRICT S FUTURE Budget Overview The final budget package was signed by the Governor on June 27, Notably, aside from one action to correct a technical error in the Franchise Tax Board budget, the Governor did not use his line item veto authority to reduce or eliminate non Proposition 98 General Fund spending. The Governor did, however, reduce spending from other funds by $5.6 million. The state spending plan assumes total budget expenditures of $138.3 billion from the General Fund and special funds, an increase of 3 percent over This consists of $96.3 billion from the General Fund and Education Protection Account created by Proposition 30 (2012), as well as $42 billion from special funds. The budget estimates that spending from federal funds in will total $87.6 billion, an increase of 7.7 percent over The administration s May Revision estimates of revenues were about $2.3 billion higher than when the spending plan was adopted last year. These higher revenues result in $2.5 billion in additional expenditures under the Proposition 98 minimum funding guarantee for K 14 education. In addition, higher expenditures in other areas contributed to the estimated General Fund ending balance being about $694 million lower than was assumed in the spending plan. Nevertheless, under the spending plan would end with a $254 million reserve, the first such year end positive balance in the reserve since The spending plan assumes General Fund and Education Protection Account revenues of $97.1 billion and expenditures of $96.3 billion. The resulting $817 million operating surplus combined with the $254 million positive ending balance for produce an estimated $1.1 billion reserve for Major Spending Changes For K 12 education, the largest augmentation ($2.1 billion) is for implementing the Local Control Funding Formula (LCFF) for school districts. Other major K 12 augmentations include $406 million in grants and loans for energy projects, an additional $250 million on a one time basis for the Common Core State Standards initiative, $250 million on a one time basis for a new Career Pathways program, $50 million to augment the mandate block grant, $32 million to implement the LCFF for county offices of education (COEs), and $10 million to establish the California Collaborative for Educational Excellence (CCEE) to provide low performing school districts with academic assistance. 8

85 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 FACTORS BEARING ON THE DISTRICT S FUTURE (continued) Major Spending Changes (continued) The budget also further pays down K 12 deferrals. Additionally, the budget includes a 1.57 percent cost of living adjustment (COLA) for certain K 12 categorical programs. The budget includes a slight increase to reflect 0.2 percent growth in K 12 ADA. The budget also provides a $26 million (5 percent) increase to the part day/part year State Preschool program to support approximately 7,100 new preschool slots. In , despite fewer overall resources compared to , much less funding is designated for paying down deferrals. This frees up funds in that can be used for other purposes. In total, the budget includes a $2.6 billion increase in K 12 ongoing funding. Ongoing funding per student (as measured by ADA) increases from $7,590 in to $8,005 in an increase of $415 (5.5 percent). LCFF for School Districts and Charter Schools The budget package includes a major restructuring of the state s funding system for school districts and charter schools. The new LCFF system replaces existing funding formulas for revenue limits and most categorical programs with a weighted student funding formula. Over the course of implementation, districts will receive additional funding to reduce the same share of the gap between their existing per pupil funding rates and their targets under the LCFF. Full implementation of the LCFF is expected to take eight years (with full implementation in ) and cost $18 billion (not accounting for future COLA costs). The Budget Act provides first year funding of $2.1 billion. This is expected to close 12 percent of each district s gap. Deferral Paydowns After four consecutive years of increasing the amount of deferrals for schools and community colleges reaching a total of $10.4 billion in outstanding deferrals by the end of the budget plan provided $2.2 billion to reduce the amount of outstanding deferrals. The recently enacted budget plan makes an additional $1.8 billion in deferral paydowns as well as $272 million in paydowns in Under the budget package, $6.2 billion in outstanding deferrals remain as of the end of Common Core Implementation The budget plan provides $1.25 billion in one time funding to schools for implementation of the CCSS. (Of this amount, the budget plan counts $1 billion towards meeting the minimum guarantee and $250 million towards meeting the guarantee.) The CCSS are nationally developed standards for math and English/Language Arts that the state adopted in Under current law, schools are required to align instruction to the CCSS beginning in The $1.25 billion in CCSS funding must be spent in or for professional development, instructional materials, and technology that assist schools in aligning instruction to the CCSS. Local governing boards are required in a series of public meetings to discuss and adopt a plan for spending the funds and must report how the funds were spent to the California Department of Education (CDE) by July 1, Proposition 39 Passed by the voters in November 2012, Proposition 39 increases state corporate tax revenues and requires for a five year period, starting in , that a portion of these revenues be used to improve energy efficiency and expand the use of alternative energy in public buildings. 9

86 BEAUMONT UNIFIED SCHOOL DISTRICT Management s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2013 FACTORS BEARING ON THE DISTRICT S FUTURE (continued) Adult Education In an effort to improve coordination among adult education providers, the budget provides $25 million (Proposition 98 General Fund) for a new Adult Education Consortium Program. School districts and community colleges that form a regional consortium are eligible to apply for these funds. In a related action, the budget package eliminates school districts adult education categorical program and consolidates all associated annual funding ($635 million Proposition 98 General Fund) into the school district LCFF. The budget package, however, contains a requirement for school districts (through their adult schools) to maintain at least their level of state spending on adult education in and New Career Pathways Program The budget provides $250 million in one time Proposition 98 funding to create a California Career Pathways Trust. The primary purpose of the new program is to improve linkages between career technical (vocational) programs at schools and community colleges as well as between K 14 education and local businesses. The program authorizes several types of activities, such as creating new technical programs and curriculum. Special Education The budget package makes three notable changes to special education funding. First, the package simplifies the state s approach to distributing funding to special education local plan areas (SELPAs) by delinking state and federal special education allocation formulas. A conforming change revises the statewide target rate used to fund new students to the updated statewide average per pupil funding rate. Second, the budget provides $2.6 million in Proposition 98 funds to fully offset federal sequestration funding cuts for preschoolers and infants/toddlers with disabilities and provides $2.1 million in federal carryover funds to partially mitigate federal sequestration funding cuts for K 12 students with disabilities. Third, the package consolidates 11 special education categorical grants into 5 larger grants. All of these factors were considered in preparing the Beaumont Unified School District budget for the fiscal year. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have any questions about this report or need additional financial information, contact: Carol Severns Assistant Superintendent, Business Services Beaumont Unified School District 350 Brookside Avenue Beaumont, California E Mail: cseverns@beaumontusd.k12.ca.us 10

87 BEAUMONT UNIFIED SCHOOL DISTRICT Statement of Net Position June 30, 2013 Total Governmental ASSETS Activities Current Assets: Cash $ 47,059,610 Accounts receivable 10,930,728 Inventories 44,051 Prepaid expenditures 21,136 Total current assets 58,055,525 Non current Assets: Unamortized debt issuance costs 1,821,473 Capital Assets: Non depreciable assets 81,577,177 Depreciable assets 183,274,145 Less accumulated depreciation (48,378,530) Total capital assets, net of depreciation 216,472,792 Total Assets 276,349,790 LIABILITIES Current Liabilities: Accounts payable 2,152,600 Deferred revenue 158,746 Total current liabilities 2,311,346 Long term Liabilities: Due within one year 1,506,800 Due after one year 75,187,672 Total long term liabilities 76,694,472 Total Liabilities 79,005,818 NET POSITION Net investment in capital assets 169,955,108 Restricted for: Capital projects 6,144,932 Debt service 2,789,251 Categorical and pupil services 4,006,923 Unrestricted 14,447,758 Total net position $ 197,343,972 The notes to financial statements are an integral part of this statement. 11

88 BEAUMONT UNIFIED SCHOOL DISTRICT Statement of Activities For the Fiscal Year Ended June 30, 2013 Program Revenues Net (Expense) Operating Capital Revenue and Charges for Grants and Grants and Changes in Functions/Programs Expenses Services Contributions Contributions Net Position Governmental Activities Instructional Services: Instruction $ 35,084,390 $ $ 4,764,340 $ 1,336,510 $ (28,983,540) Instruction Related Services: Supervision of instruction 1,609, ,527 (1,052,530) Instructional library, media and technology 583,183 6,319 (576,864) School site administration 4,818,112 82,315 (4,735,797) Pupil Support Services: Home to school transportation 1,375,359 28, ,023 (996,789) Food services 3,316, ,054 2,938, ,525 All other pupil services 3,024, ,592 (2,179,729) General Administration Services: Data processing services 754,725 4, (749,232) Other general administration 3,661,773 37, ,524 (3,171,927) Plant services 8,317, , ,773 (7,167,871) Ancillary services 522, (522,452) Community services 17,599 (17,599) Enterprise activities 28,228 (28,228) Interest on long term debt 3,997,143 (3,997,143) Other outgo 85, ,228 1,651,968 2,102,676 All other transfers 19,105 (19,105) Depreciation (unallocated) 4,385,130 (4,385,130) Total Governmental Activities $ 71,600,530 $ 2,375,579 $ 11,869,706 $ 1,336,510 (56,018,735) General Revenues: Property taxes 14,307,238 Federal and state aid not restricted to specific purpose 39,694,889 Interest and investment earnings 52,876 Interagency revenues 87,325 Miscellaneous 1,560,580 Total general revenues 55,702,908 Change in net position (315,827) Net position July 1, 2012, as originally restated 198,676,781 Adjustment for restatement (1,016,982) Net position July 1, 2012, as adjusted 197,659,799 Net Position June 30, 2013 $ 197,343,972 The notes to financial statements are an integral part of this statement. 12

89 BEAUMONT UNIFIED SCHOOL DISTRICT Balance Sheet Governmental Funds June 30, 2013 Non Major Total General Building Governmental Governmental Fund Fund Funds Funds ASSETS Cash $ 13,488,434 $ 21,787,657 $ 11,783,519 $ 47,059,610 Accounts receivable 10,098,336 16, ,006 10,795,628 Due from other funds 326, , ,673 Inventories 44,051 44,051 Prepaid expenditures 21,136 21,136 Total Assets $ 23,934,492 $ 21,803,948 $ 12,758,658 $ 58,497,098 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 959,870 $ 317,328 $ 35,421 $ 1,312,619 Due to other funds 250, , ,673 Deferred revenue 158, ,746 Total Liabilities 1,368, , ,977 2,048,038 Fund Balances Nonspendable 31,136 44,051 75,187 Restricted 1,252,115 21,486,620 11,601,856 34,340,591 Committed 750, ,774 Assigned 14,613,683 14,613,683 Unassigned 6,668,825 6,668,825 Total Fund Balances 22,565,759 21,486,620 12,396,681 56,449,060 Total Liabilities and Fund Balances $ 23,934,492 $ 21,803,948 $ 12,758,658 $ 58,497,098 The notes to financial statements are an integral part of this statement. 13

