PRELIMINARY OFFICIAL STATEMENT DATED MAY 8, 2018

Transcription

1 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or filing under the securities laws of any such jurisdiction. PRELIMINARY OFFICIAL STATEMENT DATED MAY 8, 2018 NEW ISSUE -- FULL BOOK-ENTRY Moody's Rating: Aa3 See RATING herein. In the opinion of Dannis Woliver Kelley, Bond Counsel, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See Tax Matters herein. $40,000,000 * GENERAL OBLIGATION BONDS OF SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 OF THE PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SAN LUIS OBISPO COUNTY, CALIFORNIA ELECTION OF 2016, SERIES A Dated: Date of Delivery Due: As Shown Inside The General Obligation Bonds of School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District, San Luis Obispo County, California, Election of 2016, Series A, in the aggregate principal amount of $40,000,000* (the Bonds ) are being issued by the Paso Robles Joint Unified School District (the District ). The Bonds are being sold to: (i) repay the 2017 General Obligation Bond Anticipation Notes of School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District, San Luis Obispo County, California (the Notes ); (ii) repair, acquire, upgrade, equip and construct school classrooms and facilities and expand career technical education; and (iii) pay costs of issuance of the Bonds. The Bonds are payable from ad valorem taxes to be levied within the School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District (the SFID No. 1 ) pursuant to the California Constitution and other State law. The Board of Supervisors of San Luis Obispo County (the County ) is empowered and obligated to annually levy ad valorem taxes, without limitation as to rate or amount, upon all property subject to taxation within SFID No 1. (except certain personal property that is taxable at limited rates), for the payment of interest on and principal of the Bonds when due, all as more fully described under the captions The Bonds and Security And Source Of Payment For The Bonds. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Purchasers will not receive physical certificates representing their interests in the Bonds. See Appendix E - Book-Entry-Only System. The Bonds are issued as current interest bonds. Interest with respect to the Bonds accrues from their date of delivery and is payable on August 1, 2018, and semiannually thereafter on February 1 and August 1 of each year. Principal of the Bonds is payable on the respective maturity dates as set forth on the inside cover page. Payments of such principal and interest will be paid by U.S. Bank National Association, Los Angeles, California, as paying agent, to DTC for subsequent disbursement to DTC Participants, who will remit such payments to the beneficial owners of the Bonds. The Bonds are subject to optional redemption and mandatory redemption prior to maturity, as described herein. The District has applied for bond insurance, but there is no guarantee that a commitment to insure the Bonds will be issued, or that the District will obtain such bond insurance if a commitment is issued. This cover page contains information for quick reference only. It is not a summary of all the provisions of the Bonds. Investors must read the entire official statement to obtain information essential in making an informed investment decision. The Bonds are offered when, as, and if issued and received by the Underwriter, subject to the approval as to their legality by Dannis Woliver Kelley, as Bond Counsel. Certain legal matters also will be passed upon for the District by Dannis Woliver Kelley, Sacramento, California, as Disclosure Counsel to the District. Certain matters will be passed upon for the Underwriter by,. It is anticipated that the Bonds in definitive form will be available for delivery to Cede & Co., as nominee of The DTC, on or about April 26, The date of this Official Statement is, * Preliminary, subject to change [Underwriter s Logo]

2 $40,000,000 * GENERAL OBLIGATION BONDS OF SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 OF THE PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SAN LUIS OBISPO COUNTY, CALIFORNIA ELECTION OF 2016, SERIES A MATURITY SCHEDULE Maturity Date (August 1) Principal Amount Interest Rate Yield CUSIP( ) Base: $ % Term Bonds due August 1, 20 Yield: %; Price: ; CUSIP : CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP numbers are provided for convenience of reference only. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. Neither the Underwriter, the District, Bond Counsel, nor Disclosure Counsel is responsible for the selection or correctness of the CUSIP numbers set forth above * Preliminary, subject to change.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds and may not be reproduced or used, in whole or in part for any other purpose. This Official Statement is not a contract between any Bond Owner and the District or the Underwriter. No Offering Except by This Official Statement. 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 in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation, or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Estimates and Forecasts. When used in this Official Statement and in any press release and in any oral statement made with the approval of an authorized officer of the District, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend, and similar expressions identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Documents. All summaries of the Paying Agent Agreement or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference such documents, and do not purport to be complete statements of any or all of such provisions. Copies of documents referred to herein and other information concerning the Bonds are available from the Paso Robles Joint Unified School District, 800 Niblick Road, Paso Robles, California 93447, telephone (805) The District may impose a charge for copying, mailing, and handling. No Securities Laws Registration. The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Stabilization of and Changes to Offering Prices. In connection with the offering of the Bonds, the Underwriter may over allot or effect transactions that stabilize or maintain the market price of the Bonds, at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell Bonds to certain dealers and banks at prices lower than the initial public offering price stated on the inside cover page hereof, and said initial public offering price may be changed from time to time by the Underwriter. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or other information contained herein since the date of this Official Statement.

4 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SAN LUIS OBISPO AND MONTEREY COUNTIES STATE OF CALIFORNIA DISTRICT BOARD OF TRUSTEES Joan Summers, President Joel Peterson, Clerk Chris Bausch, Trustee Tim Gearhart, Trustee Field Gibson, Trustee Dr. Kathleen Hall, Trustee Matt McClish, Trustee DISTRICT ADMINISTRATION Chris Williams, Superintendent BOND COUNSEL & DISCLOSURE COUNSEL Dannis Woliver Kelley Sacramento, California FINANCIAL ADVISOR Dale Scott & Company Inc. San Francisco, California PAYING AGENT U.S. Bank National Association Los Angeles, California

5 TABLE OF CONTENTS Page INTRODUCTION... 1 Description of the Bonds... 1 Registration... 1 Redemption... 1 The District and SFID No Authority for Issuance of the Bonds... 2 Security for the Bonds... 2 Purpose of Issue... 3 Offering and Delivery of the Bonds... 3 Legal Matters... 3 Tax Matters... 3 Continuing Disclosure... 3 Other Information... 4 THE BONDS... 4 Authority for Issuance; Purpose... 4 Description of the Bonds... 5 Payment of Principal and Interest... 5 Security... 6 Book-Entry-Only System... 6 Paying Agent... 6 Redemption... 7 Selection of Bonds to Be Redeemed... 7 Notice of Redemption... 7 Right to Rescind Notice... 8 Registration, Transfer, and Exchange of Bonds... 9 Defeasance of Bonds BOND INSURANCE ESTIMATED SOURCES AND USES OF FUNDS BONDS DEBT SERVICE SCHEDULE APPLICATION OF PROCEEDS OF BONDS Building Fund Interest and Sinking Fund Costs of Issuance Account Debt Service Fund BAN Repayment Fund Permitted Investments CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Constitutionally Required Funding of Education Article XIIIA of the California Constitution Inflationary Adjustment of Assessed Valuation Unitary Property Article XIIIB of the California Constitution Article XIIIC and Article XIIID of the California Constitution Propositions 98 and i

6 Proposition Proposition Proposition Proposition 1A and Proposition Future Initiatives RISK FACTORS Natural Disasters Bankruptcy and Equitable Limitations Pension Benefit Liability Economic Conditions in California Loss of Tax Exemption SFID NO General Description Location and Territory Governing Board SECURITY AND SOURCE OF PAYMENT FOR THE BONDS Payment of Principal and Interest Ad Valorem Taxes Property Tax Collection Procedures Assessed Valuations of Property within SFID No Assessed Valuation by Land Use Assessed Valuation by Jurisdiction Assessed Valuation of Single Family Homes Appeals and Adjustments of Assessed Valuations Alternative Method of Tax Apportionment - Teeter Plan Tax Levies and Delinquencies District Tax Rates Largest Property Owners Direct and Overlapping Debt THE DISTRICT General Information County Office of Education Administration Average Daily Attendance Employee Relations District Retirement Systems State Pensions Trusts GASB Statement Nos. 67 and Post-Employment Healthcare Benefits Insurance, Risk Pooling, and Joint Powers Arrangements District Debt DISTRICT FINANCIAL INFORMATION State Budget, Proposition 30, and School District Finance Accounting Practices School District Budget Process District s Budget Financial Statements Limit on School District Reserves ii

7 County Investment Pool STATE FUNDING OF EDUCATION Revenue Sources The State Budget Process Fiscal Year State Budget Proposed State Budget THE ECONOMY OF THE COUNTY OF SAN LUIS OBISPO General Information Population County Employment Major Employers LEGAL OPINION TAX MATTERS CONTINUING DISCLOSURE NO MATERIAL LITIGATION RATING UNDERWRITING FINANCIAL ADVISOR COMPENSATION OF PROFESSIONALS ADDITIONAL INFORMATION AUTHORIZATION APPENDIX A - Map of SFID No A-1 APPENDIX B - Audited Financial Statements of the District for Fiscal Year ended June 30, B-1 APPENDIX C - Form of Opinion of Bond Counsel... C-1 APPENDIX D - Form of Continuing Disclosure Certificate... D-1 APPENDIX E - Book-Entry-Only System... E-1 APPENDIX F - County of San Luis Obispo Investment Pool Quarterly Report...F-1 APPENDIX G - Specimen Municipal Bond Insurance Policy... G-1 iii

8 $40,000,000 * GENERAL OBLIGATION BONDS OF SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 OF THE PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SAN LUIS OBISPO COUNTY, CALIFORNIA ELECTION OF 2016, SERIES A INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, the inside cover page, and the appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. This Official Statement, which includes the cover page, the inside cover page, and the attached appendices, sets forth certain information concerning the sale and delivery by the Paso Robles Joint Unified School District (the District ) of the bonds captioned above (the Bonds ). All capitalized terms used in this Official Statement, unless noted otherwise, have the meanings set forth in the Paying Agent Agreement (as defined below). Description of the Bonds The Bonds will be dated their date of delivery (the Delivery Date ) and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple thereof. Interest on the Bonds will be payable on February 1 and August 1 of each year (each, an Interest Payment Date ), commencing August 1, 2018, and principal of the Bonds will be paid on the dates as set forth in the Maturity Schedule on the inside cover page of this Official Statement. Registration The 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 Bonds (the Beneficial Owners ) under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See The Bonds Book-Entry-Only System. Redemption The Bonds are subject to optional redemption and mandatory redemption prior to maturity as described herein. See The Bonds Redemption. * Preliminary, subject to change. 1

9 The District and SFID No. 1 The District was unified in 1997 with the joining of the Paso Robles Elementary School District and the Paso Robles High School District, and serves an area of approximately 800 square miles located 99% in San Luis Obispo (the County ) and 1% in Monterey Counties, California. SFID No. 1 is an area located in the County encompassing approximately 83.77% of the District (calculated from Fiscal Year assessed value). SFID No. 1 was specifically created by the District as a separate tax area for purposes of approving and repaying bonds of SFID No. 1. Authority for Issuance of the Bonds The Bonds are issued pursuant to the provisions of California Education Code Sections and et seq. (the Act ), California Government Code Section et seq., and Article XIIIA of the Constitution of the state of California (the State ). The Bonds are authorized to be issued pursuant to a resolution adopted by the Board of Trustees of the District (the Board ) on March 13, 2018, and are issued pursuant to the paying agent agreement dated as of May 1, 2018 (the Paying Agent Agreement ), between the District and U.S. Bank National Association (the Paying Agent ). See The Bonds Authority for Issuance; Purpose. At an election held on November 8, 2016, the District received authorization under Measure M to issue the bonds of SFID No. 1 in an aggregate principal amount not to exceed $95,000,000 to repair, acquire, upgrade, equip and construct school classrooms and facilities and expand career technical education for the benefit of the area of land located within SFID No. 1 (the Authorization ). The measure required approval by at least 55% and received an approval vote of approximately 57.5%. The Bonds represent the first series of authorized bonds to be issued under the Authorization and will be issued to finance authorized projects, repay the Notes, and pay costs of issuance. Security for the Bonds The Bonds are payable from ad valorem taxes to be levied within SFID No. 1 pursuant to the California Constitution and other State law. The Board of Supervisors (the Board of Supervisors ) of the County has the power and is obligated to annually levy ad valorem taxes for the payment of debt service on the Bonds upon all property within the SFID No. 1 subject to taxation, without limitation of rate or amount (except certain personal property which is taxable at limited rates). Proceeds of the ad valorem tax levy will be deposited in the School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District Interest and Sinking Fund (the Interest and Sinking Fund ), which is maintained by the County Treasurer, and then transferred semiannually to the Paying Agent for payment of debt service on the Bonds. See Security and Source of Payment for the Bonds. Pursuant to Section of the California Government Code (which became effective on January 1, 2016), all general obligation bonds issued by local agencies, including the Bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax. Section provides that the lien will automatically arise, without the need for any 2

10 action or authorization by the local agency or its governing board, and will be valid and binding from the time the bonds are executed and delivered. Section further provides that the revenues received pursuant to the levy and collection of the tax will be immediately subject to the lien, and the lien will immediately attach to the revenues and be effective, binding and enforceable against the local agency, its successor, transferees and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for physical delivery, recordation, filing or further act. Purpose of Issue The proceeds of the Bonds will be used to (i) repay the Notes; (ii) repair, acquire, upgrade, equip and construct school classrooms and facilities and expand career technical education; and (iii) pay costs of issuance of the Bonds. See The Bonds Authority for Issuance, Purpose. Offering and Delivery of the Bonds The Bonds are offered when, as and if issued and received by the purchasers, subject to approval as to their legality by Dannis Woliver Kelley, Sacramento, California ( Bond Counsel ). It is anticipated that the Bonds will be available for delivery in New York, New York on or about April 26, Legal Matters Issuance of the Bonds is subject to the approving opinion of Bond Counsel, to be delivered in substantially the form attached hereto as Appendix C. Dannis Woliver Kelley, Sacramento, California, also serves as Disclosure Counsel to the District. Certain legal matters will be passed upon for the Underwriter by, as Underwriter s Counsel. Payment of the fees of Bond Counsel, Disclosure Counsel and Underwriter s Counsel is contingent upon issuance of the Bonds. Tax Matters In the opinion of Dannis Woliver Kelley, Bond Counsel, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, See Tax Matters. Continuing Disclosure The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. The form of the Continuing Disclosure Certificate is included in Appendix D. 3

11 Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. For limiting factors about this Official Statement, see General Information About This Official Statement. Copies of documents referred to herein and information concerning the Bonds are available from the Superintendent, Paso Robles Joint Unified School District, 800 Niblick Road, Paso Robles, California 93446, (805) The District may impose a charge for copying, mailing, and handling. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts, or matters of opinion, whether or not expressly so described herein, are intended solely as such, and are not to be construed as representations of fact. The summaries and references to documents, statutes, and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties by reference to each of such documents, statutes, and constitutional provisions. The information set forth herein has been obtained from official sources which are believed to be reliable, but the information is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. Authority for Issuance; Purpose THE BONDS The Bonds are issued under the provisions of California Government Code Section et seq., California Education Code Sections and et seq. (the Act ), and Article XIIIA of the Constitution of the State. The Bonds are authorized to be issued pursuant to a resolution adopted by the Board of Trustees of the District (the Board ) on March 13, 2018, and are issued pursuant to the paying agent agreement dated as of May 1, 2018 (the Paying Agent Agreement ), between the District and U.S. Bank National Association (the Paying Agent ). See The Bonds Authority for Issuance; Purpose. At an election held on November 8, 2016, the District received authorization under Measure M to issue the bonds of SFID No. 1 in an aggregate principal amount not to exceed $95,000,000 to repair, acquire, upgrade, equip and construct school classrooms and facilities and expand career technical education for the benefit of the area of land located within SFID No. 1 (the Authorization ). The measure required approval by at least 55% and received an approval vote of approximately 57.5%. The Bonds represent the first series of authorized bonds to be issued under the Authorization. 4