90 BEAUMONT UNIFIED SCHOOL DISTRICT Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2013 Total fund balances governmental funds $ 56,449,060 Amounts reported for assets and liabilities for governmental activities in the statement of net position are different from amounts reported in governmental funds because: In governmental funds, only current assets are reported. In the statement of net position, all assets are reported, including capital assets and accumulated depreciation. Capital assets at historical cost: 264,851,322 Accumulated depreciation: (48,378,530) Net: 216,472,792 In governmental funds, interest on long term debt is not recognized until the period in which it matures and is paid. In the government wide statement of activities, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was: (839,981) In governmental funds, debt issue costs are recognized as expenditures in the period they are incurred. In the government wide statements, debt issue costs are amortized over the life of the debt. Unamortized debt issue costs included on the statement of net position are: 1,821,473 In governmental funds, interest subsidies received from Build America Bonds are recognized in the period that they are received. In the government wide statements, they are recognized in the period that they are earned. 135,100 In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long term liabilities, are reported. Long term liabilities relating to governmental activities consist of: General obligation bonds 66,594,297 Certificates of participation payable 5,532,703 Net OPEB obligation 3,437,215 Early retirement incentive payable 667,424 Compensated absences payable 462,833 (76,694,472) Total net position governmental activities $ 197,343,972 The notes to financial statements are an integral part of this statement. 14

91 BEAUMONT UNIFIED SCHOOL DISTRICT Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2013 Non Major Total General Building Governmental Governmental REVENUES Fund Fund Funds Funds Revenue limit sources $ 44,221,163 $ $ $ 44,221,163 Federal sources 2,859,599 4,567,733 7,427,332 Other state sources 7,976,028 2,320,488 10,296,516 Other local sources 3,745,108 82,652 5,509,699 9,337,459 Total Revenues 58,801,898 82,652 12,397,920 71,282,470 EXPENDITURES Current: Instructional Services: Instruction 33,907,726 1,181,384 35,089,110 Instruction Related Services: Supervision of instruction 1,584, ,584,901 Instructional library, media and technology 583, ,183 School site administration 4,127, ,456 4,764,762 Pupil Support Services: Home to school transportation 1,357,914 70,409 1,428,323 Food services 4,208 3,337,145 3,341,353 All other pupil services 2,964,685 2,964,685 Ancillary services 522, ,784 Community services 17,599 17,599 Enterprise activities 28,228 28,228 General Administration Services: Data processing services 788, ,293 Other general administration 3,601,283 93,171 3,694,454 Plant services 6,580, ,603 6,980,769 Transfers of Indirect Costs (138,178) 138,178 Capital Outlay 1,683,856 2,669,434 4,213,153 8,566,443 Debt Service: Principal 181, , ,893 Interest 208,129 2,593,802 2,801,931 Total Expenditures 58,003,689 2,669,434 13,318,588 73,991,711 Excess (Deficiency) of Revenues Over (Under) Expenditures 798,209 (2,586,782) (920,668) (2,709,241) OTHER FINANCING SOURCES (USES) Interfund transfers in 1,224, ,082 1,474,508 Interfund transfers out (250,082) (1,224,426) (1,474,508) Total Other Financing Sources and Uses (250,082) 1,224,426 (974,344) Net Change in Fund Balances 548,127 (1,362,356) (1,895,012) (2,709,241) Fund Balances, July 1, ,017,632 22,848,976 14,291,693 59,158,301 Fund Balances, June 30, 2013 $ 22,565,759 $ 21,486,620 $ 12,396,681 $ 56,449,060 The notes to financial statements are an integral part of this statement. 15

92 BEAUMONT UNIFIED SCHOOL DISTRICT Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities For the Fiscal Year Ended June 30, 2013 Total net change in fund balances governmental funds $ (2,709,241) Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is: Expenditures for capital outlay 7,375,025 Depreciation expense (4,385,130) Net: 2,989,895 In governmental funds, repayments of long term debt are reported as expenditures. In the government wide statements, repayments of long term debt are reported as reduction of liabilities. Expenditures for repayment of the principal portion of long term debt were: 834,893 Accreted interest on capital appreciation bonds is not recognized as an expenditure in the fund financial statements. However, it is accrued as an expense in the government wide financial statements in the period that the interest accretes. (1,265,885) In governmental funds, postemployment benefits costs (OPEB) are recognized as expenditures in the period they are paid. In the government wide statements, OPEB costs are recognized in the period that they are incurred. The increase in the net OPEB liability at the end of the period was: (488,132) In governmental funds, debt issue costs are recognized as expenditures in the period they are incurred. In the government wide statements, issue costs are amortized over the life of the debt. The issue costs amortized for the period were: (85,520) In governmental funds, if debt is issued at a premium or discount, the premium or discount is recognized as an Other Financing Source or an Other Financing Use in the period that it is incurred. In the government wide statements, the premium or discount is amortized as interest over the life of the debt. Amortization of bond issue premium for the period is: 68,308 In governmental funds, interest on long term debt is recognized in the period that it becomes due. In the government wide statement of activities, it is recognized in the period that it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was: 2,363 Certain expenditures recognized in governmental funds relate to prior periods. Typical examples, in addition to compensated absences and interest on long term debt, are payments on structured legal settlements or retirement incentives paid over time. These expenditures are recognized in the government wide statement of activities in the period in which the obligations are first incurred, so they must not be recognized again in the current period. Expenditures relating to prior periods were: 349,558 In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid ). (12,066) Change in net position of governmental activities $ (315,827) The notes to financial statements are an integral part of this statement. 16

93 BEAUMONT UNIFIED SCHOOL DISTRICT Statement of Fiduciary Net Position June 30, 2013 Agency Funds Student Body Funds ASSETS Cash $ 242,595 Accounts receivable 418 Total Assets $ 243,013 LIABILITIES Due to student groups $ 243,013 Total Liabilities $ 243,013 The notes to financial statements are an integral part of this statement. 17

94 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The accompanying financial statements present the activities of Beaumont Unified School District and its component units, legally separate organizations for which the District is financially accountable. These component units are so intertwined with the District that they are, in substance, the same as the District and, therefore, are blended and reported as if they were part of the District. The District Board of Trustees also serves as the governing board for the Beaumont Unified School District Public Facilities Corporation. Although the board members of the Corporation are appointed by the District Board, the Corporation exists solely to finance the acquisition and construction of equipment and facilities for the District. Component Unit Beaumont Unified School District Public Facilities Corporation was formed for the sole purpose of providing financial assistance to the District by acquiring, constructing, financing, selling and leasing public facilities, land, personal property and equipment for the use and benefit of the District. The District leases certain school facilities from the Corporation under a lease purchase agreement dated April 1, Included in the Reporting Entity Because: Board of Trustees composes Board of Corporation Separate Financial Statements Not prepared. B. Basis of Presentation, Basis of Accounting 1. Basis of Presentation Government Wide Financial Statements The statement of net position and the statement of activities display information about the primary government (the District). These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the doublecounting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. 18

95 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) B. Basis of Presentation, Basis of Accounting (continued) 1. Basis of Presentation (continued) Fund Financial Statements The fund financial statements provide information about the District's funds, including its fiduciary funds (and blended component units). Separate statements for each fund category governmental and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. Major Governmental Funds The District maintains the following major governmental funds: General Fund: This fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund. The District also maintains a Special Reserve Fund for Other Than Capital Outlay Projects which does not currently meet the definition of a special revenue fund as it is not primarily composed of restricted or committed revenue sources. Because this fund does not meet the definition of a special revenue fund under GASB 54, the activity in the fund is being reported within the General Fund. Building Fund: This fund is used to account for the acquisition of major governmental capital facilities and buildings from the sale of general obligation bonds. Non Major Governmental Funds The District maintains the following non major governmental funds: Special Revenue Funds: Adult Education Fund: This fund is used to account for resources committed to adult education programs maintained by the District. Cafeteria Fund: This fund is used to account for revenues received and expenditures made to operate the District's food service operations. Deferred Maintenance Fund: This fund is used to account for resources committed to major repair or replacement of District property. Pupil Transportation Equipment Fund: This fund is used to account separately for revenues for the acquisition, rehabilitation, or replacement of equipment used to transport students. 19

96 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) B. Basis of Presentation, Basis of Accounting (continued) 1. Basis of Presentation (continued) Non Major Governmental Funds (continued) Capital Projects Funds: Capital Facilities Fund: This fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act. County School Facilities Fund: This fund is used to account for state apportionments provided for modernization of school facilities under SB50. Special Reserve Fund for Capital Outlay Projects: This fund is used to account for funds set aside for capital outlay projects and financial activity for certificates of participation. Debt Service Funds: Bond Interest and Redemption Fund: This Fund is used to account for the accumulation of resources for, and the repayment of, District bonds, interest, and related costs. Debt Service Fund for Blended Component Units Fund: This fund is used to account for the accumulation of resources for, and the repayment of debt for the certificates of participation. Fiduciary Funds Fiduciary fund reporting focuses on net position and changes in net position. Fiduciary funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the District s own programs. The fiduciary fund category includes pension (and other employee benefit) trust funds, investment trust funds, private purpose trust funds, and agency funds. The District maintains the following fiduciary fund: Agency Funds: The District maintains a separate agency fund for each school that operates an Associated Student Body (ASB) Fund, whether it is organized or not. 2. Measurement Focus, Basis of Accounting Government Wide and Fiduciary Fund Financial Statements The government wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year in which all eligibility requirements have been satisfied. 20

97 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) B. Basis of Presentation, Basis of Accounting (continued) 2. Measurement Focus, Basis of Accounting (continued) Governmental Fund Financial Statements Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The District considers all revenues reported in the governmental funds to be available if the revenues are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long term debt and financing from capital leases are reported as other financing sources. C. Budgets and Budgetary Accounting Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all government funds. By state law, the District's governing board must adopt a budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District's governing board satisfied these requirements. These budgets are revised by the District's governing board during the year to give consideration to unanticipated income and expenditures. The original and the final revised budgets are presented for the General Fund in the required supplementary information section. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object account. D. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June 30. E. Assets, Liabilities, and Net Position 1. Deposits and Investments The cash balances of substantially all funds are pooled and invested by the County Treasurer for the purpose of increasing earnings through investment activities. The pool's investments are reported at fair value at June 30, 2013, based on market prices. The individual funds' portions of the pool's fair value are presented as "Pooled Cash and Investments". Earnings on the pooled funds are apportioned and paid or credited to the funds quarterly based on the average daily balance of each participating fund. 2. Cash and Cash Equivalents The District considers cash and cash equivalents in proprietary funds to be cash on hand and demand deposits. In addition, because the Treasury Pool is sufficiently liquid to permit withdrawal of cash at any time without prior notice or penalty, equity in the pool is also deemed to be a cash equivalent. 21

98 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) E. Assets, Liabilities, and Net Position (continued) 3. Property Tax Calendar The County is responsible for the assessment, collection, and apportionment of property taxes for all jurisdictions including the schools and special districts within the County. The Board of Supervisors levies property taxes as of September 1 on property values assessed on July 1. Secured property tax payments are due in two equal installments. The first is generally due November 1 and is delinquent with penalties on December 10, and the second is generally due on February 1 and is delinquent with penalties on April 10. Secured property taxes become a lien on the property on January Inventories and Prepaid Items Inventories are valued at cost using the first in/first out (FIFO) method. The costs of governmental fund type inventories are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 5. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets are recorded at their estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Capital assets are depreciated using the straight line method over the following estimated useful lives: Description Estimated Lives Buildings and Improvements years Furniture and Equipment years Vehicles 8 years 6. Compensated Absences The liability for compensated absences reported in the government wide statements consists of unpaid, accumulated annual and sick leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. 7. Fund Balances The fund balance for governmental funds is reported in classifications based on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. Nonspendable: Fund balance is reported as nonspendable when the resources cannot be spent because they are either in a nonspendable form or legally or contractually required to be maintained intact. Resources in nonspendable form include inventories and prepaid assets. Restricted: Fund balance is reported as restricted when the constraints placed on the use of resources are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or imposed by law through constitutional provision or by enabling legislation. 22