12 Proceeds of the Bonds will be applied to (i) repay the Notes; (ii) repair, acquire, upgrade, equip and construct school classrooms and facilities and expand career technical education; and (iii) pay costs of issuance of the Bonds. Description of the Bonds The Bonds will be executed in an aggregate principal amount of $40,000,000 *. The Bonds will be dated their date of delivery, and will be issued in fully registered form without coupons, in the denomination of $5,000, or any integral multiple of $5,000. The Bonds will mature as provided on the inside cover hereof, and will bear interest at the rates (calculated on the basis of a 360-day year composed of twelve 30-day months), as shown on the inside cover page hereof. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of DTC, or its nominee, all payments of principal and interest on the Bonds will be paid to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the Bonds. See Appendix E Book-Entry-Only System. If the Bonds are no longer registered in book-entry form, payment of interest on any Bond on any Interest Payment Date will be made to the person appearing on the registration books of the Paying Agent as the Owner thereof as of the Record Date immediately preceding such Interest Payment Date, such interest to be paid by check mailed to such Owner on the Interest Payment Date at his address as it appears on such registration books or at such other address as he may have filed with the Paying Agent for that purpose on or before the Record Date. The Owner in an aggregate principal amount of $1,000,000 or more may request in writing to the Paying Agent that such Owner be paid interest by wire transfer to the bank and account number on file with the Paying Agent as of the Record Date. Record Date means the fifteenth day of the month immediately preceding the Interest Payment Date. The principal payable on the Bonds shall be payable upon maturity or redemption upon surrender at the principal office of the Paying Agent. The interest and principal on the Bonds shall be payable in lawful money of the United States of America. Payment of Principal and Interest The Bonds are issued as current interest bonds as set forth herein on the inside front cover. Interest on the Bonds accrues from their date of delivery at the rates set forth on the inside cover of the Official Statement, and interest is payable on August 1, 2018, and semiannually thereafter on February 1 and August 1 of each year. The Bonds mature on August 1 in the years and amounts set forth herein. See Maturity Schedule on the inside cover. Interest accruing on the Bonds will be computed using a year of 360 days consisting of twelve, 30-day months. * Preliminary, subject to change 5

13 Security Obligation to Levy Taxes for Payment of Bonds. The Board of Supervisors and officers of the County are obligated by statute to provide for the levy and collection of property taxes in SFID No. 1 each year in an amount sufficient to pay the principal and interest coming due on the Bonds in such year, and to pay from such taxes all amounts due on the Bonds. The District will take all steps required by law and by the County to ensure that the Board of Supervisors annually levy taxes sufficient to pay debt service on the Bonds as it comes due. For further information regarding ad valorem property taxation in general and within SFID No. 1 in particular, see Security and Source of Payment for the Bonds. Payment of Principal and Interest. At least one business day prior to the date any payment is due in respect of the Bonds, the District will cause the Treasurer to transfer from the respective Interest and Sinking Fund to the Paying Agent for deposit in the School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District Debt Service Fund (the Debt Service Fund ) to be held by the Paying Agent an amount sufficient to pay its corresponding portion of principal of and the interest (and premium, if any) to become due on all Bonds outstanding on such payment date. When and as paid in full, and following surrender thereof to the Paying Agent, all Bonds shall be cancelled by the Paying Agent, and thereafter they shall be destroyed. Book-Entry-Only System The Bonds will be issued in fully registered form only, registered in the name of Cede & Co. as nominee of DTC, and will be available to the Beneficial Owners of the Bonds in the denominations set forth on the inside cover page hereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See Appendix E Book-Entry-Only System. If the book-entry-only system described below is no longer used with respect to the Bonds, the Bonds will be registered as described under the caption Registration, Transfer and Exchange of Bonds. Paying Agent U.S. Bank National Association, Los Angeles, California, will act as the registrar, transfer agent and paying agent for the Bonds. As long as DTC is the registered Owner of the Bonds and DTC s book-entry method is used for the Bonds, the Paying Agent 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 such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the redemption of the Bonds called for redemption or of any other action covered by such notice. The Paying Agent, the District, the County, and the Underwriter of the Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the Bonds. 6

14 Redemption Optional Redemption. The Bonds maturing on or before August 1, 2028, shall not be subject to redemption prior to their respective stated maturities. The Bonds maturing on or after August 1, 2029, are subject to redemption prior to their respective stated maturities, at the option of the District, from any source of available funds, as a whole or in part on any date (by such maturities as may be specified by the District and by lot within a maturity), on or after August 1, 2028, at a redemption price equal to the principal amount of Bonds called for redemption plus accrued interest to the date fixed for redemption. Mandatory Sinking Fund Redemption. The Bonds maturing by their terms on August 1, 20 (the Term Bonds ), are subject to mandatory redemption prior to maturity in part, by lot, from Mandatory Redemption Payments on August 1 of each year, in accordance with the schedules set forth below. The Term Bonds so called for mandatory redemption shall be redeemed at the principal amount thereof, together with interest thereon accrued to the redemption date, without premium, but which amounts will be proportionately reduced by the principal amount of such Term Bonds optionally redeemed. Term Bond Mandatory Redemption Dates (August 1) Mandatory Redemption Payment * Final maturity Selection of Bonds to Be Redeemed If less than all the Bonds are to be redeemed, not more than sixty (60) days prior to the redemption date, the Paying Agent shall select the particular Bonds to be redeemed from the Bonds that have not previously been called for redemption, in minimum amounts of $5,000, at the direction of the District; and if no such direction has been provided, in inverse order and within a maturity that the Paying Agent in its sole discretion shall deem appropriate and fair. The Paying Agent shall promptly notify the District in writing of the Bonds so selected for redemption, and in the case of a Bond selected for partial redemption, the principal amount thereof to be redeemed. Notice of Redemption The Paying Agent shall mail, or distribute by electronic means, the notice of redemption not fewer than thirty (30) nor more than sixty (60) days prior to the redemption date by first-class mail, postage prepaid, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Bond Register. If the Bonds are not registered solely to a securities depository, the Paying Agent shall also give notice of redemption of Bonds to the securities depositories and the information service (at the same time it mails notice of redemption to the Owners) by registered or overnight mail. 7

15 Each notice of redemption shall state (i) the date of such notice; (ii) the name of the Bonds and the date of issue of the Bonds; (iii) the redemption date; (iv) the redemption price; (v) the dates of maturity of the Bonds to be redeemed; (vi) if less than all of the Bonds of any maturity are to be redeemed, the distinctive numbers of the Bonds of each maturity to be redeemed; (vii) in the case of Bonds redeemed in part only, the respective portions of the principal amount of the Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Bonds to be redeemed; (ix) a statement that such Bonds must be surrendered by the Owners at the Paying Agent s Office, or at such other place or places designated by the Paying Agent; (x) a statement that on the redemption date there will become due and payable the redemption price of the Bond (or the specified portion of the principal amount if Bonds are redeemed in part only), together with interest accrued thereon to the redemption date; (xi) notice that further interest on such Bonds will not accrue after the designated redemption date; and (xii) such redemption notices may state that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Bonds. Neither the District nor the Paying Agent will have any responsibility for any defect in the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the District nor the Paying Agent are liable for any inaccuracy in these numbers. Failure by the Paying Agent to give notice to the information service or securities depositories or failure of any Owner to receive notice or any defect in any such notice will not affect the sufficiency of the redemption proceedings. Failure by the Paying Agent to mail notice to any of the respective Owners of any Bonds designated for redemption will not affect the sufficiency of the redemption proceedings with respect to the Owner or Owners to whom the notice was mailed. When notice of redemption is given as provided in the Paying Agent Agreement, and moneys for payment of the redemption price of the Bonds are held by the Paying Agent, on the redemption date designated in such notice (i) the Bonds will become due and payable at the redemption price specified in the notice of redemption, (ii) interest on the Bonds will cease to accrue, (iii) the Bonds will cease to be entitled to any benefit or security under the respective Paying Agent Agreement, and (iv) the Owners of such Bonds will have no rights except to receive payment of the redemption price. Upon surrender of any Bond for redemption in accordance with the notice of redemption, the Bond will be paid by Paying Agent at the redemption price. Installments of interest due on or prior to the redemption date will be payable to the Owners of the Bonds on the relevant Record Dates according to the terms of the Bonds and as provided in the Paying Agent Agreement. Right to Rescind Notice The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the Owners of the Bonds called for redemption. The District may make any redemption conditional upon the availability of money for payment of the redemption price on the redemption date designated in the notice. Any optional redemption and notice thereof will be 8

16 rescinded if for any reason on the date fixed for redemption monies are not available in the Redemption Fund or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Bonds called for redemption. Notice of rescission of redemption will be given in the same manner in which notice of redemption was originally given. The actual receipt by the Owner of any Bond of notice of such rescission is not a condition precedent to rescission, and failure to receive such notice or any defect in such notice will not affect the validity of the rescission. Registration, Transfer, and Exchange of Bonds The Paying Agent will keep or cause to be kept, at the Paying Agent s Office, a register (herein sometimes referred to as the Bond Register ) in which, subject to such reasonable regulations as it may prescribe, the Paying Agent shall provide for the registration and transfer of Bonds. The Bond Register shall at all times be open to inspection during normal business hours by the District. If the book-entry system described herein is no longer used with respect to the Bonds, the following provisions will govern the registration, transfer, and exchange of the Bonds. Upon surrender of a Bond for transfer at the Paying Agent s Office, the District shall execute and, if required, the Paying Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Bonds of the same Series, tenor, and maturity and for an equivalent aggregate principal amount. Bonds of any Series may be exchanged for an equivalent aggregate principal amount of Bonds of other authorized denominations of the same Series, tenor, and maturity, upon surrender of the Bonds for exchange at the Paying Agent s Office. Upon surrender of Bonds for exchange, the District shall execute and, if required, the Paying Agent shall authenticate and deliver the Bonds that the Bondholder making the exchange is entitled to receive. All Bonds surrendered upon any exchange or transfer provided for in this Paying Agent Agreement shall be promptly cancelled by the Paying Agent and thereafter disposed of as provided for in the Paying Agent Agreement. All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the District, evidencing the same debt, and entitled to the same security and benefits under this Paying Agent Agreement, as the Bonds surrendered upon such transfer or exchange. Every Bond presented or surrendered for transfer or exchange shall be accompanied by a written instrument of transfer, in a form approved by the Paying Agent, which is duly executed by the Owner or by his attorney duly authorized in writing. All fees and costs of any transfer or exchange of Bonds shall be paid by the Bondholder requesting such transfer or exchange. The Paying Agent shall not be required to transfer or exchange (a) Bonds of any Series during the period from the close of business on the Record Date next preceding any Interest Payment Date to and including such Interest Payment Date; or (b) any Bond that has been 9

17 selected for redemption in whole or in part, except the unredeemed portion of such Bond selected for redemption in part, from and after the day that such Bond has been selected for redemption in whole or in part. Defeasance of Bonds Any of all of the Bonds may be paid by the District in any of the following way: (a) by paying or causing to be paid the principal of and interest on any or all of the bonds outstanding, as and when the same become due and payable; (b) by depositing with the Paying Agent, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the necessary amount (as provided in the Paying Agent Agreement) to pay or redeem any or all Bonds outstanding; or(c) by delivering to the Paying Agent, for cancellation by it, any or all bonds then outstanding of the Series. If the District pays all the Bonds which are outstanding and also pays or causes to be paid all other sums payable by the District, then the pledge of assets made pursuant to the Paying Agent Agreement, all covenants and agreements and other obligations of the District and the County under the Paying Agent Agreement, and the rights and interests created thereby (except as to any surviving rights of transfer or exchange of bonds are provided in the Paying Agent Agreement and rights to payments from moneys deposited with the Paying Agent as provided in the Paying Agent Agreement) shall cease, terminate, become void, and be completely discharged and satisfied. Notwithstanding the satisfaction and discharge of the Paying Agent Agreement, the obligations to the Paying Agent and the covenants of the County and the District to preserve the exclusion of interest on the bonds from gross income for federal income tax purposes shall survive. BOND INSURANCE The District has applied for bond insurance to guarantee the scheduled payment of principal of and interest on the Bonds, and if a commitment is issued to insure the Bonds, will determine prior to the sale of the Bonds whether to obtain such insurance. 10

18 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Bonds are expected to be applied as follows: Sources of Funds Amount Principal Amount Original Issue Premium/Discount Total Sources Uses of Funds Deposit to Building Account Repayment of Notes Underwriter s Discount Costs of Issuance (1) Total Uses (1) Includes fees of Bond Counsel, Disclosure Counsel, Paying Agent, Financial Advisor, rating agencies fees, printing fees, bond insurance premium, if any, and other miscellaneous expenses. 11

19 BONDS DEBT SERVICE SCHEDULE The following schedule shows the annual debt service schedule for the Bonds, assuming that no optional redemptions are made. Year Ending August TOTAL: Annual Principal Annual Interest Payment Total Debt Service 12

20 APPLICATION OF PROCEEDS OF BONDS Building Fund The County Auditor shall establish, maintain and hold in trust a separate fund designated as the School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District Building Fund (the Building Fund ). The County Auditor shall establish and maintain in the Building Fund at the request of the County Office of Education a separate account designated as the SFID No. 1 Series A Building Account for the purpose of tracking the expenditure of Bond proceeds. The moneys in the Building Fund shall be used and withdrawn by the District to pay the cost of acquisition, construction, and completion of the improvements set forth in the measure approved by the electors of SFID No. 1, including all necessary legal, financial, engineering, and contingent costs in connection therewith. Interest and Sinking Fund The ad valorem property taxes levied and collected by the County for the payment of the Bonds shall be kept separate and apart in the School Facilities Improvement District No.1 of the Paso Robles Joint Unified School District Interest and Sinking Fund (the Interest and Sinking Fund ) and be used only for the payment of principal and interest on the Bonds. Interest earnings on the investment of monies held in the Interest and Sinking Fund shall be retained in said fund and used by the County to pay principal of and interest on the Bonds when due. Costs of Issuance Account The Paying Agent shall establish and maintain, and hold in trust a separate account designated as the School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District Series A Costs of Issuance Account (the Costs of Issuance Account ). The monies in the Costs of Issuance Account shall be used and withdrawn by the District for the payment of costs of issuance for the Bonds. Upon final payment of all costs of issuance, any remaining proceeds in the Costs of Issuance Account shall be transferred by the Paying Agent, upon receipt of written instruction from the District, to the SFID No. 1 Series A Building Account in the Building Fund. Debt Service Fund The Paying Agent shall establish a fund to be designated as the School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District Debt Service Fund (the Debt Service Fund ). The Paying Agent shall keep such fund separate and distinct from all other District funds. At the direction of the District, at least one business day prior to the date any payment is due in respect of the Bonds, the County Treasurer shall wire transfer from the Interest and Sinking Fund to the Paying Agent for deposit into the Debt Service Fund the amounts due. The Debt Service Fund shall be used only for the payment of principal and interest on the Bonds when and as same fall due. 13

21 BAN Repayment Fund The Paying Agent shall establish a special fund designated as the BAN Repayment Fund (the BAN Repayment Fund ). The amounts in the BAN Repayment Fund shall be held by the Payment Agent and applied to the payment of the District s outstanding Notes on April 27, 2018, or such other date as directed by the District. The Paying Agent shall hold such funds uninvested in cash pending the use of moneys held in the BAN Repayment Fund. Any amounts remaining in the BAN Repayment Fund one (1) month following the closing date shall be transferred to the Debt Service Fund. Permitted Investments All moneys in any of the funds and accounts established pursuant to the Paying Agent Agreement shall be invested in Investment Securities (as defined in the Paying Agent Agreement). The District has requested that the County Auditor-Controller establish funds and accounts into which the County Treasurer shall deposit the proceeds from the sale of the Bonds. The County Treasurer shall invest the proceeds from the sale of the Bonds in such investments, consistent with the investment policies of the County Treasurer, as authorized by Section et seq. of the California Government Code. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS The information in this section concerning certain provisions of Articles XIIIA, XIIIB, XIIIC and XIIID of the State Constitution, Propositions 98, 111, 1A, and 218, and certain other law is provided as supplementary information only, to outline the principal constitutional and statutory laws under which the operating revenue and finances of K-12 school districts in the State are determined. The tax for the Bonds was approved in conformity with all applicable constitutional and statutory limitations. For specific financial information on the District, see District Financial Information herein. Constitutionally Required Funding of Education The State Constitution requires that from all State revenues, there shall be first set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. School districts receive a significant portion of their funding from State appropriations. As a result, changes in State revenues can significantly affect appropriations made by the State Legislature to school districts. Article XIIIA of the California Constitution Basic Property Tax Levy. Article XIIIA of the State Constitution limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness approved by two-thirds of the voters on or after July 1, 1978, for the acquisition or improvement of real property, and (iii) bonded indebtedness approved by 55% of the voters of a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities, the furnishing and 14

22 equipping of school facilities, or the acquisition or lease of real property for school facilities. The California Government Code provides that additional ad valorem taxes may be levied to pay debt service on bonds issued to refund voter-approved general obligation bonds. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA permits reduction of the full cash value base in the event of a decline in property value caused by damage, destruction, or other factors. The full cash value base is not increased upon reconstruction of property damaged or destroyed in a disaster, if the fair market value of the property as reconstructed is comparable to its fair market value before the disaster. If the full cash value has been reduced owing to a decline in market value, the full cash value is restored to the full cash value base as quickly as the market price increases (without regard to the 2% limit on increases that otherwise applies). Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Legislation Implementing Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter approved indebtedness). The 1% property tax is automatically levied by the County and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Inflationary Adjustment of Assessed Valuation As described above, the assessed value of a property may be increased at a rate not to exceed 2% per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home s taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the 2% inflation adjustment provision of Article XIIIA, when the assessor tried to recapture the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year s assessment. On May 10, 2004, a petition for review was filed with the California Supreme Court. The petition was denied by the California Supreme 15

23 Court. As a result of this litigation, the recapture provision described above may continue to be employed in determining the full cash value of property for property tax purposes. Unitary Property Some amount of property tax revenue of the District is derived from utility property that is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the State Board of Equalization ( SBE ) as part of a going concern rather than as individual pieces of real or personal property. State assessed unitary and certain other property is allocated to the counties by SBE, taxed at special countywide 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. Article XIIIB of the California Constitution Under Article XIIIB of the California Constitution, state and local governmental entities have an annual appropriations limit and are not permitted to spend certain monies that are called appropriations subject to limitation (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys that are excluded from the definition of appropriations subject to limitation, such as appropriations for voter approved debt service, appropriations required to comply with certain mandates of the courts or the federal government, and appropriations for qualified capital outlay projects (as defined by the Legislature). The appropriations limit for each agency in each year is based on the agency s limit for the prior year, adjusted annually for changes in the cost of living and changes in population, and adjusted where applicable for transfer to or from another governmental entity of financial responsibility for providing services. With respect to school districts, change in cost of living is defined as the change in percentage change in California per capita income from the preceding year and change in population means the percentage change in average daily attendance for the preceding year. The appropriations limit is tested over consecutive two year periods. Any excess of the aggregate proceeds of taxes received by an agency over such two year period above the combined appropriations limit for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Under current statutory law, a school district that receives any proceeds of taxes in excess of the allowable limit need only notify the State Director of Finance and such district s appropriations limit is increased and the State s limit is correspondingly decreased by the amount of the excess. Article XIIIC and Article XIIID of the California Constitution Articles XIIIC and XIIID of the California Constitution, adopted by Proposition 218 in November 1996, impose certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. The District does not impose any such taxes, assessments, fees or charges; and, with the exception of ad valorem property taxes levied and collected by the County under Article XIIIA of the California 16

24 Constitution and allocated to the District, no such taxes, assessments, fees or charges are imposed on behalf of the District. Accordingly, while the provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District (thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District), the District does not believe that Proposition 218 will directly impact the revenues available to pay debt service on the Bonds. Article XIIIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. The initiative power is, however, limited by the United States Constitution s prohibition against state or local laws impairing the obligation of contracts. The District s general obligation bonds represent a contract between the District and the bondholder secured by the collection of ad valorem property taxes. While not free from doubt, it is likely that, once the District issues general obligation bonds, the taxes needed to pay debt service on the bonds issued would not be subject to reduction or repeal. 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. 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. The interpretation and application of Proposition 218 and the U.S. Constitution s contracts clause will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. Propositions 98 and 111 Proposition 98, a constitutional and statutory amendment adopted by California voters in 1988 and amended by Proposition 111 in 1990, guarantees a minimum level of funding for public education from kindergarten through community college (K-14). Proposition 98 guarantees a level of funding based on the greater of two amounts determined under three different methods of calculation. The first amount is based on a percentage of State general fund revenues. This amount is defined under Test 1 as the amount produced by applying the same percentage of State general fund revenues appropriated to K-14 education in , or about 40.7%. (This percentage has been adjusted to approximately 41.2% to account for subsequent redirection of local property taxes, since such property tax shifts affect the share of districts revenue limits that are to be provided by State general fund revenues.) The second amount is determined under one of two methods, Test 2 or Test 3, the choice of which is determined based on the relative growth of per capita income and general fund revenues. 17

25 In years of high or normal growth of general fund revenues, Test 2 applies. Test 2 is designed to maintain prior-year service levels. The amount determined under Test 2 is the amount required to ensure that K-14 schools receive from State funds and local tax revenues the same amount received in the prior year, adjusted for changes in enrollment and for increases in per capita personal income. Test 3 is operative in years in which general fund revenue growth per capita is more than 0.5% below growth in per capita personal income. The amount determined under Test 3 is the prior-year total level of funding from state and local sources, adjusted for enrollment growth and for growth in general fund revenues per capita, plus 0.5% of the prior year level. If Test 3 is used in any year, the difference between the amount determined under Test 3 and Test 2 will become a credit (called the maintenance factor ) to be paid to K-14 schools in future years when State general fund growth exceeds personal income growth. The State s estimate of the total guaranteed amount varies through the stages of the annual budgeting process, from the Governor s initial budget proposal to actual expenditures to post-year-end revisions, as various factors change. The guaranteed amount will increase as enrollment and per capita personal income grow. If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as settle-up. If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount may be suspended for one year at a time by enactment of an urgency statute. In subsequent years in which State general fund revenues are growing faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount. Proposition 2, approved at the November 4, 2014, statewide election, among other things, revises the operation of Proposition 98 in some years. The measure creates a new State budget stabilization fund known as the Public School System Stabilization Account. In years where capital gains tax revenues exceed 8% of total General Fund revenues, if a number of conditions are satisfied (including that Test 1 is operative, all maintenance factor obligations have been satisfied, and the Proposition 98 funding level is higher than the previous year), that part of the excess capital gains tax revenues accruing to the Proposition 98 guarantee, instead of being appropriated, would be deposited in the Public School System Stabilization Account, provided that the amount spent on schools and community colleges grows along with the number of students and the cost of living. The State would spend money out of the reserve in order to maintain spending on schools and community colleges in budgetary years in which such spending would otherwise decline from the prior year's level (adjusted for student population and cost of living). Proposition 2 thus changes when the State would otherwise be required to spend money on schools and community colleges but not the total amount of State spending for schools and community colleges over the long run. Proposition 39 On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39 ) to the California Constitution. This amendment allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds; and changes 18

26 existing statutory law regarding charter school facilities. The local school jurisdictions affected by Proposition 39 are K-12 school districts, community college districts, including the District, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property. Prior to the approval of Proposition 39, property taxes could only exceed this limit to pay for any local government debts approved by the voters prior to July 1, 1978, or bonds to acquire or improve real property that receive two-thirds voter approval after July 1, The 55% vote requirement authorized by Proposition 39 applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for an elementary school district or high school district), or $25 (for a community college district), per $100,000 of taxable property value. Proposition 30 Guaranteed Local Public Safety Funding Initiative Constitutional Amendment approved by voters on November 6, 2012 ( Proposition 30 ) temporarily increased the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposed 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 imposed 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, This excise tax is levied at a rate of 0.25% of the sales price of the property so purchased. Beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increased 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 head of household filers and over $500,000 but less than $600,000 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 head of household filers and over $600,000 but less than $1,000,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $680,000 for head of household filers and over $1,000,000 for joint filers). The revenues generated from these temporary tax increases has been included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See Propositions 98 and 111 above. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State created 19

27 Education Protection Account (the EPA ). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding; however, no school district will receive less than $200 per unit of A.D.A. 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 was granted sole authority for determining how the moneys received from the EPA are spent, provided the appropriate governing board made these spending determinations in open session at a public meeting and such local governing boards did not use any funds from the EPA for salaries or benefits of administrators or any other administrative costs. Proposition 51 The California Public School Facility Bonds Initiative ( Proposition 51 ) was approved by the voters on November 8, Proposition 51 authorizes the sale and issuance of $9 billion in general obligation bonds to fund the construction and modernization of facilities for both K-12 schools and community colleges. The revenues from the sale of the bonds will be allocated as follows: $3 billion for construction of new K-12 school district facilities. $3 billion for the modernization of K-12 public school sites, which includes repairing outdated facilities to increase earthquake and fire safety, removing asbestos, upgrading technology, and other health and safety improvements. $500 million for charter school facilities. $500 million for career technical education facilities. $2 billion for the construction and modernization of community college facilities. The impact that Proposition 51 will have on school districts is unclear. Some school districts may increase the number of facility projects and spend more local funds, knowing that additional state funding could be available. Other school districts may spend less local funds due to the greater support of state funding. It is also possible that the number of school district proposals for construction and modernization projects will not change. Proposition 1A and Proposition 22 On November 2, 2004, California voters approved Proposition 1A, which amended 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-thirds approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Under Proposition 1A, 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 20

28 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 amended the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Proposition 22, a Constitutional initiative entitled the Local Taxpayer, Public Safety, and Transportation Protection Act of 2010, approved on November 2, 2010, superseded many of the provision of Proposition 1A. This initiative amends the State Constitution to prohibit the legislature from diverting or shifting revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services. Under this proposition, the State is not allowed to take revenue derived from locally imposed taxes, such as hotel taxes, parcel taxes, utility taxes and sales taxes, and local public transit and transportation funds. Further, in the event that a local governmental agency sues the State alleging a violation of these provisions and wins, then the State must automatically appropriate the funds needed to pay that local government. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State s control over local property taxes. Proposition 22 did not prevent the California State Legislature from dissolving State redevelopment agencies pursuant to AB 1X26, as confirmed by the decision of the California Supreme Court decision in California Redevelopment Association v. Matosantos (2011). Because Proposition 22 reduces the State s authority to use or reallocate certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State s general fund. Future Initiatives Articles XIIIA, XIIIB, XIIIC and XIIID of the California Constitution and Propositions 98, 111, 22, 218, 30, and 39 (discussed above) were each adopted as measures that qualified for the ballot under the State s initiative process. From time to time other initiative measures could be adopted, further affecting the District s revenues or the District s ability to expend revenues. The nature and impact of these measures cannot by anticipated by the District. RISK FACTORS The following discussion sets forth some of the events that could affect the payment of principal and interest on the Bonds. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information contained in this Official Statement in evaluating the Bonds. There can be no assurances that other risk factors will not become material in the future. 21

29 Natural Disasters The assessed value of land in the District in the future can be adversely affected by a variety of natural occurrences. The areas in and surrounding the District, like those in much of California, may be subject to unpredictable seismic activity. Other natural disasters could include, without limitation, landslides, floods, droughts or tornadoes. Bankruptcy and Equitable Limitations The rights and remedies of holders of the Bonds and enforceability of the Bonds and the Paying Agent Agreement may be limited by, and are subject to, the provisions of federal bankruptcy laws, as now or hereinafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors rights. The various legal opinions delivered concurrently with the issuance of the Bonds (including Bond Counsel s approving legal opinion) will be qualified as to the enforceability of the Paying Agent Agreement and other related documents by bankruptcy, reorganization, moratorium, insolvency, fraudulent conveyance or other similar laws relating to or affecting the enforcement of creditors rights, to the application of equitable principles, to the exercise of judicial discretion and to the limitation on legal remedies against public agencies in the State. Actions could be taken in a bankruptcy of the District that could adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes. There may also be other possible effects of the bankruptcy of the District that could result in delays or reductions in payments of the principal and interest on the Bonds, or in other losses to the owners of the Bonds. Regardless of any specific adverse determinations in a bankruptcy case of the District, the existence of a bankruptcy case could have an adverse effect on the liquidity and value of the Bonds. Pension Benefit Liability Many factors influence the amount of the District s pension benefit liability, including, without limitation, changes in statutory provisions of applicable law, changes in the levels of benefits provided or in the contribution rates of the District, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods, inflationary factors, and differences between actual and anticipated investment experience of the California Public Employees Retirement System ( PERS ) and the California State Teachers Retirement System ( STRS ). See, THE DISTRICT District Retirement Systems, herein. Any of these factors could create additional liability of the District to PERS and STRS and the District would be obligated to make additional payments to PERS and STRS over the amortization schedule for full funding of those District s obligation. Economic Conditions in California The District derives the majority of its revenues from or through the State of California. See District Financial Information. Decreases in State revenues, or changes in the State s 22

30 method of funding education, can significantly affect appropriations made by the legislature to school districts. See State Funding of Education. Loss of Tax Exemption As discussed under the caption TAX MATTERS, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Bonds as a result of acts or omissions of the District in violation of its covenants in the Paying Agent Agreement or the Tax Certificate. Should such an event of taxability occur, the Bonds are not subject to special redemption and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Paying Agent Agreement. General Description SFID NO. 1 The Bonds are being issued by the District for the benefit of SFID No. 1. SFID No. 1 was established by the District pursuant to the Act. The Board of Supervisors of San Luis Obispo County approved the use of the Act for all public school districts in the County on July 1, The Board of Supervisors of the County of Monterey approved the use of the Act for all public school districts in said county on July 1, The Board of Trustees of the District, at its meeting on January 13, 1998, approved a Resolution of Intention to establish SFID No. 1 and called a public hearing on the matter. Following the conclusion of a public hearing conducted by the District on January 13, 1998, SFID No. 1was established by the Board of Trustees of the District. The Board of Trustees ordered an election of the registered voters residing in the territory of SFID No. 1 which was held on November 8, At this election, 57.5% of the voters voting on the measure ( Measure M ) approved the issuance of not to exceed $95,000,000 principal amount of general obligation bonds for SFID No. 1. Location and Territory SFID No. 1 is located in the District. See Appendix A Map of SFID No. 1 herein. The area of SFID No. 1 is about 195,394 acres representing 83.77% of the District. SFID No. 1, contains approximately 11,756 single family residential parcels. Governing Board The Board of Trustees of the District services as the governing board of SFID No. 1. See The District Administration herein. 23