99 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) E. Assets, Liabilities, and Net Position (continued) 7. Fund Balances (continued) Committed: The District's highest decision making level of authority rests with the District's Board. Fund balance is reported as committed when the Board passes a resolution that places specified constraints on how resources may be used. The Board can modify or rescind a commitment of resources through passage of a new resolution. Assigned: Resources that are constrained by the District's intent to use them for a specific purpose, but are neither restricted nor committed, are reported as assigned fund balance. Intent may be expressed by either the Board, committees (such as budget or finance), or officials to which the Board has delegated authority. Unassigned: Unassigned fund balance represents fund balance that has not been restricted, committed, or assigned and may be utilized by the District for any purpose. When expenditures are incurred, and both restricted and unrestricted resources are available, it is the District's policy to use restricted resources first, then unrestricted resources in the order of committed, assigned, and then unassigned, as they are needed. F. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. G. New GASB Pronouncements During the fiscal year, the following GASB Pronouncements became effective: GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements: The objective of this Statement is to improve financial reporting by addressing issues related to service concession arrangements (SCAs), which are a type of public private or public public partnership. As used in this Statement, an SCA is an arrangement between a transferor (a government) and an operator (governmental or nongovernmental entity) in which (1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a "facility") in exchange for significant consideration and (2) the operator collects and is compensated by fees from third parties. The requirements of this Statement improve financial reporting by establishing recognition, measurement, and disclosure requirements for SCAs for both transferors and governmental operators, requiring governments to account for and report SCAs in the same manner, which improves the comparability of financial statements. GASB Statement No. 61, The Financial Reporting Entity: Omnibus An Amendment of GASB Statements No. 14 and No. 34: The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements of Statement No. 14, The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, were amended to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements. 23

100 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) G. New GASB Pronouncements (continued) GASB Statement No. 61 (continued) This Statement modifies certain requirements for inclusion of component units in the financial reporting entity. For organizations that previously were required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship also would need to be present between the primary government and that organization for it to be included in the reporting entity as a component unit. Further, for organizations that do not meet the financial accountability criteria for inclusion as component units but that, nevertheless, should be included because the primary government s management determines that it would be misleading to exclude them, this Statement clarifies the manner in which that determination should be made and the types of relationships that generally should be considered in making the determination. This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. For component units that currently are blended based on the substantively the same governing body criterion, it additionally requires that (1) the primary government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primary government have operational responsibility (as defined in paragraph 8a) for the activities of the component unit. New criteria also are added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government. The blending provisions are amended to clarify that funds of a blended component unit have the same financial reporting requirements as a fund of the primary government. GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre November 30, 1989 FASB and AICPA Pronouncements: The objective of this Statement is to incorporate into the GASB s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: 1. Financial Accounting Standards Board (FASB) Statements and Interpretations 2. Accounting Principles Board Opinions 3. Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure. Hereinafter, these pronouncements collectively are referred to as the FASB and AICPA pronouncements. This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, thereby eliminating the election provided in paragraph 7 of that Statement for enterprise funds and business type activities to apply post November 30, 1989 FASB Statements and Interpretations that do not conflict with or contradict GASB pronouncements. However, those entities can continue to apply, as other accounting literature, post November 30, 1989 FASB pronouncements that do not conflict with or contradict GASB pronouncements, including this Statement. 24

101 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) G. New GASB Pronouncements (continued) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position: This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a consumption of net assets by the government that is applicable to a future reporting period, and an acquisition of net assets by the government that is applicable to a future reporting period, respectively. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities. Concepts Statement 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. NOTE 2 CASH Cash at June 30, 2013 is reported at fair value and consisted of the following: Governmental Activities/Funds Fiduciary Funds Pooled Funds: Cash in county treasury $ 46,823,065 $ Deposits: Cash on hand and in banks 242,595 Cash in revolving fund 10,000 Collections awaiting deposit 226,545 Total deposits 236, ,595 Total cash $ 47,059,610 $ 242,595 Pooled Funds In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the County Treasury. The County pools and invests the cash. These pooled funds are carried at cost which approximates fair value. Interest earned is deposited annually to participating funds. Any investment losses are proportionately shared by all funds in the pool. Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the District's share of the pool does not consist of specific, identifiable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial credit risk classifications is required. In accordance with applicable state laws, the County Treasurer may invest in derivative securities with the State of California. However, at June 30, 2013, the County Treasurer has represented that the Pooled Investment Fund contained no derivatives or other investments with similar risk profiles. 25

102 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 2 CASH (continued) Custodial Credit Risk Deposits Custodial credit risk is the risk that in the event of a bank failure, the District s deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. Cash balances held in banks are insured up to $250,000 by the Federal Depository Insurance Corporation (FDIC) and are collateralized by the respective financial institutions. In addition, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2013, $312,457 of the District s bank balance was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution s trust department or agency, but not in the name of the District. NOTE 3 ACCOUNTS RECEIVABLE Accounts receivable as of June 30, 2013 consisted of the following: Non Major General Building Governmental Fund Fund Funds Totals Federal Government: Categorical aid programs $ 971,456 $ $ 460,942 $ 1,432,398 State Government: Revenue limit 6,087,862 6,087,862 Lottery 678, ,546 Class size reduction 888, ,531 Special education 124, ,809 Other state categoricals 374, , ,885 Local: Interest 8,261 16,286 6,959 31,506 Special education 586, ,060 Miscellaneous 378,804 3, ,031 Total $ 10,098,336 $ 16,286 $ 681,006 $ 10,795,628 26

103 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 4 INTERFUND TRANSACTIONS A. Balances Due To/From Other Funds Balances due to/from other funds at June 30, 2013 consisted of the following: Due From Other Funds Non Major General Building Governmental Fund Fund Funds Total General Fund $ 30 $ 5 $ 250,082 $ 250,117 Non Major Governmental Funds 326, ,556 Total $ 326,586 $ 5 $ 250,082 $ 576,673 Adult Education Fund due to General Fund for transfer to correct revenue $ 82,533 Cafeteria Fund due to General Fund for indirect costs 138,178 Capital Facilities Fund due to General Fund for 3% Administrative Fee 87,135 General Fund due to Special Reserve Fund for Capital Outlay Projects for BOGH expenditures 15,566 General Fund due to Deferred Maintenance fund for contribution 250,000 All other Due to and Due from transactions 3,261 Total $ 576,673 B. Transfers To/From Other Funds Transfers to/from other funds for the fiscal year ended June 30, 2013 consisted of the following: General Fund transfer to the Adult Education Fund for MAA General Fund transfer to the Deferred Maintenance Fund for contribution County School Facilities Fund transfer to the Building Fund for Beaumont High School Theater $ ,000 1,224,426 Total $ 1,474,508 NOTE 5 FUND BALANCES Minimum Fund Balance Policy Per Education Code, for school districts with less than 30,001 ADA, the minimum unassigned fund balance shall not be less than 3% as per policy. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints on their use, the Reserve for Economic Uncertainties consists of balances that are otherwise unassigned. 27

104 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 5 FUND BALANCES (continued) At June 30, 2013, fund balances of the District s governmental funds are classified as follows: Non Major General Building Governmental Fund Fund Funds Total Nonspendable: Revolving cash $ 10,000 $ $ $ 10,000 Stores inventories 44,051 44,051 Prepaid expenditures 21,136 21,136 Total Nonspendable 31,136 44,051 75,187 Restricted: Categorical programs 1,252, ,092 1,802,207 Child nutrition services 1,897,144 1,897,144 Pupil transportation services 307, ,572 Capital projects 21,486,620 6,057,797 27,544,417 Debt service 2,789,251 2,789,251 Total Restricted 1,252,115 21,486,620 11,601,856 34,340,591 Committed: Deferred maintenance program 750, ,774 Total Committed 750, ,774 Assigned: BTA pool 339, ,582 E rate 431, ,964 Advanced placement grant 44,516 44,516 Computer replacement 389, ,838 Furniture & replacement 463, ,400 ADA incentive 122, ,975 Medi Cal administrative activities 16,052 16,052 Title III non discretionary 100, ,000 Donations 29,293 29,293 Morgan Hart 843, ,691 Adult education swept funds 288, ,855 Tier III 342, ,207 Vacation liability 462, ,833 Budget contingencies 5,826,213 5,826,213 Other assignments 4,912,264 4,912,264 Total Assigned 14,613,683 14,613,683 Unassigned: Reserve for economic uncertainties 6,668,825 6,668,825 Total Unassigned 6,668,825 6,668,825 Total $ 22,565,759 $ 21,486,620 $ 12,396,681 $ 56,449,060 28

105 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 6 CAPITAL ASSETS AND DEPRECIATION Capital asset activity for the year ended June 30, 2013 was as follows: Balance, Balance, July 1, 2012 Additions Decreases June 30, 2013 Capital assets not being depreciated: Land $ 30,839,443 $ $ $ 30,839,443 Construction in progress 43,587,308 7,150,426 50,737,734 Total capital assets not being depreciated 74,426,751 7,150,426 81,577,177 Capital assets being depreciated: Improvements to sites 27,792,686 18,114 27,810,800 Buildings 139,269,513 18, ,287,972 Equipment 15,987, ,026 16,175,373 Total capital assets being depreciated 183,049, , ,274,145 Accumulated depreciation for: Improvements to sites (11,112,512) (1,203,387) (12,315,899) Buildings (25,584,287) (2,704,851) (28,289,138) Equipment (7,296,601) (476,892) (7,773,493) Total accumulated depreciation (43,993,400) (4,385,130) (48,378,530) Total capital assets being depreciated, net 139,056,146 (4,160,531) 134,895,615 Governmental activity capital assets, net $ 213,482,897 $ 2,989,895 $ $ 216,472,792 NOTE 7 GENERAL LONG TERM DEBT Changes in long term debt for the year ended June 30, 2013 were as follows: Balance as Balance Originally stated as Restated Balance, Amount Due July 1, 2012 Restatements July 1, 2012 Additions Deductions June 30, 2013 Within One Year General Obligation Bonds: Principal $ 61,890,732 $ $ 61,890,732 $ $ 520,000 $ 61,370,732 $ 928,079 Accreted interest 2,856,811 2,856,811 1,265,885 4,122,696 16,921 Unamortized issuance premium 1,169,177 1,169,177 68,308 1,100,869 68,308 Subtotal Bonds 65,916,720 65,916,720 1,265, ,308 66,594,297 1,013,308 Certificates of participation 5,847,596 5,847, ,893 5,532, ,636 Compensated absences 450, ,767 12, ,833 Early retirement incentive 1,016,982 1,016, , , ,856 Other post employment benefits 2,949,083 2,949, ,132 3,437,215 Total $ 75,164,166 $ 1,016,982 $ 76,181,148 $ 1,766,083 $ 1,252,759 $ 76,694,472 $ 1,506,800 Payments for general obligation bonds are made by the Bond Interest and Redemption Fund. Certificates of participation payments are made by the General and Capital Facilities Funds. Compensated absences will be paid for by the fund for which the employee worked. 29