31 SECURITY AND SOURCE OF PAYMENT FOR THE BONDS The information in this section describes ad valorem property taxation, assessed valuation and other measures of the tax base of SFID No. 1. The Bonds are payable solely from ad valorem taxes levied and collected by the County on taxable property in SFID. The District s general fund is not a source for repayment of the Bonds, and the Bonds are not a debt of the County. Payment of Principal and Interest At least one business day prior to the date any payment is due in respect of the Bonds, the District will cause the County Treasurer to transfer from the Interest and Sinking Fund to the Paying Agent for deposit in the Debt Service Fund an amount sufficient to pay the principal of and the interest (and premium, if any) to become due on all Bonds outstanding on such payment date. When and as paid in full, and following surrender thereof to the Paying Agent, all Bonds shall be cancelled by the Paying Agent, and thereafter they shall be destroyed. The Paying Agent hereby acknowledges that pursuant to the general laws of the State of California, the obligation to levy and collect taxes for the payment of the Bonds, and to pay from such taxes the principal of and interest on the Bonds when due, are legal obligations of the County and shall be performed by the Auditor. Ad Valorem Taxes The Board of Supervisor is empowered and is obligated to levy ad valorem taxes, without limitation as to rate or amount, for the payment of the principal of and interest on the Bonds, upon all property subject to taxation in SFID No. 1 (except certain personal property that is taxable at limited rates). Such taxes will be levied annually in addition to all other taxes during the period that the Bonds are outstanding in an amount sufficient to pay the principal of and interest on the Bonds when due. Such taxes, when collected, will be placed by the Treasurer in the Interest and Sinking Fund, which is segregated and maintained by the Treasurer and used for the payment of the Bonds. Moneys in the Interest and Sinking Fund will be invested in accordance with the County s investment policies. See Appendix F County of San Luis Obispo Investment Pool Quarterly Report herein. Although the County is obligated to levy an ad valorem tax for the payment of the Bonds, and will maintain an Interest and Sinking Fund for the repayment of the Bonds, the Bonds are not a debt of the County. The amount of the annual ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the SFID No. 1 and the amount of debt service due on the Bonds in any year. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the SFID No. 1 may cause the annual tax rate to fluctuate. Economic and other factors beyond the District s control, such as economic recession, deflation of property values, a relocation out of the SFID No. 1 by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the SFID No. 1 and necessitate an unanticipated increase in the annual tax levy. 24

32 Property Tax Collection Procedures Approximately 1% of the District is located in the County of Monterey, and the remainder is located in the County. Taxes are levied by the County and the County of Monterey for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured, and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the respective 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. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted if not paid by June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five (5) years or more, the property is subject to sale by the Treasurer. Property taxes on the unsecured roll are due as of the January lien date and become delinquent if unpaid by August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (i) bringing a civil action against the taxpayer; (ii) filing a certificate in the office of the applicable county clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (iii) filing a certificate of delinquency for record in the applicable county clerk and county recorder s office in order to obtain a lien on certain property of the taxpayer; and (iv) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. Assessed Valuations of Property within SFID No. 1 The assessed valuation of property in SFID No. 1 is established by the County Assessor except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported as 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. Prior to , assessed valuations were reported at 25% of the full value of property. For a discussion on how properties currently are assessed, see Constitutional and Statutory Provisions Affecting District Revenues and Appropriations. Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. Property within SFID No. 1 had a taxable assessed valuation for fiscal year of $7,395,144,992. Shown in the following table is a 5-year history of the assessed valuations for the District. 25

33 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Assessed Valuation Fiscal Year through Fiscal Year San Luis Obispo County Portion Local Secured Utility Unsecured Total $5,684,410,741 $162,543 $233,039,862 $5,917,613, ,054,461, , ,139,242 6,304,763, ,406,112, , ,490,149 6,665,765, ,745,710, , ,386,449 7,020,259, ,137,019, , ,970,230 7,395,144,992 As a unified school district, the District may issue bonds in an amount up to 2.5% of assessed value. Based on the fiscal year assessment roll, SFID No. 1 s gross bonding capacity is $184,878, and its net bond capacity is $167,365, prior to the issuance of the Bonds. Bonds, including the Bonds, may be issued without regard to this limitation, however, once issued, the outstanding principal of any Bonds is included when calculating the District s bonding capacity. Assessed Valuation by Land Use The land use of property in SFID No. 1 as of fiscal year is shown below, as measured by assessed valuation and parcels. 26

34 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Assessed Valuation and Parcels by Land Use Fiscal Year Non-Residential: Assessed Valuation (1) % of Total No. of Parcels % of Total Agricultural/Vineyards $373,938, % % Commercial 727,181, Vacant Commercial 98,066, Industrial/Winery 207,271, Recreational 106,713, Government/Social/Institutional 12,855, Miscellaneous 2,925, Subtotal Non-Residential $1,528,952, % 2, % Residential: Single Family Residence $4,633,850, % 11, % Condominium/Townhouse 82,583, Mobile Home 197,761, Mobile Home Park 17,992, Residential Units 147,215, Residential Units/Apartments 99,203, Miscellaneous Residential 623, Vacant Residential 428,836, , Subtotal Residential $5,608,067, % 15, % Total $7,137,019, % 17, % (1) Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc. 27

35 Assessed Valuation by Jurisdiction The following table shows the assessed valuation of property in SFID No. 1 by jurisdiction. PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Assessed Valuation by Jurisdiction (1) Fiscal Year Jurisdiction: Assessed Valuation in SFID % of SFID Assessed Valuation of Jurisdiction % of Jurisdiction in SFID City of Paso Robles $4,591,124, % $4,673,204, % Unincorporated San Luis Obispo County 2,804,020, ,990,194, Total District $7,395,144, % San Luis Obispo County $7,395,144, % $50,731,544, % (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc. 28

36 Assessed Valuation by Single Family Homes Set forth in the following table is the per parcel assessed valuation of single family homes in SFID No. 1 for fiscal year PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Per Parcel Assessed Valuation of Single Family Homes Fiscal Year No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 11,756 $4,633,850,407 $394,169 $347, Assessed Valuation No. of Parcels (1) % of Total Cumulative % of Total Total Valuation % of Total Cumulative % of Total $0 - $49, % 1.701% $ 6,669, % 0.144% $50,000 - $99, ,374, $100,000 - $149, ,416, $150,000 - $199,999 1, ,397, $200,000 - $249,999 1, ,862, $250,000 - $299,999 1, ,076, $300,000 - $349,999 1, ,878, $350,000 - $399,999 1, ,061, $400,000 - $449,999 1, ,764, $450,000 - $499, ,726, $500,000 - $549, ,468, $550,000 - $599, ,949, $600,000 - $649, ,218, $650,000 - $699, ,040, $700,000 - $749, ,358, $750,000 - $799, ,762, $800,000 - $849, ,927, $850,000 - $899, ,161, $900,000 - $949, ,169, $950,000 - $999, ,711, $1,000,000 and greater ,854, Total 11, % $4,633,850, % (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc. 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 form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. In most cases, the 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 29

37 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 Article XIIIA of the California Constitution herein. 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. No assurance can be given that property tax appeals in the future will not significantly reduce the assessed valuation of property within the District. Alternative Method of Tax Apportionment - Teeter Plan The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 and following of the California Revenue and Taxation Code. Under the Teeter Plan, each participating local agency levying property taxes, including school districts, is credited the amount of uncollected taxes in the same manner as if the amount credited had been collected. In return, the County receives and retains delinquent payments, penalties and interest as collected, that otherwise would have been due the local agency. Taxes to pay the District s Bonds are included in the Teeter Plan. The Teeter Plan is to remain in effect unless the Board of Supervisors of the orders its discontinuance or unless, prior to the commencement of the County s fiscal year, the Board of Supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The County has never received a petition from any governing board to discontinue the Teeter Plan with respect to agencies in the County. The Board of Supervisors may, after holding a public hearing on the matter, discontinue the procedures with respect to any tax levying agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured rolls in that agency. In the event that the Teeter Plan were terminated, the amount of the levy of ad valorem property taxes in the District would depend upon the collection of the ad valorem property taxes and the delinquency rates experienced with respect to the parcels within the District. Tax Levies and Delinquencies The following table shows the secured tax charges and delinquencies for the District (the County portion only since 99% of the District is located within the County) for fiscal years through without regard to the Teeter Plan. 30

38 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Secured Tax Charges and Delinquencies San Luis Obispo County Portion Fiscal Years through Secured Tax Charge (1) Amount Delinquent June 30 % Delinquent June $763, $30, % , , , , , , , , , , , , Secured Tax Charge (2) Amount Delinquent June 30 % Delinquent June $26,904, $762, % ,446, , ,653, , ,113, , ,196, , ,701, , ,507, , District Tax Rates (1) District s general obligation bond debt service levy. (2) 1% General Fund apportionment. Source: California Municipal Statistics, Inc. The following is a summary of tax rates for a representative tax rate area, TRA 2-000, within SFID No. 1. The Assessed Valuation of TRA is $1,500,614,578, which is 20.29% of the total assessed valuation of SFID No. 1. See Security and Source of Payment for the Bonds Ad Valorem Taxes for further information on establishing tax rates. PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Typical Total Tax Rates per $100 Assessed Valuation San Luis Obispo County Portion - TRA (1) Fiscal Year through Fiscal Year General City of Paso Robles Paso Robles Joint Unified School District San Luis Obispo Community College District State Water Project Total All Property Tax Rate (1) Assessed Valuation of Tax Rate Area: $1,500,614,578 Source: California Municipal Statistics, Inc. 31

39 Largest Property Owners The following table shows the twenty (20) largest owners of taxable property in the District as determined by secured assessed valuation in fiscal year PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Largest Local Secured Taxpayers Fiscal Year Property Owner Primary Land Use Assessed Valuation % of Total (1) 1. Treasury Wine Estates Americas Co. Winery/Vineyards $ 75,849, % 2. Firestone Walker LLC Brewery 69,100, Ayres Paso Robles LP Hotel/Resort 40,128, Justin Vineyards & Winery LLC Winery/Vineyards 37,816, Nine Wine Estates LLC Winery/Vineyards 36,050, Halter Real Estate LLC Winery/Vineyards 32,928, Paso Golden Hill LLC Shopping Center 31,146, Estate Vineyards LLC Winery/Vineyards 29,363, Vina Robles Inc. Winery/Vineyards 25,421, Indeck-Paso Robles LLC Vineyards 22,757, Dry Creek Apartments LP Apartments 22,507, J. Lohr Winery Corporation Winery/Vineyards 20,805, Law Family Vineyards LP Winery/Vineyards 19,371, Arciero & Sons Inc. Hotel 19,343, Erich Russell Winery/Vineyards 19,205, John Stephenson, Trustee Industrial 19,018, Franciscan Vineyards Inc. Winery/Vineyards 18,818, Paso Robles Vineyards Inc. Vineyards 16,910, Sunshine Agriculture Incorporated Vineyards 16,784, Century Park LLC Industrial 15,750, $589,078, % (1) Local Secured Assessed Valuation: $7,137,019,449 Source: California Municipal Statistics, Inc. Direct and Overlapping Debt Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. and dated February 9, The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of SFID No. 1 in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within SFID No. 1. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 32

40 Assessed Valuation: $7,395,144,992 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 Statement of Direct and Overlapping Bonded Debt Dated as of February 9, 2018 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 03/01/2018 San Luis Obispo Community College District % $19,228,110 Paso Robles Joint Unified School District ,513,844 Paso Robles Joint Unified School District SFID No ,000,000 City of Paso Robles ,140,499 San Luis Obispo County Waterworks District No Act Bonds ,044 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $57,284,497 (1) OVERLAPPING GENERAL FUND DEBT: San Luis Obispo County Certificates of Participation % $ 3,515,972 San Luis Obispo County Pension Obligations ,647,646 City of Paso Robles Certificates of Participation ,362,290 TOTAL OVERLAPPING GENERAL FUND DEBT $17,525,908 OVERLAPPING TAX INCREMENT DEBT (Successor Agency) $12,245,000 COMBINED TOTAL DEBT: $87,055,405 (2) (1) Excludes the Bonds. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($3,000,000) % Total Direct and Overlapping Tax and Assessment Debt % Combined Total Debt % Ratio to Redevelopment Incremental Assessed Valuation ($552,270,960): Total Overlapping Tax Increment Debt % Source: California Municipal Statistics, Inc. 33

41 THE DISTRICT General Information The District was unified in 1997 with the joining of the Paso Robles Elementary School District and the Paso Robles High School District, and serves an area of approximately 800 square miles located 99% in San Luis Obispo and 1% in Monterey Counties, California. The District operates 6 elementary schools, 2 middle schools, 1 high school, 1 continuation high school, 1 community school, and an independent study center. The District has approximately full time equivalent employees. Enrollment in the District for the school year was 6,797 students, and is approximately 6,940 students in County Office of Education In each county there is a county superintendent of schools (the County Superintendent ) and a county board of education. The Office of the County Superintendent, frequently known as the County Office of Education (the County Office ) in each county provides the staff and organization that carries out the activities and policies of the respective County Superintendent and county board of education for that county. County Offices provide instructional and support services to school districts within their counties, and various State mandated services county-wide, particularly in special education and juvenile court education services. County Office business services departments act as a control point for a variety of information, including pupil data collection, attendance accounting, teacher credential registration, payroll accounting, retirement and tax information and school district budgets, and also report such information to the State Department of Education. All school district budgets must be approved by their County Office and each district must provide its County Office with scheduled interim reports throughout the fiscal year. County Offices also act as enforcement entities which intervene in district fiscal matters should a district fail to meet State budget and reporting criteria. The District is under the jurisdiction of, and is served by, the County Office for San Luis Obispo County. 34

42 Administration The District is governed by a seven-member Board of Trustees, each member of which is elected to a four-year term. Elections for positions on the Board are held every two years, alternating between three and four contestable positions. Current members of the Board, together with their offices and the dates their terms expire, are listed below: Name Office Term Expires Joan Summers President 2020 Joel Peterson Clerk 2020 Chris Bausch Trustee 2020 Tim Gearhart Trustee 2018 Field Gibson Trustee 2018 Dr. Kathleen Hall Trustee 2018 Matt McClish Trustee 2020 The administrative staff of the District includes Chris Williams, Superintendent. Superintendent. Mr. Williams served as a high school Assistant Principal and Principal of a middle school in the Central Unified School District before being appointed as the Assistant Superintendent of Human Resources for the District in Mr. Williams earned a BA degree from California State University, Fresno and an MA degree in Education from National University. He was named as Fresno County Administrator of the Year in Average Daily Attendance The following table shows the District s enrollment and ADA each year from through PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Enrollment and Average Daily Attendance Fiscal Years to Fiscal Year Enrollment Average Daily Attendance ,601 6, ,533 6, ,555 6, ,672 6, ,797 6, Source: Paso Robles Joint Unified School District. The following table shows a breakdown of the District s fiscal years through (projected) ADA by grade span, total enrollment, and the percentage of students classified as English learners, low-income, or foster youth ( EL/LI ). 35

43 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT ADA by Grade Span, Total Enrollment, and EL/LI Enrollment Fiscal Years through Average Daily Attendance (1) Enrollment (By Grade Span) Fiscal Year K Total District Total District Enrollment % EL/LI (2) Enrollment , , , , , % , , , , , % , , , , , % , , , , , % (3) 1, , , , , % (1) ADA is determined as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. (2) For fiscal year , this percentage is calculated on the basis of enrollment for that year. The percentage calculated for fiscal year is based on the average of and enrollment. Thereafter, the percentage will be calculated on the basis of the average of the current fiscal year and the prior two fiscal years. (3) Projected. Source: Paso Robles Joint Unified School District. Employee Relations State law provides that employees of public school districts of the State are to be divided into appropriate bargaining units that then are to be represented by an exclusive bargaining agent. The teachers of the District have selected Paso Robles Public Educators as their bargaining agents. The District s contract with the teachers expires June 30, The classified personnel of the District are represented by the California School Employees Association. The District s contract with the classified personnel expires June 30, The management and confidential employees are not represented by a bargaining unit. District Retirement Systems The District participates in the California State Teachers Retirement System ( STRS ) for all full-time and some part-time certificated employees (except for those certificate employees who were previously classified employees and have elected to remain in State of California Public Employees Retirement System (see below)). The State is required to contribute as well. The District s employer contribution to STRS was $1,970,056 for Fiscal Year , $2,296,719 for Fiscal Year , $3,109,666 for Fiscal Year , $3,958,385 for Fiscal Year and is budgeted at $4,574,559 for Fiscal Year (includes total STRS contributions including those paid from sources outside of the general fund) In order to receive STRS benefits, an employee must be at least 55 years old and have provided five years of service to California public schools. The District also participates in the California Public Employees Retirement System ( CalPERS ) for all full-time and some part-time classified employees. For Fiscal Year , the contribution percentage was 11.44% of annual payroll, and the contribution amount was 36