106 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 7 GENERAL LONG TERM DEBT (continued) A. General Obligation Bonds 1998 Election An election was held on November 3, 1998, at which more than two thirds of the persons voting on the proposition voted to authorize the issuance and sale of $16,000,000 principal amount of general obligation bonds of the District. The bonds were issued for the purpose of raising money to be used to finance the repair, construction and modernization of the District's school facilities Election On November 4, 2008, voters in the District approved Measure Z, authorizing the District to issue up to $125 million of general obligation bonds. The bonds are general obligations of the District. The County is obligated to levy ad valorem taxes upon all property within the District for the payment of interest on and principal of the bonds. The County records the collections of taxes and payments of bond principal and interest in a separate fund. The bonds are being used for school safety, vocational education and classroom repair. Build America Bonds On December 22, 2009, the District issued $15,500,000 of Series B Election of 2008 General Obligation Bonds. The Series B Bonds are designated Build America Bonds for purposes of the American Recovery and Reinvestment Act of 2009 (the Recovery Act ). Pursuant to the Recovery Act, the District expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable on the Series B Bonds on or about each interest payment date. The cash payment does not constitute a full faith and credit guarantee of the United States Government, but is required to be paid by the Treasury under the Recovery Act. The District is obligated to deposit any cash subsidy payments it receives into the debt service fund for the Series B Bonds. A summary of outstanding bonds issued is shown below: Issue Maturity Interest Original Balance, Balance, Series Date Date Rate Issue July 1, 2012 Additions Deductions June 30, A 11/9/1999 9/1/ % 5.45% $ 3,045,000 $ 430,000 $ $ 130,000 $ 300, /19/2004 9/1/ % 5.74% 12,954,964 11,859, ,000 11,469, A 12/22/2009 9/1/ % 4.0% 4,500,719 4,105,719 4,105, B 12/22/2009 9/1/ % 15,500,000 15,500,000 15,500, C 5/12/2011 9/1/ % 6% 29,995,049 29,995,049 29,995,049 $ 65,995,732 $ 61,890,732 $ $ 520,000 $ 61,370,732 Accreted Interest Component Balance, Balance, Series July 1, 2012 Additions Deductions June 30, $ 1,821,786 $ 293,017 $ $ 2,114, A 612, , , C 422, ,551 1,045,301 $ 2,856,811 $ 1,265,885 $ $ 4,122,696 30

107 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 7 GENERAL LONG TERM DEBT (continued) A. General Obligation Bonds (continued) The annual requirements to amortize general obligation bonds payable are as follows: Fiscal Year Principal Interest Total $ 928,079 $ 2,525,353 $ 3,453, ,089,390 2,514,591 3,603, ,249,996 2,508,551 3,758, ,360,611 2,553,331 3,913, ,361,857 2,722,177 4,084, ,092,105 15,222,765 23,314, ,570,446 23,596,467 29,166, ,236,528 14,599,884 27,836, ,444,747 11,521,978 30,966, ,095,124 30,989,737 39,084, ,849 10,047,471 10,989,320 Total $ 61,370,732 $ 118,802,305 $ 180,173,037 B. Certificates of Participation 2008 Refunding In June 2008, Municipal Finance Corporation issued Refunding Certificates of Participation in the amount of $1,884,000. The certificates were issued to refund the outstanding portion of the 1997 Certificates of Participation Series A. The interest rate of the certificates is 4.5 percent, and the certificates mature on January 1, At June 30, 2013, the principal balance outstanding was $1,288, Issue On December 23, 2008, the District issued $5,000,000 certificates of participation to finance the acquisition, construction, and equipping of an administrative facility and pay for the costs of issuance incurred in connection with the obligation. The certificates bear interest of 4.59% and are scheduled to mature on December 23, At June 30, 2013, the principal balance outstanding was $4,244,703. The annual requirements to amortize certificates of participation outstanding as of June 30, 2013 are as follows: Fiscal Year Principal Interest Total $ 326,636 $ 253,676 $ 580, , , , , , , , , , , , , ,860, ,364 2,520, ,677, ,136 1,950, ,487 4, ,011 Total $ 5,532,703 $ 2,042,718 $ 7,575,421 31

108 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 7 GENERAL LONG TERM DEBT (continued) C. Early Retirement Incentive On February 28, 2012, the District established a PARS Supplementary Retirement Plan, a retirement incentive plan for eligible employees who retired from the District during the fiscal year. Eligible participants were certificated (non management) employees who were: a) at least age fifty five (55) as of June 30, 2012, b) with at least 5 years of experience with Beaumont USD as of June 30, 2012, c) were employed by the District as of July 1, 2011, and d) were eligible to retire under STRS. Under the plan, the District has agreed to contribute for each participant 61.9% of their Final Pay to be paid out over 5 fiscal years each August in the following manner: Year 1 20%; Year 2 20%; Year 3 20%; Year 4 20%; Year 5 20%. The first payment was made in July, Fifteen (15) eligible employees elected to retire under the plan. The District is obligated to make an annual payment of $166,856 due on July 10 of each year through The District s total future obligation under the plan is $667,424 and is recognized in the government wide statements as a longterm obligation. NOTE 8 JOINT VENTURES The Beaumont Unified School District participates in four joint powers agreement (JPA) entities, the Riverside Schools Insurance Authority (RSIA), Riverside Schools Risk Management Authority (RSRMA), High Desert and Inland Employee/Employer Trust (HDIEET), and the Riverside County Employer/Employee Partnership for Benefits (REEP) public entity risk pools. The Beaumont Unified School District pays an annual premium to each entity for its health, workers compensation, and property liability coverage. Each JPA is governed by a board consisting of a representative from each member district. Each governing board controls the operations of its JPA independent of any influence by the Beaumont Unified School District beyond the District s representation on the governing boards. Each JPA is independently accountable for its fiscal matters. Budgets are not subject to any approval other than that of the respective governing boards. Member districts share surpluses and deficits proportionately to their participation in the JPA. The relationship between the Beaumont Unified School District and the JPAs are such that none of the JPAs are a component unit of the District for financial reporting purposes. Condensed audited financial information for the year ended June 30, 2012 for the JPAs are as follows: RSIA RSRMA REEP HDIEET Total Assets $ 6,108,484 $ 8,146,178 $ 30,971,338 $ 9,876,006 Total Liabilities 4,622,989 1,649,432 11,498,338 2,179,981 Fund Balance $ 1,485,495 $ 6,496,746 $ 19,473,000 $ 7,696,025 Total Revenues $ 8,119,583 $ 21,649,998 $ 195,673,057 $ 73,163,678 Total Expenditures 8,203,716 21,967, ,226,824 68,718,617 Net Increase (decrease) in net assets $ (84,133) $ (317,083) $ 5,446,233 $ 4,445,061 32

109 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 9 COMMITMENTS AND CONTINGENCIES A. State and Federal Allowances, Awards, and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grant, it is believed they are required reimbursement will not be material. B. Construction Commitments As of June 30, 2013, the District had commitments with respect to unfinished capital projects of $713,748. C. Legal Matters The District is involved in various legal matters that arose during the course of business. In the opinion of management and legal counsel, none of these matters are expected to materially affect the financial statements. NOTE 10 RISK MANAGEMENT Property and Liability The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. The District purchases coverage through Riverside Schools Insurance Authority and Southern California Regional Excess Liability Fund Joint Powers Authorities for first party property damage with coverage up to a maximum of $250,000,000, subject to various sub limits generally ranging from $500 to $100,000,000 and Member Retained Limits ranging from $250 to $5,000. The District also purchases coverage for general liability claims with coverage up to $1,000,000 per occurrence with excess liability coverage up to $25,000,000 per occurrence and $60,000,000 in the aggregate, all subject to a Member Retained Limit per occurrence. Workers Compensation The District participated in the Riverside Schools Risk Management Authority (RSRMA) public entity risk pool. The intent of RSRMA is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in the JPA. The workers compensation experience of the participating districts is calculated and applied to a common premium rate. Participation in RSRMA is limited to local educational agencies that can meet RSRMA selection criteria. Employee Medical Benefits The District has contracted with Riverside County Employer/Employee Partnership for Benefits (REEP) to provide employee surgical and medical benefits to classified, confidential, and management employees. The District has contracted with High Desert & Inland Employee Employer Trust (HDIEET) to provide employee surgical and medical benefits to certificated bargaining unit employees. NOTE 11 EMPLOYEE RETIREMENT PLANS Qualified employees are covered under multiple employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers Retirement System (STRS), and classified employees are members of the Public Employees Retirement System (PERS). 33

110 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 11 EMPLOYEE RETIREMENT PLANS (continued) Plan Description and Provisions Public Employees Retirement System (PERS) Plan Description The District contributes to the School Employer Pool under the California Public Employees Retirement System (CalPERS), a cost sharing multiple employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost ofliving adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the comprehensive annual financial report may be obtained from the CalPERS Executive Office, 400 Q Street, Sacramento, California Funding Policy Active plan members are required to contribute 7.0% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution for fiscal year was %. The contribution requirements of the plan members are established by State statute. The District s contributions to CalPERS for the last three fiscal years were as follows: State Teachers Retirement System (STRS) Percent of Required Contribution Contribution $ 1,018, % $ 973, % $ 934, % Plan Description The District contributes to the California State Teachers Retirement System (CalSTRS), a cost sharing multiple employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the comprehensive annual financial report may be obtained from CalSTRS, 100 Waterfront Place, West Sacramento, California 95605, or at Funding Policy Active plan members are required to contribute 8.0% of their salary. The required employer contribution rate for fiscal year was 8.25% of annual payroll. The contribution requirements of the plan members are established by State statute. The District s contributions to STRS for the last three fiscal years were as follows: Percent of Required Contribution Contribution $ 2,315, % $ 2,385, % $ 2,345, % 34

111 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 11 EMPLOYEE RETIREMENT PLANS (continued) Alternate Retirement Plan The District also contributes to the Accumulation Program for Part time and Limited Service Employees (APPLE), which is a defined contribution pension plan. A defined contribution pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual s account are to be determined instead of specifying the amount of benefits the individual is to receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant s account, the returns earned on investments of those contributions, and forfeitures of other participants benefits that may be allocated to such participant s account. As established by Federal law, all public sector employees who are not members of their employer s exiting retirement system (STRS or PERS) must be covered by social Security or an alternative plan. The District has elected to use the APPLE as its alternative plan. Contributions made by the District and an employee vest immediately. The District contributes 0.5% of an employee s gross earnings. An employee is required to contribute 7.0% of their gross earnings to the pension plan. During the year, the District s required actual contributions amounted to $5,849, which was 0.5% of its current year covered payroll. Employees required and actual contributions amounted to $81,887, which was 7.0% of its current year covered payroll. On Behalf Payments The District was the recipient of on behalf payments made by the State of California to STRS for K 12 education. These payments consist of state General Fund contributions of approximately $1.2 million to STRS (4.267% of salaries subject to STRS in ). NOTE 12 OTHER POSTEMPLOYMENT BENEFITS Beaumont Unified School District administers a single employer defined benefit other postemployment benefit (OPEB) plan that provides medical, dental and vision insurance benefits to eligible retirees and their spouses. The District implemented Governmental Accounting Standards Board Statement #45, Accounting and Financial Reporting by Employers for Postemployment Benefit Plans Other Than Pension Plans, in Plan Descriptions and Contribution Information Membership in the plan consisted of the following: Retirees and beneficiaries receiving benefits* 31 Active plan members* 617 Total 648 * As of July 1, 2012 actuarial valuation The District provides postemployment health care benefits, in accordance with District employment contracts, to all employees who retire from the District and met certain age and service requirements. The District s funding policy is based on the projected pay as you go financing requirements, with additional amounts to prefund benefits as determined annually by the governing board. For fiscal year , the District contributed $349,

112 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 12 OTHER POSTEMPLOYMENT BENEFITS (continued) Annual OPEB Cost and Net OPEB Obligation The District s annual OPEB cost is calculated based on the Annual Required Contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District s net OPEB obligation: Annual required contribution $ 899,291 Interest on net OPEB obligation 132,709 Adjustment to annual required contribution (194,703) Annual OPEB cost 837,297 Contributions made (349,165) Increase in net OPEB obligation 488,132 Net OPEB obligation July 1, ,949,083 Net OPEB obligation June 30, 2013 $ 3,437,215 The District s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for and the preceding two years are as follows: Net Year Ended Annual Percentage OPEB June 30, OPEB Cost Contributed Obligation 2011 $ 751, % $ 2,371, $ 760, % $ 2,949, $ 837, % $ 3,437,215 Funded Status and Funding Progress OPEB Plans As of July 1, 2012, the most recent actuarial valuation date, the District did not have a funded plan. The actuarial accrued liability (AAL) for benefits was $6.2 million, and the unfunded actuarial accrued liability (UAAL) was $6.2 million. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedules of funding progress present multiyear trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 36

113 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 12 OTHER POSTEMPLOYMENT BENEFITS (continued) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designated to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long term perspective of the calculations. Additional information as of the latest actuarial valuation follows: Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation July 1, 2012 Projected Unit Credit Level Dollar Method 26 years N/A Actuarial assumptions: Investment rate of return 4.5% Healthcare cost trend rate % NOTE 13 FUTURE GASB PRONOUNCEMENTS The following statements issued by the Governmental Accounting Standards Board (GASB) will become effective in future years and are expected to have a significant impact on the District's financial reporting: A. Statement No. 65, Items Previously Reported as Assets and Liabilities (Issued 03/12) This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined the elements included in financial statements, including deferred outflows of resources and deferred inflows of resources. In addition, Concepts Statement 4 provides that reporting a deferred outflow of resources or a deferred inflow of resources should be limited to those instances identified by the Board in authoritative pronouncements that are established after applicable due process. This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations. This Statement will become effective in

114 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2013 NOTE 13 FUTURE GASB PRONOUNCEMENTS (continued) B. Statement No. 68, Accounting and Financial Reporting for Pensions An Amendment of GASB Statement No. 27 (Issued 06/12) The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Cost Sharing Employers In financial statements prepared using the economic resources measurement focus and accrual basis of accounting, a cost sharing employer that does not have a special funding situation is required to recognize a liability for its proportionate share of the net pension liability (of all employers for benefits provided through the pension plan) the collective net pension liability. An employer s proportion is required to be determined on a basis that is consistent with the manner in which contributions to the pension plan are determined, and consideration should be given to separate rates, if any, related to separate portions of the collective net pension liability. The use of the employer s projected long term contribution effort as compared to the total projected long term contribution effort of all employers as the basis for determining an employer s proportion is encouraged. A cost sharing employer is required to recognize pension expense and report deferred outflows of resources and deferred inflows of resources related to pensions for its proportionate shares of collective pension expense and collective deferred outflows of resources and deferred inflows of resources related to pensions. This Statement will become effective in

115 Required Supplementary Information

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117 BEAUMONT UNIFIED SCHOOL DISTRICT Budgetary Comparison Schedule General Fund For the Fiscal Year Ended June 30, 2013 Budgeted Amounts Actual * Variance with Final Budget Original Final (Budgetary Basis) Pos (Neg) Revenues Revenue Limit Sources $ 43,443,594 $ 44,221,163 $ 44,221,163 $ Federal 2,421,532 2,859,599 2,859,599 Other State 7,016,154 7,976,028 7,976,028 Other Local 2,007,139 3,740,345 3,740,345 Total Revenues 54,888,419 58,797,135 58,797,135 Expenditures Current: Certificated Salaries 26,242,637 27,680,811 27,680,811 Classified Salaries 8,396,832 8,871,194 8,871,194 Employee Benefits 11,060,635 11,197,990 11,197,990 Books and Supplies 4,507,337 2,072,607 2,072,607 Services and Other Operating Expenditures 6,063,037 6,324,354 6,324,354 Transfers of Indirect Costs (231,169) (138,178) (138,178) Capital Outlay 266,242 1,604,889 1,604,889 Debt Service 390, , ,022 Total Expenditures 56,695,574 58,003,689 58,003,689 Excess (Deficiency) of Revenues Over (Under) Expenditures (1,807,155) 793, ,446 Other Financing Sources and Uses Interfund Transfers In 1,622,443 Interfund Transfers Out (250,082) (250,082) Total Other Financing Sources and Uses 1,622,443 (250,082) (250,082) Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (184,712) 543, ,364 Fund Balances, July 1, ,437,270 17,144,729 17,144,729 Fund Balances, June 30, 2013 $ 14,252,558 $ 17,688,093 $ 17,688,093 $ * The actual amounts reported in this schedule are for the General Fund only, and do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances because the amounts on that schedule include the financial activity of the Special Reserve Fund for Other Than Capital Outlay Projects, in accordance with the fund type definitions promulgated by GASB Statement No. 54. See accompanying note to required supplementary information. 39

118 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Funding Progress For the Fiscal Year Ended June 30, 2013 Actuarial Valuation Date Value of Assets Actuarial Accrued Liability (AAL) Unfunded AAL (UAAL) Funded Ratio Covered Payroll UAAL as a Percentage of Covered Payroll July 1, 2008 $ $ 7,163,320 $ 7,163,320 0% $ 37,121,000 19% July 1, 2010 $ $ 5,365,162 $ 5,365,162 0% $ 35,709,907 15% July 1, 2012 $ $ 6,217,344 $ 6,217,344 0% $ 34,114,000 18% See accompanying note to required supplementary information. 40

119 BEAUMONT UNIFIED SCHOOL DISTRICT Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2013 NOTE 1 PURPOSE OF SCHEDULES Budgetary Comparison Schedule This schedule is required by GASB Statement No. 34 as required supplementary information (RSI) for the General Fund and for each major special revenue fund that has a legally adopted annual budget. The budgetary comparison schedule presents both (a) the original and (b) the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and balances, stated on the District s budgetary basis. A separate column to report the variance between the final budget and actual amounts is also presented, although not required. Schedule of Funding Progress This schedule is required by GASB Statement No. 45 for all sole and agent employers that provide other postemployment benefits (OPEB). The schedule presents, for the most recent actuarial valuation and the two preceding valuations, information about the funding progress of the plan, including, for each valuation, the actuarial valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial liability (or funding excess), the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the annual covered payroll, and the ratio of the total unfunded actuarial liability (or funding excess) to annual covered payroll. NOTE 2 EXCESS OF EXPENDITURES OVER APPROPRIATIONS At June 30, 2013, the District incurred no excess of expenditures over appropriations in individual major funds presented in the Budgetary Comparison Schedule. 41

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121 Supplementary Information

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123 BEAUMONT UNIFIED SCHOOL DISTRICT Local Educational Agency Organization Structure June 30, 2013 The Beaumont Unified School District was established in The District boundaries include the City of Beaumont, a portion of Banning, Calimesa, and the unincorporated community of Cherry Valley. There were no changes to the District s boundaries during the year. The District operates six elementary schools, two middle schools, a comprehensive high school, one alternative school, an independent study program, and an adult education program. GOVERNING BOARD Member Office Term Expires Mrs. Susie Lara President November 2014 Mr. David Sanchez Vice President November 2016 Mrs. Margaret De Longchamp Clerk November 2014 Mr. Wayne Hackney Member November 2016 Mrs. Janelle Poulter Member November 2014 DISTRICT ADMINISTRATORS Dr. Maureen Latham, Superintendent Mrs. Carol Severns, Assistant Superintendent, Business Services Dr. Christina Goennier, Assistant Superintendent, Instructional Support Services Mr. Terrence Davis, Assistant Superintendent, Personnel Services 42

124 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Average Daily Attendance For the Fiscal Year Ended June 30, 2013 Second Period Annual Report Report (Certificate No. (Certificate No. 12A42758) 164CE7A2) Elementary: Kindergarten Grades 1 through 3, regular classes 1,996 1,999 Grades 4 through 6, regular classes 1,952 1,951 Grades 7 and 8, regular classes 1,300 1,296 Home and hospital 1 2 Special education Extended year nonpublic, nonsectarian 1 1 Total Elementary 5,963 5,966 Secondary: Grades 9 through 12, regular classes 2,280 2,262 Continuation education Home and hospital 3 4 Special education Extended year nonpublic, nonsectarian 1 1 Total Secondary 2,419 2,398 Total Average Daily Attendance 8,382 8,364 See accompanying note to supplementary information. 43

125 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Instructional Time For the Fiscal Year Ended June 30, Minutes Minutes Number of Days Previously Actual Traditional Grade Level Actual Reduced* Required Reduced* Minutes Calendar Status Kindergarten 31,680 30,800 36,000 35,000 36, Complied Grade 1 44,800 43,556 50,400 49,000 55, Complied Grade 2 44,800 43,556 50,400 49,000 55, Complied Grade 3 44,800 43,556 50,400 49,000 55, Complied Grade 4 52,800 51,333 54,000 52,500 55, Complied Grade 5 52,800 51,333 54,000 52,500 55, Complied Grade 6 52,800 51,333 54,000 52,500 61, Complied Grade 7 52,800 51,333 54,000 52,500 61, Complied Grade 8 52,800 51,333 54,000 52,500 61, Complied Grade 9 55,400 53,861 64,800 63,000 66, Complied Grade 10 55,400 53,861 64,800 63,000 66, Complied Grade 11 55,400 53,861 64,800 63,000 66, Complied Grade 12 55,400 53,861 64,800 63,000 66, Complied * Amounts reduced as permitted by Education Code Section (a). See accompanying note to supplementary information. 44

126 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Financial Trends and Analysis For the Fiscal Year Ended June 30, 2013 (Budget) General Fund Revenues and other financing sources $ 58,756,539 $ 58,797,135 $ 59,536,066 $ 56,831,155 Expenditures 61,257,210 58,003,689 56,973,373 55,037,514 Other uses and transfers out 1, , ,941 Total outgo 61,259,060 58,253,771 56,974,159 55,279,455 Change in fund balance (deficit) (2,502,521) 543,364 2,561,907 1,551,700 Ending fund balance $ 15,098,437 $ 17,688,093 $ 17,144,729 $ 14,582,822 Available reserves 1 $ 6,940,442 $ 6,668,825 $ 6,425,480 $ 1,793,182 Available reserves as a percentage of total outgo 11.3% 11.4% 11.3% 3.2% Total long term debt $ 75,187,672 $ 76,694,472 $ 75,164,166 $ 74,586,201 Average daily attendance at P 2 8,239 8,382 8,190 8,089 The General Fund balance has increased by $3,105,271 over the past two years. The fiscal year adopted budget projects a decrease of $2,589,656. For a district of this size, the state recommends available reserves of at least 3% of total general fund expenditures, transfers out, and other uses (total outgo). The District has not incurred operating deficits for the past three years, but anticipates incurring an operating deficit during the fiscal year. Long term debt has increased by $2,108,271 over the past two years. Average daily attendance has increased by 293 over the past two years. A decrease of 143 ADA is anticipated during fiscal year due to the opening of the new charter school. 1 Available reserves consist of all unassigned fund balances in the General Fund. 2 Revised Final Budget September, The actual amounts reported in this schedule are for the General Fund only, and do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances because the amounts on that schedule include the financial activity of the Special Reserve Fund for Other than Capital Outlay Projects, in accordance with the fund type definitions promulgated by GASB Statement No. 54. See accompanying note to supplementary information. 45