44 $1,072,967. For Fiscal Year , the contribution percentage was 11.77%, and the contribution amount was $1,174,109. For Fiscal Year , the contribution percentage was % and the contribution amount was $1,383,952. For Fiscal Year , the contribution percentage was % of annual payroll, and the contribution amount was $1,713,587. For Fiscal Year , the contribution percentage is % with projected expenses of $2,153,547 (includes total PERS contributions including those paid from sources outside of the general fund). In order to receive PERS benefits, an employee must be at least 50 years old and have provided five years of service to California schools. Assembly Bill 1469 ( AB 1469 ) was signed into law by the Governor in connection with the State s adoption of the fiscal year budget. AB 1469 addresses the unfunded liabilities of the STRS pension plan by increasing contributions of plan members, employers (including the District), and the State. Pursuant to AB 1469, employer contribution rates to STRS will increase over the next seven years from 8.88% in fiscal year to 19.1% in fiscal year , as shown in the following table. After fiscal year , employer contribution rates will be determined by the STRS board to reflect the amount of contribution necessary to eliminate unfunded liabilities by June 30, AB 1469 STRS EMPLOYER CONTRIBUTION RATES Fiscal Year % Increase from FY Rate* Under AB 1469 Total Contribution Rate % 8.88% *Fiscal year rate of 8.25% STRS and PERS liabilities are more fully described in Appendix B Audited Financial Statements of the District for Fiscal Year Ended June 30, State Pensions Trusts Both the PERS and STRS systems are operated on a statewide basis. District contribution rates to PERS vary annually depending on changes in actuarial assumptions and other factors, such as liability. Contributions to STRS can only be changed legislatively. Both PERS and STRS have substantial State unfunded actuarial liabilities, being $57 billion for PERS as of June 30, 2012 (the date of the last actuarial valuation for PERS) and $73.7 billion for STRS as of June 30, 2013 (the date of the last actuarial valuation for STRS). On September 12, 2012, Governor Brown signed Assembly Bill 340 ( AB 340 ), which enacted the California Public Employees Pension Reform Act of 2013 ( PEPRA ) and amended various sections of the California Education and Government Codes. AB 340 increased the 37

45 retirement age for new State, school, and city and local agency employees depending on job function; capped the annual PERS and STRS pension benefit payouts; addressed numerous abuses of the system; and required State, school, and certain city and local agency employees to pay at least half of the costs of their PERS pension benefits. PEPRA applies to all public employers except the University of California, charter cities and charter counties (except to the extent they contract with PERS.) AB 340 went into effect on January 1, 2013, with respect to new State, school, and city and local agency employees hired on and after that date. Existing employees who are members of employee associations, including employee associations of the District, have a five-year window to negotiate compliance with AB 340 through collective bargaining. The District has negotiated with existing employees to remove lifetime health benefits, impose a hard cap for District benefit expenses (all increases must be covered by the employee) and raised the retirement age to 57 years old with at least 15 years of service (after which the District would be required to pay the same cap as for an active employee until the employee reached 65 years old). PERS has predicted that the impact of AB 340 on employers, including the District and other employers in the STRS system, and employees will vary, based on each employer s current level of benefits. To the extent that the new formulas reduce retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. PERS further noted that changes resulting from AB 340 could have an adverse impact on public sector recruitment in areas that have historically experienced recruitment challenges due to higher pay for similar jobs in the private sector. With respect to STRS, the provisions of AB 1469, as described above, addressed the contribution requirements of STRS members, employers, and the State. More information about AB 340 can be accessed through the PERS web site at and through the STRS website at The references to these internet websites are shown for reference and convenience only; the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference. GASB Statement Nos. 67 and 68 On June 25, 2012, GASB approved Statements Nos. 67 and 68 ( Statements ) with respect to pension accounting and financial reporting standards for state and local governments and pension plans. The Statements replace GASB Statement No. 27 and most of Statements No. 25 and No. 50. The changes impact the accounting treatment of pension plans in which state and local governments participate. Major changes include: (1) the inclusion of unfunded pension liabilities on the government s balance sheet (currently, such unfunded liabilities are typically included as notes to the government s financial statements); (2) more components of full pension costs being shown as expenses regardless of actual contribution levels; (3) lower actuarial 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 38

46 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 Statements, a cost-sharing employer that does not have a special funding situation is required to recognize a net pension liability, deferred outflows of resources, deferred inflows of resources related to pensions and pension expense based on its proportionate share of the net pension liability for benefits provided through the pension plan. Because the accounting standards do not require changes in funding policies, the full extent of the effect of the new standards on the District is not known at this time. The reporting requirements for pension plans took effect for the fiscal year beginning July 1, 2013 and the reporting requirements for government employers, including the District, took effect for the fiscal year beginning July 1, As of June 30, 2017, the District s share of the net pension liabilities and deferred inflow and outflow of resources for STRS and PERS follows: Pension Plan Proportionate Share of Net Pension Liability Deferred Outflow of Resources Deferred Inflow of Resources STRS $46,221,373 $10,192,810 $1,127,518 PERS 19,171,151 6,413, ,979 Total $65,392,524 $16,606,689 $1,703,497 Source: Paso Robles Joint Unified School District. Post-Employment Healthcare Benefits In addition to the pension benefits described above, the District provides post-retirement healthcare benefits to all employees who retire from the District on or after attaining age 55 with at least 10 years of service. As of June 30, 2017, approximately 85 retirees met these eligibility requirements. Benefits are provided for retirees aged 55 to 65. The District pays up to $850 per month for health benefits of retirees on a pay-as-you-go basis. The District s annual required contribution for Fiscal Year was $21,487,936, and contributions for Fiscal Year made by the District were $1,716,066 (excludes implicit rate subsidy). Interest on the net post-retirement healthcare benefits obligation and adjustments to the annual required contribution were $185,393 and $(184,192), respectively, which resulted in a decrease in the net post-retirement healthcare benefits obligation of $696,959. The unfunded liability as of June 30, 2015 was $18,844,185, and is based on the current participants remaining coverage periods. The unfunded liability as of June 30, 2016 was $17,338,647, and is based on the current participants remaining coverage periods. The District has obtained an actuarial study for determining its unfunded liability for all current and future retirees dated July 1, The District was required to comply with the reporting requirements of Governmental Accounting Standards Board (GASB) 45 in Fiscal Year Insurance, Risk Pooling, and Joint Powers Arrangements The District is a member of the Self-Insured Schools of California (SISC II) Joint Powers Authority for property, liability and other coverage, such as auto, boiler and machinery, crime and fidelity, general liability, property, special education voluntary coverage, and tackle football. 39

47 In addition SISC III provides the District s healthcare coverage for all employee groups. For Workers Compensation coverage, the District is a member of Schools Insurance Program for Employees (SIPE) Joint Powers Authority. During the fiscal year ended June 30, 2017, the District made payments of $380,452 to SISC II, $6,516,745 to SISC III and $1,146,360 to SIPE. District Debt General Obligation Bonds. As of June 30, 2017, the principal amounts of the District s outstanding general obligation bonds, all payable from ad valorem property taxes levied and collected within the District by the County and Monterey County, were as follows: PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Outstanding General Obligation Bonds Issue Original Principal Amount Outstanding June 30, 2017 Original Final Maturity Election of 2006, Series 2007 $11,999, $2,171, /1/2031 Election of 2005, Series 2010A and Series 2010B 8,000, ,325, /1/ Refunding Bonds Source: Paso Robles Joint Unified School District. 8,705, ,480, /1/2028 See Annual Debt Service for debt service on the District s Refunded Bonds. The District has never defaulted on the payment of principal or interest on any of its indebtedness. Short-Term Borrowing. The District has in the past issued short-term tax and revenue anticipation notes. Proceeds from the issuance of notes by the District during previous fiscal years have been used to reduce interfund dependency and to provide the District with greater overall efficiency in the management of its funds. Currently, the District has no notes outstanding. The District has never defaulted on any of its short-term borrowings. Capital Leases. The District currently leases vehicles, facilities and equipment with future lease payments as follows: PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Outstanding Capital Lease Obligations Year Ending June 30 Lease Payment 2018 $449, , , ,658 Total 1,160,690 Less amount representing interest 53,016 Present value of minimum lease payments $1,107,674 Source: Paso Robles Joint Unified School District. 40

48 Flex Lease. On May 10, 2007, the District s Educational Facilities Corporation entered into an assignment in the amount of $1,525,064 with an effective interest rate of 4.30%. Principal and interest payments are due each November 1 and May 1 through May 1, As of June 30, 2017, the future minimum payments were as follows: PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Outstanding Loans Year Ending June 30 Principal Interest Total 2018 $113,202 $25,352 $138, ,124 20, , ,273 15, , ,666 9, , ,316 4, ,663 Total $617,581 $75,368 $692,949 Source: Paso Robles Joint Unified School District. DISTRICT FINANCIAL INFORMATION The information in this section concerning the operations of the District and the District s general fund finances is provided as supplementary information. All of the debt service on the Bonds is payable and is expected to be fully paid from the proceeds of ad valorem taxes required to be levied by the County in SFID No. 1 in the aggregate amount sufficient for the payment thereof. See Security and Source of Payment for the Bonds. State Budget, Proposition 30, and School District Finance School districts in California have faced numerous challenges over the past several years due to financial difficulties at the State level. This has resulted in budget cuts and payment deferrals to school districts. On November 6, 2012, the Governor placed a measure on the ballot known as Proposition 30 or the November Tax Initiative, which asked California voters to increase State sales tax and raise income taxes on certain high income individuals in order to generate additional revenues at the State level. The moneys raised would be applied to address State budget shortfalls and help fund educational programs. Proposition 30 was approved, and it is estimated that State revenues will increase by approximately $6 billion annually from fiscal year through Revenues generated pursuant to Proposition 30 will increase school and community college district funding, pay expenses owed from previous years and reduce delays in certain K-14 payments. The adoption of the State budget and its related legislation also included significant reforms to education financing in the State. Under the Local Control Funding Formula ( LCFF ), the emphasis in education funding shifts from a State-controlled system with funding based largely on ADA and the revenue limit with numerous State-mandated categorical programs, to a locally-controlled system with a funding formula which attempts to better meet the needs of students, specifically low-income and English language learners who may require more support in order to be successful in school. In addition, the LCFF provides local school officials with the ability to decide how best to meet the needs of their students. 41

49 Accounting Practices The accounting policies of the District conform to generally accepted accounting principles in accordance with the definitions, instructions and procedures of the California School Accounting Manual. This manual, according to Section of the California Education Code, is to be followed by all California school districts. The financial resources of the District are divided into separate funds for which separate accounts are maintained for recording cash, other resources and all related liabilities, obligations and equities. The major fund classification is the general fund, which accounts for all financial resources not required to be accounted for in another fund. The District s fiscal year begins on July 1 and ends on June 30. All governmental funds are accounted for using the modified accrual basis of accounting. Revenue is recognized in the accounting period in which it becomes measurable and available to finance expenditures for the current period; and expenditures are recognized in the period in which the liability is incurred, although debt service expenditures are recorded only when payment is due. For more information on the District s accounting method, see Appendix B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2017, Note 1 Summary of Significant Accounting Policies. Effective beginning in fiscal year , GASB published its Statement No. 68 Accounting and Financial Reporting for Pensions. Statement No. 68 requires state and local governments, and special purpose governments such as school districts and public utilities providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. Statement No. 68 also enhances accountability and transparency through revised and new note disclosures and required supplementary information. School District Budget Process State law requires school districts to maintain a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the County Superintendent. The County Superintendent must review and approve or disapprove the budget no later than September 15. The County Superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the County Superintendent no later than October 8. Pursuant to State law, the County Superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is 42

50 disapproved. After approval of an adopted budget, the school district s administration may submit budget revisions for governing board approval. Subsequent to approval, the County Superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent will notify the district s governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations, or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district s budget and operations; (ii) after also consulting with the district s board, develop and impose revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority. A State law adopted in 1991 ( A.B ) imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the County Superintendent (on December 15, for the period ended October 31, and by mid-march for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The County Superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the County Superintendent. For the second interim report for Fiscal Year and the first and second interim reports for Fiscal Years , , and , the District was assigned a qualified certification. In Fiscal Year , the District was assigned a negative certification for both the first and second interim reports. The District has been assigned a positive certification for the first and second interim reports for Fiscal Years through District s Budget The budget for the fiscal year was adopted by the District Board on June 27, Copies of the District s budget, interim reports and certifications may be obtained upon 43

51 request from the District Office at 800 Niblick Road, Paso Robles, California 93446; phone (805) The District may impose charges for copying, mailing and handling. For fiscal year , the base rates per unit of ADA for each grade span are as follows: (i) $7,193 for grades K-3; (ii) $7,301 for grades 4-6; (iii) $7,518 for grades 7-8; and (iv) $8,712 for grades The base rates for grades K-3 and 9-12 are increased by 10.4% and 2.6%, respectively, to cover the costs of class size reduction in the early grades and to support college and career readiness programs in high schools. (Under full implementation of the LCFF, as a condition of receiving the K 3 base rate adjustment, districts must maintain a K 3 school site average class size of 24 or fewer students, unless collectively bargained otherwise.) These target base rates are to be updated each year for cost of living adjustments (COLAs). The District has a high proportion of English language learners, students from low income families and foster youth (estimated to be 52% in ). The District received LCFF funding in the amount of $51,905,947 for , $55,523,255 for and expects to receive $57,886,927 for There are many variables which still remain to be finalized with respect to the LCFF model of education finance and the District is unable to predict at this time all of the impacts that this change in education funding will have on its finances. Financial Statements Figures presented in summarized form herein have been gathered from the District s financial statements. Vavrinek, Trine, Day & Co., LLP, of Fresno, California (the Auditor ), serves as independent auditor to the District and its report for Fiscal Year has been included in this Official Statement. See Appendix B Audited Financial Statements of the District for Fiscal Year Ended June 30, 2017 herein. Audited financial statements for all prior fiscal years are on file with the District and available for public inspection during normal business hours. Audit reports are also available at Copies of financial statements relating to any year are available to prospective investors and or their representatives upon request by contacting the District at 800 Niblick Road, Paso Robles, California 93446, telephone (805) , or by contacting the District s financial advisor, Dale Scott & Company Inc., 650 California Street, 8 th Floor, San Francisco, California 94108, telephone (415) In connection with the inclusion of the financial statements and the report of the Auditor thereon in Appendix B to this Official Statement, the District did not request the Auditor to, and the Auditor has not undertaken to, update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to the date of its report. The District is required by law to file its annual audit with the County Superintendent and State officials by the December 15 following the close of each fiscal year, and to review the report and any recommended changes following a public meeting to be conducted no later than the following January