127 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Expenditures of Federal Awards For the Fiscal Year Ended June 30, 2013 Federal Pass Through Federal Grantor/Pass Through CFDA Entity Identifying Cluster Federal Grantor/Program or Cluster Title Number Number Expenditures Expenditures Federal Programs: U.S. Department of Agriculture: Passed through California Dept. of Education (CDE): Child Nutrition Cluster School Breakfast Program Especially Needy $ 787,097 National School Lunch Program ,895,801 Summer Food Service Program Operations ,207 USDA Donated Foods N/A 194,459 Total Child Nutrition Cluster $ 2,945,564 Total U.S. Department of Agriculture 2,945,564 U.S. Department of Education: Passed through California Dept. of Education (CDE): Adult Basic Education (ABE) Cluster Adult Basic Education & ESL A ,819 English Literacy & Civics Education Local Grant A ,743 Adult Secondary Education ,702 Total Adult Basic Education Cluster 209,264 Student Financial Assistance Cluster Plus Loans N/A 5,904 FFEL Subsidized Stafford Loans N/A 278,128 FFEL Unsubsidized Stafford Loans N/A 376,380 Total Student Financial Assistance Cluster 660,412 No Child Left Behind (NCLB): Title I, Part A, Basic Grants Low Income and Neglected ,526 Title II, Part A, Teacher Quality Local ,513 Title II, Part D, Enhancing Education Through Technology ,190 English Language Acquisition Grants Cluster Title III, Immigrant Education Program ,242 Title III, Limited English Proficiency ,401 Total English Language Acquisition Grants Cluster 183,643 Carl Perkins Act Secondary ,183 Individuals with Disabilities Education Act (IDEA): Special Education (IDEA) Cluster Basic Local Assistance Entitlement, Part B, Section ,266,648 Mental Health Allocation Plan, Part B, Sec ,133 Preschool Local Entitlement, Part B, Section 611 (Age 3 4 5) A ,262 Preschool Staff Development, Part B A Preschool Grants, Part B, Section 619 (Age 3 4 5) ,809 Total Special Education (IDEA) Cluster 1,671,967 Total U.S. Department of Education 3,723,698 U.S. Department of Health & Human Services: Passed through California Dept. of Education: Medicaid Cluster Medi Cal Billing Option ,142 Medi Cal Administrative Activities (MAA) N/A ,751 Total Medicaid Cluster 186,893 Total U.S. Department of Health & Human Services 186,893 Total Expenditures of Federal Awards $ 6,856,155 See accompanying note to supplementary information. 46

128 BEAUMONT UNIFIED SCHOOL DISTRICT Reconciliation of Annual Financial and Budget Report with Audited Financial Statements For the Fiscal Year Ended June 30, 2013 General Cafeteria Capital Facilities Fund Fund Fund June 30, 2013, annual financial and budget report (SACS) fund balances $ 17,600,958 $ 1,826,546 $ 5,837,934 Adjustments and reclassifications: Increasing (decreasing) the fund balance: Transfer of 3% administrative fee 87,135 (87,135) Cafeteria summer sales receivable understated 114,649 Net adjustments and reclassifications 87, ,649 (87,135) June 30, 2013, audited financial statement fund balances $ 17,688,093 $ 1,941,195 $ 5,750,799 See accompanying note to supplementary information. 47

129 BEAUMONT UNIFIED SCHOOL DISTRICT Note to the Supplementary Information June 30, 2013 NOTE 1 PURPOSE OF SCHEDULES Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through Districts must maintain their instructional minutes at either the actual minutes or the requirement, whichever is greater, as reduced by Education Code Section (a). Schedule of Financial Trends and Analysis This schedule discloses the District s financial trends by displaying past years data along with current year budget information. These financial trend disclosures are used to evaluate the District s ability to continue as a going concern for a reasonable period of time. Schedule of Expenditures of Federal Awards The schedule of expenditures of Federal awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States of America Office of Management and Budget Circular A 133, Audits of States, Local Governments, and Non Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. Subrecipients Of the Federal expenditures presented in the schedule, the District provided no Federal awards to subrecipients. Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual financial report to the audited financial statements. 48

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131 Other Independent Auditors' Reports

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133 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Beaumont Unified School District Beaumont, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Beaumont Unified School District as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise Beaumont Unified School District's basic financial statements, and have issued our report thereon dated December 13, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Beaumont Unified School District s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Beaumont Unified School District s internal control. Accordingly, we do not express an opinion on the effectiveness of the Beaumont Unified School District s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 49

134 Compliance and Other Matters As part of obtaining reasonable assurance about whether Beaumont Unified School District s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. December 13,

135 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE Board of Trustees Beaumont Unified School District Beaumont, California Report on Compliance for Each Major Federal Program We have audited Beaumont Unified School District's compliance with the types of compliance requirements described in the OMB Circular A 133 Compliance Supplement that could have a direct and material effect on each of Beaumont Unified School District's major federal programs for the year ended June 30, Beaumont Unified School District s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of Beaumont Unified School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A 133, Audits of States, Local Governments, and Non Profit Organizations. Those standards and OMB Circular A 133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Beaumont Unified School District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Beaumont Unified School District s compliance. Opinion on Each Major Federal Program In our opinion, Beaumont Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,

136 Report on Internal Control Over Compliance Management of Beaumont Unified School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Beaumont Unified School District s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A 133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of 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, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A 133. Accordingly, this report is not suitable for any other purpose. December 13,

137 INDEPENDENT AUDITORS REPORT ON STATE COMPLIANCE Board of Trustees Beaumont Unified School District Beaumont, California Report on Compliance for State Programs We have audited Beaumont Unified School District's compliance with the types of compliance requirements described in the Standards and Procedures for Audits of California K 12 Local Educational Agencies , published by the Education Audit Appeals Panel, for the year ended June 30, Beaumont Unified School District s state programs are identified below. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its State programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of Beaumont Unified School District's State programs based on our audit of the types of compliance requirements referred to below. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K 12 Local Educational Agencies Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to below occurred. An audit includes examining, on a test basis, evidence about Beaumont Unified School District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each State program. However, our audit does not provide a legal determination of Beaumont Unified School District s compliance. Description Procedures in Audit Guide Procedures Performed Attendance Reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten Continuance 3 Yes Independent Study 23 Yes Continuation Education 10 Yes Instructional Time: School Districts 6 Yes County Offices of Education 3 Not applicable Instructional Materials General Requirements 8 Yes Ratios of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive 4 Not applicable 53

138 Description Procedures in Audit Guide Procedures Performed Gann Limit Calculation 1 Yes School Accountability Report Card 3 Yes Juvenile Court Schools 8 Not applicable Class Size Reduction: General Requirements 7 Yes Option One 3 Yes Option Two 4 Yes Districts with Only One School Serving K 3 4 Not applicable After School Education and Safety Program: General Requirements 4 Yes After School 5 Yes Before School 6 Not applicable Charter Schools: Contemporaneous Records of Attendance 1 Not applicable Mode of Instruction 1 Not applicable Nonclassroom Based Instruction/Independent Study 15 Not applicable Determination of Funding for Nonclassroom Based Instruction 3 Not applicable Annual Instructional Minutes Classroom Based 4 Not applicable Opinion on Compliance with State Programs In our opinion, Beaumont Unified School District complied, in all material respects, with the compliance requirements referred to above for the year ended June 30, The purpose of this report on State compliance is solely to describe the scope of our testing of State compliance and the results of that testing based on the requirements of the Standards and Procedures for Audits of California K 12 Local Educational Agencies Accordingly, this report is not suitable for any other purpose. December 13,

139 Findings and Questioned Costs

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141 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2013 SECTION I SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(s) identified not considered to be material weaknesses? Noncompliance material to financial statements noted? Unmodified No No No Federal Awards Internal control over major programs: Material weakness(es) identified? No Significant deficiency(s) identified not considered to be material weaknesses? No Type of auditors' report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Circular A 133, Section.510(a) No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster Title I, Part A, Basic Grants Low Income and Neglected Special Education Cluster Student Financial Assistance Cluster Title II, Part A, Teacher Quality Local Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low risk auditee? Yes State Awards Internal control over state programs: Material weakness(es) identified? Significant deficiency(s) identified not considered to be material weaknesses? Type of auditors' report issued on compliance for state programs: No No Unmodified 55

142 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2013 SECTION II FINANCIAL STATEMENT FINDINGS This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance related to the financial statements that are required to be reported in accordance with Government Auditing Standards. Pursuant to Assembly Bill (AB) 3627, all audit findings must be identified as one or more of the following categories: Five Digit Code AB 3627 Finding Types Attendance Inventory of Equipment Internal Control State Compliance CalSTRS Federal Compliance Miscellaneous Classroom Teacher Salaries Instructional Materials Teacher Misassignments School Accountability Report Card There were no financial statement findings in

143 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2013 SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS This section identifies the audit findings required to be reported by Circular A 133, Section.510(a) (e.g., significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs). There were no federal award findings or questioned costs in

144 BEAUMONT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2013 SECTION IV STATE AWARD FINDINGS AND QUESTIONED COSTS This section identifies the audit findings pertaining to noncompliance with state program rules and regulations. There were no state award findings or questioned costs in

145 BEAUMONT UNIFIED SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2013 There were no findings or questioned costs in

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147 Board of Trustees Beaumont Unified School District Beaumont, California In planning and performing our audit of the basic financial statements of Beaumont Unified School District for the year ending June 30, 2013, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control structure. However, during our audit we noted matters that are an opportunity for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated December 13, 2013, on the financial statements of Beaumont Unified School District. ASSOCIATED STUDENT BODY (ASB) FUNDS Observation: In our testing of cash receipts at San Gorgonio Middle School, we found that one of the five deposits tested lacked supporting documentation. Two of the five cash receipts could not be traced to the bank deposit slip or bank statement. Recommendation: All cash receipts which are prepared for deposit should be evidenced by additional documentation showing an itemization of the items included in the total bank deposit. This provides an audit trail from the initial cash receipt to the final deposit of the funds into the bank account and evidence that the funds have been deposited intact. Without proper documentation procedures in place, there is an opportunity for misappropriation of funds to occur and go undetected. Observation: In our test of cash disbursements at San Gorgonio Middle School, we noted that none of the disbursements in our sample were approved by the District representative. Furthermore, two of the expenditures weren t approved until after they had already been incurred. At Beaumont High School, three of the twenty five disbursements selected were not approved by the District representative, the ASB advisor, and/or the student representative until after the expenditure had already been incurred. At Glen View Continuation High School, one of the two disbursements selected was not pre approved. At Mountain View Middle School, two of the fifteen disbursements selected were not properly pre approved. Recommendation: As a best practice, approval by required parties should be obtained before the actual commitment to purchase the items in order to ensure the expense is a proper use of student body funds and falls within budgetary guidelines. Education Code Section 48933(b) requires all expenditures from ASB funds be authorized by a student representative, an advisor, and a district representative (usually a principal or vice principal) prior to disbursing the funds. 60