52 The table on the following page set forth certain General Fund information for the District. PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balances for Fiscal Years Through (Audited) Audited (1) Audited (1 ) Audited (1) Audited (1) Audited (1) REVENUES Revenue Limit Sources/LCFF $37,351,102 $44,187,941 $48,608,887 $54,467,895 $57,552,695 Federal sources 3,844,528 2,938,221 3,909,318 3,211,116 4,253,490 Other State sources 9,631,116 5,379,488 4,048,067 8,402,592 7,058,173 Other local sources 5,045,001 4,173,123 4,241,389 2,544,764 4,134,988 TOTAL REVENUES $55,871,747 $56,678,773 $60,807,661 $68,626,367 $72,999,346 EXPENDITURES Instruction 32,218,296 34,474,124 36,429,300 41,920,278 46,132,819 Instruction-related activities: Supervision of instruction 2,047,125 1,578,054 1,841,794 3,003,387 3,344,017 Instructional library, media and technology 461, , ,764 1,858,859 1,599,381 School site administration 3,145,124 3,496,046 3,664,438 3,615,052 3,765,149 Pupil services: Home-to-school transportation 1,676,558 2,128,786 1,974,847 1,597,532 1,605,635 Food services All other pupil services 2,218,124 2,268,946 2,729,887 4,199,554 5,006,692 Administration: Data processing 885,569 1,388,647 1,528,251 1,515,971 1,264,633 All other administration 1,951,275 2,089,041 2,064,238 2,549,682 2,857,880 Plant Services 5,361,195 5,352,165 5,655,230 7,476,806 7,578,547 Facility acquisition and 121,674 41,353 6,975 30,956 96,890 construction Ancillary services 930, ,817 1,069,818 1,189,773 1,157,267 Community services 14,936 10,380 17,757 11,885 - Other outgo 1,248,528 1,208, ,186 1,093,101 1,058,807 Debt Service Principal Interest and other TOTAL EXPENDITURES 52,279,748 55,481,897 58,584,485 70,062,836 75,467,717 Excess (Deficiency) of Revenues Over Expenditures $3,591,999 $1,196,876 2,223,176 (1,436,469) (2,468,371) OTHER FINANCING SOURCES (USES) Transfers In ,839 2,108, ,000 Other sources 385, Transfers Out (1,284,450) (1,074,013) (944,515 - (382,461) Net Financing Sources (Uses) (899,296) (1,074,013) (921,676) 2,108, ,559 NET CHANGE IN FUND BALANCES 2,692, ,863 1,301, ,747 (2,350,812) (2) Fund Balance - Beginning 2,853,317 5,546,020 5,668,882 6,970,382 6,780,941 Fund Balance - Ending $5,546,020 $5,668,883 $6,970,382 $7,642,129 $4,430,129 (1) Excerpted from the District s audited financial statements. (2) Net change in fund balance due in part to miscalculation of ADA, which impacted projections. The District has taken steps to correct ADA reporting. Source: Paso Robles Joint Unified School District. 45

53 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Summary of General Fund Revenues, Expenditures and Changes in Fund Balance for Fiscal Year (Adopted Budget, First Interim Report and Second Interim Report) Adopted Budget First Interim Report Second Interim Report REVENUES LCFF Sources $60,775, $59,984, $59,946, Federal Revenue 3,353, ,162, ,327, Other state revenues 3,639, ,123, ,045, Other local revenues 3,298, ,532, ,735, Total revenues 71,066, ,801, ,055, EXPENDITURES Certificated salaries 31,767, ,441, ,448, Classified salaries 12,169, ,749, ,823, Employee benefits 16,761, ,484, ,663, Books and supplies 2,486, ,189, ,117, Services and other operating expenditures 6,551, ,986, ,647, Capital Outlay 27, ,833, ,002, Other Outgo 834, ,111, , Other Outgo Transfers of Indirect Costs (105,005.00) (109,618.00) (129,204.10) Total expenditures 70,494, ,687, ,555, EXCESS OF REVENUES OVER EXPENDITURES BEFORE OTHER FINANCING SOURCES (USES) 572, , , OTHER FINANCING SOURCES (USES) Transfers In 80, , ,000,00 Total Other Financing Sources (uses) 80, ,000,00 80, NET CHANGE IN FUND BALANCES Fund balance July 1 5,817, ,648, ,648, Fund balance June 30 $6,470, $5,843, $4,253, Source: Paso Robles Joint Unified School District. 46

54 Limit on School District Reserves State regulations require school districts to budget a reserve for economic uncertainties. The recommended minimum amounts vary from 1% to 5% of total expenditures and other financing uses, depending on the district's ADA. In connection with legislation adopted in connection with the State s fiscal year Budget ( SB 858 ), the Education Code was amended to provide that, beginning in fiscal year , if a district s proposed budget includes a local reserve above the minimum recommended level, the governing board must provide the information for review at the annual public hearing on its proposed budget. In addition, SB 858 included a provision, which became effective upon the passage of Proposition 2 at the November 4, 2014 statewide election, which limits the amount of reserves which may be maintained at the District level. Specifically, the legislation, among other things, enacted Education Code Section , which became operative December 15, 2014, and provides that in any fiscal year immediately after a fiscal year in which a transfer is made to the State s Public School System Stabilization Account (the Proposition 98 reserve), a school district may not adopt a budget that contains a reserve for economic uncertainties in excess of twice the applicable minimum recommended reserve for economic uncertainties established by the State Board (for school districts with ADA over 400,000, the limit is three times the amount). Exemptions can be granted by the County Superintendent under certain circumstances. In August of 2015, a bill was introduced into the State Senate in response to SB 858 ( SB 799 ) proposing reforms to the reserve cap. SB 799 proposes a cap on unassigned reserves and special reserves for other than capital outlay of seventeen percent, with exemptions from the cap for school districts with less than 2,500 average daily attendance and basic aid districts. The District cannot predict how SB 858 or SB 799, if enacted, will impact its reserves and future spending. The District is required to maintain a reserve for economic uncertainties at least equal to 3% of general fund expenditures. The policy of the District s Board of Trustees is to maintain a minimum reserve of 10% of general fund expenditures. It is expected that at the end of fiscal year , the reserve will be 8.3% of general fund expenditures. The District is unable to predict what the effect on its budget will be following implementation of these new rules. It is anticipated that if the cap is triggered, it will materially change the District s current policies on reserves. County Investment Pool In accordance with Education Code Section 41001, each California public school district maintains substantially all of its operating funds in the county treasury of the county in which it is located, and each county treasurer or finance director serves as ex officio treasurer for those school districts located within the county. Each county treasurer or finance director has the authority to invest school district funds held in the county treasury. Generally, the county treasurer or finance director pools county funds with school district funds and funds from certain other public agencies within the county and invests the cash. These pooled funds are carried at cost. Interest earnings are accounted for on either a cash or accrual basis and apportioned to pool participants on a regular basis. 47

55 Each county treasurer is required to invest funds, including those pooled funds described above, in accordance with Government Code Sections et seq. In addition, each county treasurer is required to establish an investment policy which may impose further limitations beyond those required by the Government Code. Certain information concerning the County s pooled investment policy and its portfolio as of March 31, 2017, are included herein. See Appendix F County of San Luis Obispo Investment Pool Quarterly Report. STATE FUNDING OF EDUCATION School district revenues consist primarily of guaranteed State moneys, local property taxes and funds received from the State in the form of categorical aid under ongoing programs of local assistance. All State aid is subject to the appropriation of funds in the State s annual budget. Previously, school districts operated under general purpose revenue limits established by the State Department of Education. In general, revenue limits were calculated for each school district by multiplying the A.D.A. for each school district by a base revenue limit per unit of A.D.A. Revenue limit calculations were subject to adjustment in accordance with a number of factors designed to provide cost of living adjustments ( COLA s ) and to equalize revenues among school districts of the same type. Funding of a school district s revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. The adoption of the State Budget and its related legislation included significant reforms to education financing in the State. Beginning in fiscal year , school districts are being funded based on uniform funding grants assigned to certain grade spans. Under the Local Control Funding Formula ( LCFF ), the emphasis shifted from funding based largely on A.D.A. and the revenue limit with numerous State-mandated categorical programs, to a locallycontrolled system with a funding formula which attempts to better meet the needs of students, specifically low-income and English language learners who may require more support in order to be successful in school. In addition, the LCFF provides local school officials with the ability to decide how best to meet the needs of their students. See Revenue Sources - Local Control Funding Formula, below. Revenue Sources The District categorizes its general fund revenues into four sources: (i) LCFF sources (consisting of a mix of State and local revenues); (ii) federal revenues; (iii) other State revenues; and (iv) other local revenues. Each of these revenue sources is described below. Revenue Limit Sources. Prior to the implementation of the LCFF, each school district was determined to have a target funding level which consisted of a base revenue limit per student multiplied by the district s student enrollment measured in units of average daily attendance. The base revenue limit was calculated from the district s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. The amount of State funding allocated to each school district was generally the amount needed to reach that district s base revenue limit after taking into account certain other revenues, 48

56 such as local property taxes. This is referred to as State equalization aid. To the extent local tax revenues increased due to growth in local property assessed valuation, the additional revenue was offset by a decline in the State s contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit received no State equalization aide, and received only its special categorical aid, which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as basic aid districts, which are now referred to as community funded districts. School districts that received some equalization aide were commonly referred to as revenue limit districts, which are now referred to as LCFF districts. The District implemented the LCFF in fiscal year Local Control Funding Formula. Legislation adopted in connection with the State s budget included the implementation of the LCFF, which changed the formula by which school districts in California receive State funding. This new funding model attempts to better meet the needs of students, particularly those students who come from low-income families or are English language learners, and which provides local school officials with the ability to decide how best to meet the needs of their students. Shifting from a State-controlled system that emphasized inputs (largely in the form of categorical funding which required funds to be spent on specific projects and programs), the LCFF implements a locally-controlled system in which local agencies decide the best way to spend funds, focused instead on improved outcomes. In exchange for local control, school districts will be required to increase or improve services for English language learners, low income, and foster youth students in proportion to supplemental and concentration grant funding received. The LCFF affects how much funding a district will receive, but generally not the source of such funding (i.e., its share of local property taxes together with the State funding provided in the LCFF). It changes the State funding system for school districts, charter schools and county offices of education by, among other changes, consolidating most categorical programs with the existing revenue limit structure to provide a new student formula (to be phased in over a span of eight fiscal years), and implementing supplemental and concentration grants to English language learners and economically disadvantaged students. The LCFF includes the following components: A base grant for each local education agency. A 20% supplemental grant for English learners, students from low-income families and foster youth to reflect increased costs associated with educating those students. An additional concentration grant of up to 22.5% of a local education agency s base grant, based on the number of English 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 their pre-recession funding level, adjusted for inflation, at full implementation of the LCFF. 49

57 The District has a high proportion of English language learners, students from lowincome families and foster youth (51.63% in ). The District received LCFF funding in the amount of $46,149,705 for , $51,905,947 for , and $55,523,255 for , and expects to receive $57,886,927 for based on LCFF gap funding at 43.19%. There are many variables which still remain to be finalized with respect to the LCFF model of education finance and the District is unable to predict at this time all of the impacts that this change in education funding will have on its finances. The following table sets forth the District s actual and budgeted A.D.A., enrollment (including percentage of students who are English language learners, from low-income families and/or foster youth (collectively, EL/LI Students )), and targeted Base Grant per unit of A.D.A. for fiscal years through , respectively. The A.D.A. and enrollment numbers reflected in the following table include special education and District-funded county program students, but excludes adult education. PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT Average Daily Attendance, Enrollment and Targeted Bas Grant Fiscal Years through A.D.A./Base Grant Enrollment Enrollment (6) Fiscal Year K Total A.D.A. Total Enrollment Unduplicated % of EL/LI Students A.D.A. (2) : 1, , , , , % Target Base Grant (3) : 6,952 7,056 7,266 8, A.D.A. (2) : 1, , , , , % Target Base Grant (3)(4) : 7,011 7,116 7,328 8, A.D.A. (2) : 1, , , , , % Target Base Gran (3)(5): 7,083 7,189 7,403 8, (1) A.D.A. (2) : 1, , , , , % Target Base Gran (3)(5) : 7,083 7,189 7,403 8,578 (1) Figures are projections. (2) Funded A.D.A. for the school year, generally based on the second period of attendance in mid-april. (3) Such amounts represent the targeted amount of Base Grant per unit of A.D.A., and do not include any supplemental and concentration grants under the LCFF. Such amounts are not expected to be fully funded in fiscal years through (4) Targeted fiscal year Base Grant amounts reflect a 0.85% cost of living adjustment from targeted fiscal year Base Grant amounts. (5) Targeted fiscal year Base Grant amounts reflect a 1.02% cost of living adjustment from targeted fiscal year Base Grant amounts. (6) Reflects enrollment as of October report submitted to the CBEDS in each school year. 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 fiscal year total enrollment. For fiscal year , the percentage of unduplicated EL/LI Students enrollment will be based on the two-year average of EL/LI Students 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 school district s EL/LI Students enrollment for the then-current fiscal year and the two immediately preceding fiscal years. Source: Paso Robles Joint Unified School District. 50

58 All school districts, county offices of education, and charter schools are required to develop and adopt local control and accountability plans to identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement, and school climate. County superintendents will review and provide support to the school districts under their jurisdiction, and the Superintendent of Public Instruction will perform a corresponding role for county offices of education. In addition, the State budget created the California Collaborative for Education Excellence to advise and assist school districts, county offices of education, and charter schools in achieving the goals identified in their accountability plans. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under No Child Left Behind, the Individuals With Disabilities Education Act, and specialized programs such as Drug Free Schools. Other State Revenues. In addition to State funding determined pursuant to the LCFF, the District receives other State revenues that consist primarily of restricted revenues for the implementation of a majority of State mandated programs. Beginning in fiscal year , categorical spending restrictions for a majority of State mandated programs were eliminated, and funding for those programs was incorporated into the LCFF. However, because categorical funding for certain programs was excluded from the LCFF, school districts will continue to receive restricted State revenues to fund those programs. The District receives State aid from the California State Lottery (the Lottery ), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for noninstructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over levels must be restricted to use on instructional materials. Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as interagency services, interest earnings, leases and rentals, transportation services, and special education transfers from other agencies. 51

59 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT District Revenue Sources Percentage of Total District General Fund Revenues Revenue Source (1) LCFF 79.94% 79.37% 78.84% 85.52% Federal revenues Other State revenues Other local revenues (1) Adopted Budget Source: Paso Robles Joint Unified School District. The State Budget Process The State Constitution requires the Governor to propose a budget to the State Legislature no later than January 10 of each year and requires the Legislature to adopt a final budget no later than June 15. The latter deadline was frequently missed when passage of the budget required a 2/3 majority of each house of the Legislature. In the first year operating under the new simple majority approval rule, the Legislature approved the budget on June 15, but the Governor vetoed it, and the Legislature then adopted a revised budget on June 28, which the Governor signed on June 30. The budget becomes law upon the signature of the Governor, who retains veto power over specific items of expenditure. School district budgets must be adopted by the district s governing board by July 1 and then revised within forty-five (45) days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget Possible Delays in Apportionments. If the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district s State funding may be treated differently. In 2002, a California Court of Appeal held in White v. Davis (also referred to as Jarvis v. Connell) that the State Controller cannot disburse State funds after the beginning of the fiscal year until the adoption of the budget bill or an emergency appropriation, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State constitution, such as appropriations for salaries of elected state officers, or (iii) required by federal law, such as payments to State workers (but at no more than minimum wage). The court specifically held that pre-budget disbursements of Proposition 98 funding for school districts are invalid. In 2003, the California Supreme Court upheld the decision of the Court of Appeal. During the State budget impasse, the State Controller nonetheless treated revenue limit apportionments to school districts as continuous legislative appropriations under statute. The State Controller did not disburse certain categorical and other funds to school districts until the Budget Act was enacted. Prior Years Budgeting Techniques. Commencing in fiscal year , as a result of declining revenues and fiscal difficulties, the State undertook a number of budgeting strategies, which had subsequent impacts on local agencies within the State. Such techniques included the issuance of IOUs in lieu of warrants (checks), the enactment of statutes deferring amounts owed to public schools, until a later date in the fiscal year, or even into the following fiscal year (known as statutory deferrals), trigger reductions (i.e., budget cutting measures which were 52

60 implemented or could have been implemented if certain State budgeting goals were not met), and the dissolution of local redevelopment agencies in part to make available additional funding for local agencies. A balanced Budget for fiscal year was approved by the Governor and a balanced budget is projected for the foreseeable future, largely attributable to the additional revenues generated due to the passage of Proposition 30 at the November 6, 2012 statewide election, as well as other spending cuts. Nevertheless, there can be no certainty that budgetcutting strategies such as those implemented in recent years will not be used in the future should the State Budget again be stressed and if projections included in such budget do not materialize. Fiscal Year State Budget On June 27, 2017, Governor Brown signed the budget for the State for fiscal year (the State Budget ). For the fiscal year, the State Budget increases revenues and transfers to $118.5 billion (up $3 billion from the State Budget) and revises expenditures downward approximately $1.1 billion from the State Budget to $121.4 billion. For , the State Budget includes general fund revenues and transfers of $125.9 billion and expenditures of $125.1 billion with a $1.8 billion deposit to the Rainy Day Fund to bring the Rainy Day Fund balance to $8.5 billion. A supplemental payment to PERS of $6 billion through a loan from the Surplus Money Investment Fund is intended to reduce PERS unfunded liabilities and stabilize the State s contribution rate to PERS. The State Budget expands the Earned Income Tax Credit by including self- employed individuals and expanding the income ranges for which the credit applies. Additionally, the Budget implements the Road Repair and Accountability Act of 2017 aimed at investing in transportation infrastructure repair and modernization. With respect to K-12 education, total spending is projected to be $92.5 billion in The Proposition 98 minimum funding guarantee for is increased by $2.6 billion over the State Budget level to $74.5 billion. LCFF funding under the State Budget is increased by $1.4 million bringing the LCFF to approximately 97% of full funding. Significant provisions of the State Budget effecting K-12 education are as follows: One-Time Discretionary Grants. $877 million Proposition 98 funds to provide school districts, county offices of education, and charter schools with discretionary resources for deferred maintenance, professional development, induction for beginning teachers, instructional materials, technology, and the implementation of new educational standards. After School and Education Safety (ASES) Program. $50 million Proposition 98 funds to increase provider reimbursement rates for the ASES program. California Educator Development Program. $11.3 million one-time federal Title II funds to assist local educational agencies in attracting and supporting the preparation and continued learning of teachers, principals, and other school leaders in high need subjects and schools. 53

61 Classified School Employees Credentialing Program. $25 million one-time Proposition 98 funds, available for five years, to support recruitment of non-certificated school employees to participate in a teacher preparation program and become certificated classroom teachers. Bilingual Professional Development Program. $5 million one-time Proposition 98 funds for one time competitive grants to support professional development for teachers and paraprofessionals seeking to provide instruction in bilingual and multilingual settings. Charter School Facility Grant Program. An increase in the per student funding rate to $1,117 for the fiscal year and an ongoing COLA. County Office of Education Accountability Assistance. $7 million Proposition 98 funds to support county office LCAP review and technical assistance workload. California Equity Performance and Improvement Program. An increase of $2.5 million one-time Proposition 98 funds to support and promote equity. Refugee Student Support. $10 million one-time Proposition 98 Genera funds to provide services for refugee students transitioning to a new learning environment. California-Grown Fresh School Meals Grants. $1.5 million one-time Proposition 98 funds to incentivize the purchase of California-grown food by schools and expand the number of freshly prepared school meals. District of Choice Program Extension. A six-year extension of the District of Choice program (set to sunset in 2018) and additional oversight and accountability requirements. Proposed State Budget On January 10, 2018, Governor Brown announced his proposed budget for the State for fiscal year (the Proposed State Budget ). Under the Proposed State Budget, revenues and transfers for are approximately $127 billion, an increase of approximately $1.1 billion over the State Budget as a result of increased personal income tax and sales tax receipts over projections. Expenditures in will total approximately $126.5 billion. The Proposed State Budget forecasts resources for at approximately $129.7 billion with $131 billion of expenditures. The Proposed State Budget prioritizes continued implementation of existing programs and fiscal prudence as economic conditions remain stable. The Proposed State Budget would make a supplemental transfer to the Rainy Day Fund of $3.5 billion (in addition to the $1.5 billion required deposit) to bring the Rainy Day Fund to maximum funding in order to mitigate possible future economic recession. With respect to K-12 education, the Proposed State Budget includes record Proposition 98 funding of $78.3 billion, including $1.8 billion of discretionary one-time funds. Total per pupil funding from all sources is projected to reach $16,085 in (including certain settle-up payments) with Proposition 98 per pupil funding totaling $11,614, an increase of $465 over With respect to LCFF, the Proposed State Budget includes $3 billion to bring the LCFF to full funding two years earlier than initially projected. 54

62 Significant provisions of the Proposed State Budget relating to K-12 education are as follows: K-12 Component of the Strong Workforce Program. $212 million Proposition 98 Funds for K-12 CTE programs administered through the community college Strong Workforce Program in consultation with the Department of Education. COLA. $133.5 million Proposition 98 Funds to support a 2.51% COLA for categorical programs outside of the LCFF, including Special Education, Child Nutrition, Foster Youth, American Indian Education Centers, and the American Indian Early Childhood Education Program. Special Education. $125 million Proposition 98 Funds and $42.2 million federal Temporary Assistance for Needy Families (TANF) funds on a one-time basis for competitive grants to expand inclusive care and education settings for 0-5 year olds and improve school readiness and long-term academic outcomes for low-income children and children with exceptional needs. State System of Support. $59.2 million Proposition 98 Funds for county offices of education and lead county offices of education to provide technical assistance to local educational agencies. California Collaborative for Educational Excellence ( CCEE ). $6.5 million Proposition 98 Funds for the CCEE to help build capacity within county offices of education to provide technical assistance and improve student outcomes and $11.3 million Proposition 98 Funds for the CCEE to work with county offices of education to provide assistance to school districts. County Offices of Education. $55.2 million Proposition 98 Funds to help county offices of education facilitate the improvement of school districts identified as being in need of differentiated assistance. SELPAS. $10 million ongoing Proposition 98 Funds for SELPAs to work with county offices of education to provide technical assistance to local educational agencies to improve student outcomes. Special Education Teachers. teachers. $100 million to increase and retain special education Early Education and Care. $167 million to increase the availability of inclusive early education and care for children aged 0 to 5 years old, especially in low-income areas and in areas with relatively low access to care. Educator Effectiveness Block Grant. $490 million one-time Proposition 98 Funds to support educator professional development. Classified School Employee Credentialing Grant Program. $45 million one-time Proposition 98 Funds to support at least 2,250 classified employees electing become certificated classroom teachers. 55

63 Integrated Teacher Preparation Program. $10 million one-time non-proposition 98 Funds to create pathways that allow university students to graduate with a bachelor s degree and a preliminary teaching credential within four years. California Educator Development Grant Program. $9 million one-time federal Title II funds for competitive grants that assist local educational agencies in attracting and supporting the preparation and continued learning of teachers, principals, and other school leaders in high-need subjects and schools. California Center on Teaching Careers. $5 million one-time Proposition 98 Funds to support statewide teacher recruitment and retention efforts. Bilingual Educator Professional Development Grant Program. $5 million one-time Proposition 98 Funds for competitive grants to support professional development for teachers and paraprofessionals seeking to provide instruction in bilingual and multilingual settings. CalWORKs Stage 2 and Stage 3 Child Care. $5.2 million non-proposition 98 Funds to reflect slight increases in the number of CalWORKs child care cases and slight decreases in the estimated cost of care. Factors Affecting the Budget and Projections. Numerous factors, including, but not limited to: (i) shifting of costs from the federal government to the State, (ii) national, State and international economic conditions, (iii) litigation risk associated with spending reductions, including the elimination of redevelopment agencies, (iv) rising health care costs, (v) large unfunded liabilities for retired State employee s pensions and healthcare, (vi) deferred maintenance of State s critical infrastructure, and (vii) other factors, may cause the revenue and spending projections made in the budget to be unattainable. The District cannot predict the impact that the budget, or subsequent budgets, will have on its own finances and operations. Additionally, the District cannot predict the accuracy of any projections made in the budget. Additional Information on State Finances. The full text of proposed and adopted State budgets may be found at the internet website of the California Department of Finance, under the heading California Budget. The Legislative Analyst s Office budget overviews and other analyses may be found at under the heading Products. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, or through the Municipal Securities Rulemaking Board s EMMA website at emma.msrb.org. Periodic reports on revenues and/or expenditures during the fiscal year are issued by the Governor s Office, the State Controller s Office and the LAO. The Department of Finance issues a monthly Bulletin, which reports the most recent revenue receipts as reported by state departments, comparing them to Budget projections. The Governor s Office also formally updates its budget projections three times during each fiscal year, in January, May and at budget enactment. These bulletins and other reports are available on the Internet. 56

64 The information referred to above is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Future State Budgets. The District cannot predict what actions will be taken in the future by the Legislature and the Governor to deal with changing State revenues and expenditures or 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 could result in a significant shortfall of revenue and cash, and could impair the State s ability to fund schools as budgeted. However, the obligation to levy ad valorem taxes upon all taxable property within the District for the payment of principal of and interest on the Bonds would not be impaired. Legal Challenge to State s Funding Method. The application of Proposition 98 and other statutory regulations has been the subject of various legal challenges in recent years, and is likely to be further challenged in the future. THE ECONOMY OF THE COUNTY OF SAN LUIS OBISPO The information in this section concerning the County s economy is provided as supplementary information only. Because SFID No. 1 is located only within the County, no information regarding the County of Monterey s economy is provided. The Bonds are not a debt of the County, the County of Monterey, the City of Paso Robles, the State, or any of the State s political subdivisions; and neither the County, the County of Monterey, the City of Paso Robles, the State, nor any of the State s political subdivisions (other than the District) is liable for the Bonds. General Information The County is located on California s central Pacific coast, and encompasses approximately 3,304 square miles. The County is bordered by Monterey County on the north, Kern County on the east, Santa Barbara County on the south, and the Pacific Ocean on the west. According to the U.S. Bureau of Economic Analysis, in 2016, the County had per capita personal income of $51,442, which is 91% of the State average of $56,374. Population According to California Department of Finance s estimates, the County s 2017 annual population was 280,101, an increase of 0.58% over the 2016 population of 278,480. Historical population figures are shown in the following exhibit. 57

65 SAN LUIS OBISPO COUNTY Population Area Arroyo Grande 17,141 17,254 17,295 17,428 17,720 17,736 Atascadero 28,248 28,478 28,636 29,169 30,633 30,900 El Paso de Robles 29,969 30,270 30,423 30,522 31,378 31,745 Grover Beach 13,046 13,101 13,119 13,144 13,391 13,438 Morro Bay 10,187 10,235 10,254 10,284 10,714 10,762 Pismo Beach 7,609 7,654 7,688 7,711 8,177 8,247 San Luis Obispo 44,953 45,240 45,484 45,802 46,298 46,724 Balance of County 118, , , , , ,549 Incorporated 151, , , , , ,552 County Total 269, , , , , ,101 County Employment The County civilian labor force increased from 139,600 in 2015 to 140,000 in The County s civilian unemployment rate declined from 4.7% to 4.3%. The two tables on the following page show historical labor force data and major private sector employers in the County. SAN LUIS OBISPO METROPOLITAN STATISTICAL AREA Average Annual Civilian Labor Force, Employment and Unemployment Type of Employment Civilian Labor Force 137, , , , ,000 Civilian Employment 126, , , , ,400 Civilian Unemployment 11,300 9,400 7,800 6,600 6,000 Civilian Unemployment Rate 8.2% 6.8% 5.6% 4.7% 4.3% Source: California Employment Development Department, Labor Market Information, March 2016 Benchmark 58

66 Major Employers The following table provides a listing of major employers in the County. SAN LUIS OBISPO COUNTY Major Employers Employer Name Location Industry Ami Sierra Vista Radiology San Luis Obispo Physicians & Surgeons Arroyo Grande Community Hosp. Arroyo Grande Hospitals Atascadero State Hospital Atascadero Mental Health Services Cal Poly San Luis Obispo San Luis Obispo Schools Universities & Colleges Academic California Mid-State Fair Paso Robles Concert Venues Child Abuse & Neglect Child San Luis Obispo Business Management Consultants County Office of Education San Luis Obispo Schools Cuesta College Paso Robles Schools Universities & Colleges Academic Department of Social Svc. San Luis Obispo Government Offices-Us Diablo Canyon Nuclear Power Not Available Power Plants Ernie Ball Inc San Luis Obispo Musical Instruments-Manufacturers French Hospital Medical Ctr. San Luis Obispo Hospitals Glenair Inc. Paso Robles Communications Consultants Medi-Cal Eligibility Info San Luis Obispo Government Offices-County Mental Marketing Templeton Advertising-Agencies & Counselors Morro Bay Art Assn Gallery Morro Bay Art Galleries & Dealers Pacific Gas & Electric Co. San Luis Obispo Electric Companies Pacific Gas & Electric Co. Avila Beach Electric Companies San Luis Obispo County Ems San Luis Obispo Government Offices-County San Luis Obispo County Social San Luis Obispo Government Offices-County San Luis Obispo Sheriff s Dept. San Luis Obispo Sheriff Sierra Vista Regional Med Ctr. San Luis Obispo Hospitals Social Services Dept. San Luis Obispo Government Offices-County Trust RCM San Luis Obispo Billing Service Twin Cities Community Hospital Templeton Hospitals William Randolph Hearst Meml San Simeon Non-Profit Organizations Source: State of California Employment Development Department, extracted from America s Labor Market Information System (ALMIS) Employer Database st Edition. LEGAL OPINION The proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality of Dannis Woliver Kelley, Sacramento, California, Bond Counsel for the District. The opinion of Bond Counsel with respect to the Bonds will be delivered in substantially the form attached hereto as Appendix C. Certain legal matters will also be passed upon for the District by Dannis Woliver Kelley, as Disclosure Counsel, and for the Underwriter by, as Underwriter s Counsel. 59

67 TAX MATTERS The following discussion of federal income tax matters written to support the promotion and marketing of the Bonds was not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding federal tax penalties that may be imposed. Each taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. The delivery of the Bonds is subject to delivery of the opinion of Bond Counsel, Sacramento, California, to the effect that, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. The form of Bond Counsel s anticipated opinion respecting the Bonds is included in Appendix C. In rendering the foregoing opinions, Bond Counsel will rely upon the representations and certifications of the District made in a certificate (the Tax Certificate ) of even date with the initial delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance with the provisions of the Paying Agent Agreement by the District subsequent to the issuance of the Bonds. The Tax Certificate contains covenants by the District with respect to, among other matters, the use of the proceeds of the Bonds and the facilities and equipment financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, if required, the calculation and payment to the United States Treasury of any arbitrage profits and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants could cause interest on the Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the Bonds. Except as described above, Bond Counsel will express no other opinion with respect to any other federal, State or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a financial asset securitization investment trust, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. 60

68 Bond Counsel s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Internal Revenue Service ( IRS ) or the State of California with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel s opinion is not binding on IRS or the State of California. IRS has an ongoing program of auditing the tax status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures, IRS is likely to treat the District as the taxpayer, and the Owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interests from the owners of the respective Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Tax Accounting Treatment of Discount and Premium on Certain of the Bonds. The initial public offering price of certain of the Bonds (the Discount Bonds ) may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. The tax rules requiring inclusion in income annually by the holder of a debt instrument having original issue discount of the daily portion of original issue discount for each day during a taxable year in which such holder held such debt instrument is inapplicable to the Bonds. A portion of such original issue discount, allocable to the holding period of such Discount Bond by the initial purchaser, will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, and will be added to the holder s basis in the Discount Bond, for federal income tax purposes, on the same terms and conditions as those for other interest on the bonds described above under TAX MATTERS. Such interest is considered to be accrued in accordance with the constant-yield-tomaturity method over the life of a Discount Bond taking into account the semiannual compounding of accrued interest at the yield to maturity on such Discount Bond, and generally will be allocated to an original purchaser in a different amount from the amount of the payment denominated as interest actually received by the original purchaser during the tax year. However, such interest may be required to be taken into account in determining the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial Owner prior to maturity, the amount realized by such Owner in excess of the basis of such Discount Bond in the hands of such Owner (adjusted upward by the 61