148 ASSOCIATED STUDENT BODY (ASB) FUNDS (continued) Observation: During our testing at two school sites, we identified that bank reconciliations were not prepared timely. Of the five bank reconciliations audited at Beaumont High School, one was completed more than two months after receiving statements, and one was completed more than a month after receiving the statement. At San Gorgonio Middle School, through inquiry and review it was determined that the reconciliations were not prepared timely. Recommendation: Timely and accurate bank reconciliations are prudent and necessary to ensure that the accounting records match the amounts held on deposit. We recommend the bookkeeper perform monthly bank reconciliations within two weeks after the statement arrives. Furthermore, the Principal or ASB Advisor should review the bank reconciliation and initial and date the bank statement and reconciliation as evidence they were reviewed. Review of the bank reconciliations by someone other than the ASB Bookkeeper is an important internal control to detect errors and possible questionable or suspicious activity. Observation: Beaumont HS ASB switched financial systems during the fiscal year. The new system is unable to print up summary revenue and expense reports for the year. As a result we were only able to obtain transaction detail reports by account, which were not able to be used, therefore auditor was unable to obtain the ASB's total revenue and expense for the year. Recommendation: The ASB should utilize a system that has information readily available. We will review the status of the current year comments during our next audit engagement. December 13,

149 APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the Disclosure Agreement ), dated as of June 1, 2014, is by and between the Beaumont Unified School District (the Issuer ) and U.S. Bank National Association, as dissemination agent (the Dissemination Agent ), in connection with the issuance of $7,285,000 of the Issuer s 2014A General Obligation Refunding Bonds (Election of 1998) (the Bonds ). The Bonds are being issued pursuant to a resolution of the Issuer dated April 8, 2014 (the Resolution ). The Issuer and the Dissemination Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Issuer and the Dissemination Agent for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. Disclosure Representative shall mean the Superintendent of the Issuer or his or her designee, or such other officer or employee as the Issuer shall designate in writing to the Dissemination Agent from time to time. Dissemination Agent shall mean, initially, U.S. Bank National Association, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designed in writing by the Issuer and which has been filed with the then current Dissemination Agent a written acceptance of such designation. EMMA shall mean the Electronic Municipal Market Access system of the MSRB. Listed Events shall mean any of the events listed in Section 5(a) and (b) of this Disclosure Agreement. MSRB shall mean the Municipal Securities Rulemaking Board and any successor entity designated under the Rule as the repository for filings made pursuant to the Rule. Participating Underwriter shall mean Piper Jaffray & Co. as the original underwriter of the Bonds. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Reports. (a) The Issuer shall, or shall cause the Dissemination Agent upon written direction to, not later than the February 1 following the end of the Issuer s fiscal year, commencing with the report for the fiscal year ending June 30, 2014, provide to the MSRB the first Annual Report due by February 1, 2015 and each Annual Report due thereafter, which Annual Report shall be consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report shall be provided to the MSRB in an electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, C-1

150 and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Issuer may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report. The Annual Report shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. The Issuer s fiscal year is currently effective from July 1 to the immediately succeeding June 30 of the following year. The Issuer will promptly notify the MSRB and the Dissemination Agent, if other than the Issuer, of a change in the fiscal year dates. (b) In the event that the Dissemination Agent is an entity other than the Issuer, then the provisions of this Section 3(b) shall apply. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Issuer shall provide the Annual Report to the Dissemination Agent. If by fifteen (15) Business Days prior to such date the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Issuer to determine if the Issuer is in compliance with subsection (a). The Issuer shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Issuer and shall have no duty or obligation to review such Annual Report. (c) If the Issuer is the Dissemination Agent and the Issuer is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the Issuer shall send a notice to the MSRB in substantially the form attached to this Disclosure Agreement as Exhibit A. If the Dissemination Agent is other than the Issuer and if the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) confirm the electronic filing requirements of the MSRB for the Annual Reports; and (ii) promptly after receipt of the Annual Report, file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided to the MSRB. The Dissemination Agent s duties under this clause (ii) shall exist only if the Issuer provides the Annual Report to the Dissemination Agent for filing. (e) Notwithstanding any other provision of this Disclosure Agreement, all filings shall be made in accordance with the MSRB s EMMA system or in another manner approved under the Rule. SECTION 4. the following: Content of Annual Reports. The Annual Report shall contain or include by reference (a) (i) The audited financial statements of the Issuer for the most recent fiscal year of the Issuer then ended; (ii) the most recently adopted budget of the Issuer and, if required to be prepared and filed, the First Interim Report for the current fiscal year; and (iii) an update of the information contained in Tables 1 through 3 and 10 contained under the headings TAX BASE FOR REPAYMENT OF THE 2014 BONDS and DISTRICT FINANCIAL MATTERS in the Official Statement for the Bonds. If the audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the Issuer in a format similar to the financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Audited financial statements, if any, of the Issuer shall be audited by such auditor as shall then be required or permitted by State law. Audited financial statements shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental C-2

151 Accounting Standards Board; provided, however, that the Issuer may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the event that the Issuer shall modify the basis upon which its financial statements are prepared, the Issuer shall provide a notice of such modification to the MSRB, including a reference to the specific federal or state law or regulation specifically describing the legal requirements for the change in accounting basis. (b) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The Issuer shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) business days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB) with respect to the 2014B Bonds; 6. tender offers; 7. defeasances; 8. ratings changes; and 9. bankruptcy, insolvency, receivership or similar proceedings. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: C-3

152 1. unless described in paragraph 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. the consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 3. appointment of a successor or additional trustee or the change of the name of a trustee; 4. nonpayment related defaults; 5. modifications to the rights of Owners of the Bonds; 6. notices of redemption; and 7. release, substitution or sale of property securing repayment of the Bonds. (c) Whenever the Issuer obtains knowledge of the occurrence of a Listed Event described in subsection (b), the Issuer shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Issuer determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the Issuer shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) business days after the event. (e) The Issuer hereby agrees that the undertaking set forth in this Disclosure Certificate is the responsibility of the Issuer and that the Dissemination Agent shall not be responsible for determining whether the Issuer s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. (f) If the Dissemination Agent has been instructed by the Issuer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(7) and (b)(6) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Resolution. In each case of the Listed Event, the Dissemination Agent shall not be obligated to file a notice as required in this subsection (f) prior to the occurrence of such Listed Event. (g) Any of the filings required to be made under this Section 5 shall be made in accordance with the MSRB s EMMA system or in another manner approved under the Rule. SECTION 6. Termination of Reporting Obligation. The obligation of the Issuer and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5. SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The C-4

153 initial Dissemination Agent shall be U.S. Bank National Association. The Dissemination Agent may resign by providing thirty days written notice to the Issuer. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the Issuer. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Issuer in a timely manner and in a form suitable for filing. SECTION 8. Amendment. (a) This Disclosure Agreement may be amended, by written agreement of the parties, without the consent of the Owners, if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the Issuer or the type of business conducted thereby, (2) this Disclosure Agreement as so amended would have complied with the requirements of the Rule as of the date of this Disclosure Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) there shall have been delivered to the Issuer an opinion of a nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer, to the same effect as set forth in clause (2) above, (4) the Issuer shall have received and delivered to the Dissemination Agent, if other than the Issuer, an opinion of nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Issuer, to the effect that the amendment does not materially impair the interests of the Owners, and (5) the Issuer shall have delivered copies of such opinion and amendment to the MSRB. (b) This Disclosure Agreement may be amended, by written agreement of the parties, upon obtaining consent of Owners at least 25% of the outstanding Bonds; provided that the conditions set forth in Section 8(a)(1), (2) and (3) have been satisfied; and provided, further, that the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder. (c) To the extent any amendment to this Disclosure Agreement results in a change in the type of financial information or operating data provided pursuant to this Disclosure Agreement, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change. (d) If an amendment is made to the basis on which financial statements are prepared, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a quantitative and, to the extent reasonably feasible, qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the Issuer under such laws. C-5

154 SECTION 10. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Agreement, any Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Agreement in the event of any failure of the Issuer to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Issuer agrees to indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. Any Dissemination Agent other than the Issuer shall be paid (i) compensation by the Issuer for its services provided hereunder in accordance with a schedule of fees to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the Issuer pursuant to this Disclosure Agreement. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Agreement. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Paying Agent, the Dissemination Agent, the Participating Underwriter and Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing. Disclosure Representative: Dissemination Agent: Superintendent Beaumont Unified School District 350 Brookside Avenue Beaumont, California U.S. Bank National Association 633 West 5th Street, 24th Floor Los Angeles, California Attention: Global Corporate Trust Services C-6

155 SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. BEAUMONT UNIFIED SCHOOL DISTRICT By: Its: Superintendent U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent By: Its: Authorized Officer C-7

156 EXHIBIT A NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Bond Issue: Beaumont Unified School District Beaumont Unified School District Riverside County, California 2014A General Obligation Refunding Bonds (Election of 1998) Date of Issuance: June 4, 2014 NOTICE IS HEREBY GIVEN that the Beaumont Unified School District (the School District ) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Agreement, dated as of June 1, 2014, by and between the School District and U.S. Bank National Association, as dissemination agent. [The School District anticipates that the Annual Report will be filed by.] Dated:, 20 U.S. BANK NATIONAL ASSOCIATION, Dissemination Agent cc: School District C-8

157 APPENDIX D INFORMATION CONCERNING THE CITY OF BEAUMONT AND COUNTY OF RIVERSIDE The following information concerning the City of Beaumont and the County of Riverside is presented as general background data. The City of Beaumont comprises approximately one-third of the District s territory. The Bonds are not an obligation of the City of Beaumont, the County of Riverside, the State of California or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor. History The word Beaumont, means beautiful mountain which aptly describes the locality of the City of Beaumont and its surrounding area. The origins of Beaumont can be traced back to the 1840s when the first business was established. By 1860, Beaumont had become a stop for the stage coaches in route to the gold fields of Yuma, Arizona. By January 26, 1876, the Southern Pacific had begun rail service through the Beaumont area, and by 1892, there were four passenger trains running from Colton to Banning. During this time, the train depot was constructed in Beaumont. By the 1880s, George Egan had purchased ranch land in which he laid out the townsite of Beaumont, developed water resources and established the town s first hotel, the Summit House. The townsite was purchased in 1886 by Dr. H.C. Sigler and Associates, and by the following year, the town had planted trees, laid out streets and changed its name to Beaumont. The community had experienced steady growth into the 20 th Century; however, by the 1950s, the Southern Pacific had ceased its passenger train operations in the community. Beaumont s present day economic basis is structured on light manufacturing, agriculture and tourism. One of the key attractions of Beaumont is its Cherry Festival which dates back to Population The following table offers population figures for Beaumont, the County and the State as of January 1, 2009 through January 1, Area City of Beaumont 32,448 34,217 38,034 38,966 39,776 County of Riverside 2,109,882 2,139,535 2,205,731 2,234,193 2,255,059 State of California 38,255,508 38,648,090 37,427,946 37,668,804 37,966,471 Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and the State, , with 2010 Benchmark, Sacramento, California, May D-1

158 Employment The following table sets forth the principal employers located in the County. COUNTY OF RIVERSIDE PRINCIPAL EMPLOYERS 2013 Rank Name of Business Employees Type of Business 1. County of Riverside 18,728 County Government 2. March Air Reserve Base 9,000 Military Reserve Base 3. Stater Brothers Markets 6,900 Supermarkets 4. Walmart 5,681 Super Store 5. University of California, Riverside 5,497 University 6. Riverside Unified School District 5,000 School District 7. Corona-Norco Unified School District 4,633 School District 8. Kaiser Permanente Riverside Medical Center 4,500 Medical Center 9. Moreno Valley Unified School District 3,355 School District 10. Hemet Unified School District 3,270 School District Source: County of Riverside Comprehensive Annual Financial Report for the year ending June 30, D-2

159 Employment and Industry Employment data by industry is not separately reported on an annual basis for Beaumont but is compiled for the Riverside-San Bernardino-Ontario Metropolitan Statistical Area (the MSA ), which includes all of Riverside and San Bernardino Counties. In addition to varied manufacturing employment, the MSA has large and growing commercial and service sector employment, as reflected in the table below. The following table represents the Annual Average Labor Force and Industry Employment for the MSA for the period from 2009 through RIVERSIDE-SAN BERNARDINO-ONTARIO MSA (Riverside and San Bernardino Counties) Industry Employment & Labor Force - by Annual Average March 2013 Benchmark Civilian Labor Force 1,774,300 1,798,200 1,799,000 1,805,400 1,818,300 Civilian Employment 1,540,100 1,540,500 1,557,800 1,586,800 1,633,400 Civilian Unemployment 234, , , , ,900 Civilian Unemployment Rate 13.2% 14.3% 13.4% 12.1% 10.2% Total Farm 14,900 15,000 14,900 15,000 14,600 Total Nonfarm 1,162,800 1,144,200 1,147,300 1,179,200 1,226,400 Total Private 927, , , ,600 1,001,400 Goods Producing 157, , , , ,300 Natural Resources & Mining 1,100 1,000 1,000 1,200 1,200 Construction 67,900 59,700 59,100 62,600 69,300 Manufacturing 88,700 85,100 85,100 86,700 86,800 Service Providing 1,005, ,400 1,002,200 1,028,800 1,069,100 Trade, Transportation & Utilities 271, , , , ,300 Wholesale Trade 48,900 48,600 49,000 52,100 56,000 Retail Trade 156, , , , ,800 Transportation, Warehousing & 66,800 66,600 68,800 73,800 78,600 Utilities Information 14,100 14,000 12,100 11,500 11,300 Financial Activities 42,500 41,000 39,900 40,800 42,000 Professional & Business 125, , , , ,600 Services Educational & Health Services 155, , , , ,000 Leisure & Hospitality 123, , , , ,200 Other Services 37,300 38,200 39,100 40,100 40,800 Government 235, , , , ,000 Total, All Industries 1,177,600 1,159,300 1,162,200 1,194,200 1,241,000 Note: The Total, All Industries data is not directly comparable to the employment data found herein. Source: State of California, Employment Development Department, Labor Market Information Division, March 2013 Benchmark. D-3

160 The following table summarizes the labor force, employment and unemployment figures for the years 2009 through 2013 for Beaumont, the County, the State and the nation as a whole. CITY OF BEAUMONT, COUNTY OF RIVERSIDE, STATE OF CALIFORNIA AND UNITED STATES Average Annual Civilian Labor Force, Employment and Unemployment Year and Area Labor Force Employment (1) Unemployment (2) Rate (%) (3) Unemployment 2009 Beaumont 6,800 5,800 1, % Riverside County 917, , , California 18,250,200 16,163,900 2,086, United States (4) 154,142, ,877,000 14,265, Beaumont 7,000 5,900 1, % Riverside County 938, , , California 18,316,400 16,051,500 2,264, United States (4) 153,889, ,064,000 14,825, Beaumont 7,000 5,900 1, % Riverside County 939, , , State of California 18,384,900 16,226,600 2,158, United States (4) 153,617, ,869,000 13,747, Beaumont 7,000 6,000 1, % Riverside County 944, , , State of California 18,494,900 16,560,300 1,934, United States (4) 154,975, ,469,000 12,506, Beaumont 7,100 6, % Riverside County 953, ,300 97, State of California 18,596,800 16,933,300 1,663, United States (4) 155,389, ,929,000 11,460, (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. (4) Not strictly comparable with data for prior years. Source: State of California Employment Development Department, based on 2009, 2010, 2011, 2012 and 2013 Benchmark and U.S. Department of Labor, Bureau of Labor Statistics. D-4

161 Retail Sales The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions is presented in the following table. Year CITY OF BEAUMONT Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Taxable Transactions in Thousands of Dollars) Retail Stores Taxable No. of Permits Transactions Total All Outlets Taxable No. of Permits Transactions , , , , , , ,724 1, , ,002 1, ,876 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Construction Activity The following table shows building permit valuations and new housing units in Beaumont for 2008 through CITY OF BEAUMONT Building Permit Valuation and New Housing Units Residential New Single Dwelling $ 55,890,384 $ 57,558,300 $ 54,103,986 $ 25,704,090 $ 37,514,023 Multifamily Dwelling Additions, Alterations 259,642 1,428, , , ,180 Total Residential $ 56,150,026 $ 58,987,127 $ 54,619,932 $ 26,190,530 $ 38,258,203 No. of New Dwelling Units Source: Construction Industry Research Board. Community Services and Facilities Police protection is provided by the Beaumont Police Department with assistance from the Riverside County Sheriff. Fire protection is contracted with the Riverside County Fire Department located in the City. Water and sewer services are provided by the Beaumont-Cherry Valley Water District. Natural gas is provided by Southern California Gas Company, electric power by Southern California Edison Company, telephone services by Verizon and waste disposal by the City of Beaumont of which it has contracts with Waste Management of Inland Valleys. Beaumont is serviced by San Gorgonio Memorial Hospital located in the City of Banning bordering the City. There are 2 medical centers in the community, with 2 urgent care centers. Numerous doctors, dentists, optometrists and other medical professionals are located in the area. The California Department of Forestry provides paramedic services to the community. Educational services are provided by the Beaumont Unified School District. There is also a Christian private school. Nearby are Mt. San Jacinto Community College; Crafton Hills College; College of the Desert; University of Redlands; California State University, San Bernardino and University of California, Riverside. D-5

162 Cultural and recreational facilities include 17 churches, a library, a museum, a weekly newspaper and 3 parks, including a municipal pool. The local area also provides local and regional parks, museums and 30 minute access to the Oak Glen Orchard attractions, a local apple growing tourist area which attracts more than one million visitors each year. One of the nation s largest Factory Outlet Malls is within 10 minutes of the City and a one hour driving distance includes the San Bernardino Mountain resorts, Palm Springs with numerous resort areas, Lake Perris State Recreational area, the Beach Cities and numerous Southern California attractions. Transportation and 79. Several main highways serve Beaumont. These include U.S. Interstate 10 and State Highways 60 Air transportation is currently available from Ontario International Airport, 45 miles to the west, the Palm Springs Airport, 35 miles to the east, and will soon be available from San Bernardino International Airport. Redlands Airport provides additional air transportation facilities. Local and interurban bus transportation is provided through Omnitrans Bus Service which is linked to the Southern California Rapid Transit District. Connections are available to Greyhound and Trailways Bus Lines which provide service to other local areas and additional transcontinental service. Dial-a-Ride also provides local bus service. Climate The climate of Beaumont is characterized as Mediterranean. Summers are hot and dry with an average high of 95 F to a low of 57 F. Winters are cool and moist with an average temperature high of 47 F to a low of 36 F. The average yearly rainfall is approximately 17 inches per year D-6

163 APPENDIX E BOOK-ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2014 Bonds, payment of principal, premium, if any, accreted value and interest on the 2014 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2014 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. 1. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the 2014 Bonds. The 2014 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond will be issued for each annual maturity of the 2014 Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. 2. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and 3. Purchases of 2014 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2014 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2014 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 2014 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in the 2014 Bonds, except in the event that use of the book-entry system for the 2014 Bonds is discontinued. E-1

164 4. To facilitate subsequent transfers, all 2014 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 2014 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 2014 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2014 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. 5. 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 2014 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2014 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2014 Bond documents. For example, Beneficial Owners of 2014 Bonds may wish to ascertain that the nominee holding the 2014 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the 2014 Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2014 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 Authority 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 2014 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the 2014 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 Authority or the Trustee, 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 Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, 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. 9. A 2014 Bond Owner shall give notice to elect to have its 2014 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2014 Bonds by causing the Direct Participant to transfer the Participant s interest in the 2014 Bonds, on DTC s records, to the Trustee. The requirement for physical delivery of 2014 Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2014 Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered 2014 Bonds to the Trustee s DTC account. E-2

165 10. DTC may discontinue providing its services as depository with respect to the 2014 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. 11. The Authority may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 2014 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2014 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. E-3

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167 APPENDIX F RIVERSIDE COUNTY TREASURER S STATEMENT OF INVESTMENT POLICY F-1

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169 COUNTY OF RIVERSIDE OFFICE OF THE TREASURER TAX-COLLECTOR STATEMENT OF INVESTMENT POLICY INTRODUCTION The Treasurer s Statement of Investment Policy is presented annually to the County Investment Oversight Committee for review and to the Board of Supervisors for approval, pursuant to the requirements of Sections 53646(a) and of the California Government Code (the Code Section). This policy will become effective immediately upon approval by the Board of Supervisors. SCOPE The Treasurer s Statement of Investment Policy is limited in scope to only those County, school, special districts and other fund assets actually deposited and residing in the County Treasury. It does not apply to bond funds or other assets belonging to the County of Riverside, or any affiliated public agency the assets of which reside outside of the County Treasury. FIDUCIARY RESPONSIBILITY Section of the Code declares each treasurer, or governing body authorized to make investment decisions on behalf of local agencies, to be a trustee and therefore a fiduciary subject to the prudent investor standard. This standard, as stated in Code Section requires that When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, the county treasurer or the board of supervisors, as applicable, shall act with care, skill, prudence, and diligence under the circumstances then prevailing, specifically including, but not limited to, the general economic conditions and the anticipated needs of the county and other depositors, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the county and the other depositors. PORTFOLIO OBJECTIVES The first and primary objective of the Treasurer s investment of public funds is to safeguard investment principal; second, to maintain sufficient liquidity within the portfolio to meet daily cashflow requirements; and third, to achieve a reasonable rate of return or yield on the portfolio consistent with these objectives. The portfolio shall be actively managed in a manner that is responsive to the public trust and consistent with State law. AUTHORITY Statutory authority for the Treasurer s investment and safekeeping functions are found in Code Sections and et. seq. The Treasurer s authority to make investments is to be renewed annually, pursuant to state law. It was last renewed by the Board of Supervisors on January 3, 2014 by County Ordinance No Code Section effectively requires the legislative body to delegate investment authority of the County on an annual basis. 1