69 portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination for federal income tax purposes of accrued interest upon disposition of Discount Bonds and with respect to the state and local tax consequences of owning Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. The initial offering price of certain Bonds (the Premium Bonds ), may be greater than the amount payable on such bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser s yield to maturity. Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium with respect to the Premium Bonds for federal income purposes and with respect to the state and local tax consequences of owning Premium Bonds. Form of Bond Counsel Opinion. The form of the proposed opinion of Bond Counsel relating to the Bonds is attached to this Official Statement as Appendix C. CONTINUING DISCLOSURE The District has covenanted for the benefit of holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) not later than 290 days after the end of the District s fiscal year (which currently ends on June 30), commencing with the report for the fiscal year, and to provide notices of the occurrence of certain enumerated events. The Annual Report and event notices are to be filed by the District with the Municipal Securities Rulemaking Board ( MSRB ) through its Electronic Municipal Market Access System ( EMMA System ). The event notices will be filed by the District in the same manner as an Annual Report. The specific nature of the information to be contained in the Annual Report and in the notices of significant events is described in Appendix D Form of Continuing Disclosure Certificate. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). The District has existing disclosure undertakings that have been made pursuant to the Rule in connection with the issuance of the District s outstanding general obligation bonds and certificates of participation. On multiple occasions during the last five years, the financial 62

70 documents, including the District s audited financial statements that comprised the annual report, were not filed on a timely basis and certain financial documents were not filed. Additionally, during the last five years, no material event filings had been made for insured rating changes until January 2013, and several underlying rating upgrade was not filed. In March 2013, the missing financial reports for the preceding five years were filed on EMMA. In order to assist it in complying with its disclosure undertakings for its outstanding bonds, certificates of participation and the Bonds, the District has engaged Dale Scott & Company, its Financial Advisor, to serve as its dissemination agent with respect to each of its disclosure undertakings, including the Continuing Disclosure Certificate to be executed in connection with the Bonds. NO MATERIAL LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District s ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District s ability to issue and retire Bonds. RATING Moody s Investors Service, Inc. ( Moody s ) has assigned its municipal bond rating of Aa3 to the Bonds. There is no assurance the credit rating given to the Bonds will be maintained for any period of time or that the rating may not be lowered or withdrawn entirely by Moody s if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. Such rating reflects only the views of Moody s, and an explanation of the significance of such rating may be obtained from Moody s. UNDERWRITING The Bonds are being purchased by (the Underwriter ). The Underwriter has agreed to purchase the Bonds at an aggregate purchase price of $, which equals the par amount of the Bonds ($ ), plus original issue premium ($ ), and less underwriter s discount of ($ ). The Official Notice of Sale relating to the Bonds provides that the Underwriter will purchase all of the Bonds (if any are purchased), and provides that the Underwriter s obligation to purchase is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Underwriter may offer and sell Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering prices may be changed by the Underwriter. 63

71 FINANCIAL ADVISOR Dale Scott & Co., Inc. is serving as Financial Advisor to the District with respect to the Bonds. The Financial Advisor has assisted the District in the matters relating to the planning, structuring, execution and delivery of the Bonds. Because of its limited participation in reviewing this Official Statement, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. In December 2017, the Financial Advisor made a charitable contribution to the 4A Foundation for Paso Robles Schools. COMPENSATION OF PROFESSIONALS Payment of the fees and expenses of Bond Counsel, Disclosure Counsel, Underwriters Counsel and Financial Advisor is contingent upon issuance of the Bonds. ADDITIONAL INFORMATION Quotations from and summaries and explanations of the Bonds, the Paying Agent Agreement providing for issuance of the Bonds, and the constitutional provisions, statutes and other documents referenced herein, do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions. Also, some of the data contained herein has been taken or constructed from District records. The discussions herein about the District Resolution, the Paying Agent Agreement, and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to such documents. Copies of these documents mentioned are available from the Underwriters and following delivery of the Bonds will be on file at the offices of the Paying Agent in San Francisco, California. References are also made herein to certain documents and reports relating to the District and SFID No. 1; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District. 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 Bonds. 64

72 AUTHORIZATION The execution and delivery of this Official Statement have been duly authorized by the District. PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT By: Chris Williams, Superintendent 65

73 APPENDIX A MAP OF SFID NO. 1 A-1

74 A-2

75 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2017 B-1

76 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

77 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2017 FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Governmental Funds - Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 19 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20 Proprietary Funds - Statement of Net Position 22 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 23 Proprietary Funds - Statement of Cash Flows 24 Fiduciary Funds - Statement of Net Position 25 Notes to Financial Statements 26 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 65 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 66 Schedule of the District's Proportionate Share of the Net Pension Liability 67 Schedule of District Contributions 68 Notes to Required Supplementary Information 69 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 71 Local Education Agency Organization Structure 72 Schedule of Average Daily Attendance 73 Schedule of Instructional Time 74 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 75 Schedule of Financial Trends and Analysis 76 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 77 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 78 Note to Supplementary Information 79 INDEPENDENT AUDITOR'S REPORTS 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 82 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 84 Report on State Compliance 86

78 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT TABLE OF CONTENTS JUNE 30, 2017 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 90 Financial Statement Findings 91 Federal Awards Findings and Questioned Costs 92 State Awards Findings and Questioned Costs 93 Summary Schedule of Prior Audit Findings 98 Management Letter 99

79 FINANCIAL SECTION 1

80 INDEPENDENT AUDITOR'S REPORT Governing Board Paso Robles Joint Unified School District Paso Robles, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Paso Robles Joint Unified School District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. 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 District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2

81 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Paso Robles Joint Unified School District, as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 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 5 through 13, budgetary comparison schedule on page 65, schedule of other postemployment benefits funding progress on page 66, schedule of the district's proportionate share of net pension liability on page 67, and the schedule of district contributions on page 68, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Paso Robles Joint Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual non-major fund financial statements and Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the other supplementary information as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information 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 accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

82 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 5, 2017, on our consideration of the Paso Robles Joint Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 the effectiveness of Paso Robles Joint Unified School District's 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 Paso Robles Joint Unified School District's internal control over financial reporting and compliance. Fresno, California December 5,

83 This section of the Paso Robles Joint Unified School District annual financial report presents a discussion and analysis of the District's financial performance during the fiscal year (FY) that ended on June 30, It reflects dedication of the District to maintain fiscal solvency through effective and efficient District operations. Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of three parts - management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements presenting different views of the District: The first two statements are District-wide financial statements that provide both short-term and long-term information about the District's overall financial status. Included in these two statements are Business-Type Activities, which are prepared using the economic resources measurement focus and the accrual basis of accounting. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District's operations in greater detail than the District-wide statements. The governmental funds statements show how basic services such as alternative and special education were financed in the short term, as well as what remains for future spending. Proprietary funds are used to account for activities that are more business-like than government-like in nature. Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others. The financial statements also include notes explaining some of the information in the statements and providing more detailed data. The statements are followed by a section of required supplementary information further explaining and supporting the financial statements with a comparison of the District's budget for the year. 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 current year 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 they have changed. Net position - the difference between the District's assets and liabilities - are one way to measure the District's financial health or position. Over time, increases or 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, additional non-financial factors such as changes in the condition of the District's school buildings and other facilities need to be considered. 5

84 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 In the District-wide financial statements, the District's activities fall into the following category: Governmental Activities The District's basic services are included here; e.g., alternative education, special education, and administration. Property taxes and State formula aid (LCFF) finance most of these activities in conjunction with Federal and State entitlement and grants. Business-Type Activities The District's Culinary Arts Academy are included here. The program is a unique and multi-productive facility. The building hosts both an academic and instructional kitchen with a fully functional dining area. Its design also facilities a full production kitchen that produces and supplies sixteen other sites in the Paso Robles School District area. Fund Financial Statements The fund financial statements provide more detailed information about the District's most significant or "major" funds - not the District as a whole. Funds are accounting devices the District uses to track specific sources of funding and spending for 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, e.g., repaying its long-term debts or to show the proper use of certain revenues, e.g., State or Federal grants for building projects. The District has three 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 can be readily converted to cash flow in and out; and (2) balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources available to 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 District-wide statements, we provide additional information with the governmental funds statements that explain the relationship (or differences) between them. Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. We use internal service funds (the other component of proprietary funds) to report activities that provide services for the District's Self-Insurance Program. The internal service fund is reported with governmental activities in the government-wide financial statements. The cafeteria enterprise fund is reported separately in the government-wide financial statements. Fiduciary Funds - The District is the trustee, or fiduciary, for assets that belong to others. Our student body funds are reported in the agency fund. 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 and a statement of changes in fiduciary net position. We exclude these activities from the District-wide financial statements because the District cannot use these assets to finance its operations. 6

85 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 FINANCIAL HIGHLIGHTS The District presented an Adopted Budget for , projecting an ending General Fund balance of $6,114,951. The District certified both the 1 st and 2 nd Interim Financial Reports as "Positive". At fiscal year-end, the unrestricted expenses (including contributions) exceeded unrestricted revenues by $213,086. The unrestricted ending balance for was $3,028,829 which represents 4.0 percent of actual expenditures. The budget for projected expenditures and revenues with nearly the same percent in unrestricted Fund Balance, anticipating an unrestricted ending balance of 8.1 percent. Enrollment had an increase in of 226 over The enrollment increased by 160 over The District's enrollment has dropped from a high of 6,910 in to 6,588 in It is anticipated that the enrollment will continue to grow due to new District initiatives in athletics and VAPA. The District completed its third year of funding under the reformed financial restructuring known as the Local Control Funding Formula (LCFF). Due to the District's diverse demographics, the funding formula provides additional supplemental grants to provide expanded services to over 52 percent of the students enrolled in addition to the base grants for all students. This funding provides over 80 percent of the District's resources. 7

86 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Position The District's combined net position decreased by approximately 22.2 percent primarily due to increased instruction related expenditures. Net Position Government Activities As of June 30, 2016 and 2017 Restated June 30, 2016 June 30, 2017 Difference Current and Other Assets $ 14,634,036 $ 11,032,670 $ (3,601,366) Accounts Receivable 5,929,716 4,415,971 (1,513,745) Net Fixed Assets 91,513,934 92,061, ,579 Total Assets 112,077, ,510,154 (4,567,532) Deferred Outflows of Resources 13,371,167 16,606,689 3,235,522 Current Liabilities 5,949,251 6,962,902 1,013,651 Long-Term Obligations: Due within one year 1,195,554 1,116,447 (79,107) Due after one year 28,810,295 27,331,175 (1,479,120) Net pension liability 51,490,341 65,392,524 13,902,183 Total Liabilities 87,445, ,803,048 13,357,607 Deferred Inflows of Resources 10,211,027 1,703,497 (8,507,530) Net Position Net investment in capital assets 67,366,722 68,399,308 1,032,586 Restricted 8,100,122 4,775,949 (3,324,173) Unrestricted (47,674,459) (51,564,959) (3,890,500) Total Net Position $ 27,792,385 $ 21,610,298 $ (6,182,087) 8

87 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Net Position Business-Type Activities As of June 30, 2016 and 2017 June 30, 2016 June 30, 2017 Difference Current and Other Assets $ - $ 41,713 $ 41,713 Accounts Receivable - 25,279 25,279 Total Assets - 66,992 66,992 Deferred Outflows of Resources Current Liabilities - 154, ,613 Total Liabilities - 154, ,613 Deferred Inflows of Resources Net Position Unrestricted - (87,621) (87,621) Total Net Position $ - $ (87,621) $ (87,621) Changes in Net Position The District's total revenues (governmental activities) increased to $78.6 million. Property taxes accounted for 54.3 percent of the District's revenue. An additional 27.4 percent came from State and Federal aid/grants not for specific programs, 14.4 percent from operating grants, and the remainder came from fees charged for services and miscellaneous sources. Revene Comparison June 30, 2016 Compared With June 30, 2017 Governmental Activities June 30, 2016 June 30, 2017 Difference Charges for Services $ 2,035,520 $ 1,243,094 $ (792,426) Operating Grants and Contributions 9,911,850 11,281,091 1,369,241 Federal and State Aid not Restricted for a Specific Purpose 20,303,991 21,551,644 1,247,653 Property Taxes 40,849,881 42,675,468 1,825,587 Other General Revenues 1,045,543 1,854, ,295 Total Governmental Activities Revenues $ 74,146,785 $ 78,606,135 $ 4,459,350 Business Type Activities June 30, 2016 June 30, 2017 Difference Local and interimediate sources $ - $ 169,457 $ 169,457 The total cost of all programs and services (governmental activities) was $84.8 million. The District's expenses are predominantly related to educating K-12 regular education, special education, alternative education, adult education, construction projects and after school child care students. The purely administrative activities of the District accounted for approximately five percent of total expenses. 9

88 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 Expense Comparison June 30, 2016 Compared With June 30, 2017 Governmental Activities June 30, 2016 June 30, 2017 Difference Instruction Related $ 50,560,939 $ 57,977,849 $ 7,416,910 Student Support Services 6,014,252 7,001, ,502 Administration 4,823,217 4,416,785 (406,432) Plant Services 10,852,500 9,095,788 (1,756,712) Food Services 2,577,310 2,461,058 (116,252) Other 4,518,950 3,834,988 (683,962) Total Governmental Activities Expenses $ 79,347,168 $ 84,788,222 $ 5,441,054 Business Type Activities June 30, 2016 June 30, 2017 Difference Payroll costs $ - $ 152,559 $ 152,559 Supplies and materials - 97,191 97,191 Other operating costs - 7,328 7,328 Total Business Type Activities Expenses $ - $ 257,078 $ 257,078 Total expenses surpassed revenues, decreasing net position by $6.2 million. 10

89 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 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 the year, its governmental funds reported a combined fund balance of $8.4 million which is down 42.3 percent from the prior year. Continued capital projects was the main reason for the overall decrease in total fund balances. Summary of Fund Balances All Funds June 30, 2016 Compared With June 30, 2017 Restated June 30, 2016 June 30, 2017 Difference General 1 $ 6,780,941 $ 4,430,129 $ (2,350,812) Child Development 61, , ,739 Cafeteria 381, , ,788 Building 322, ,253 (3,444) Capital Facilities 5,028,991 1,661,916 (3,367,075) Special Reserve Capital Outlay 586,148 - (586,148) Bond Interest and Redemption 1,325,476 1,240,115 (85,361) Total $ 14,487,026 $ 8,360,713 $ (6,126,313) 1 Includes the District's Fund 14 - Deferred Maintenance Fund, Fund 15 - Pupil Transportation Fund, and Fund 17 - Special Reserve Non-Capital Outlay Fund in accordance with GASB Statement 54. General Fund Budgetary Highlights Over the course of the fiscal year, major revisions are submitted to the Board of Education at First Interim (October 31), Second Interim (January 31), and Third Interim (April 30) for their review and approval. These changes include: Changes in expenditures related to costs for new District educational program initiatives Changes in Grants as well as updating grant estimates to award letters and notifications Changes to reflect carryover estimates to the actual amounts for State and Federal grants and entitlements 11

90 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets By the end of fiscal 2017, the District had invested $92.1 million in a broad range of capital assets, including, furniture, equipment, buses and vehicles. There are thirteen school sites, a school support facility, nutritional services and culinary arts facility, and the District central office building. The following table summarizes the District's assets by classification. Capital Assets June 30, 2016 Compared With June 30, 2017 June 30, 2016 June 30, 2017 Difference Land $ 8,938,214 $ 11,141,639 $ 2,203,425 Improvement and Sites 10,750,763 10,960, ,826 Buildings 109,314, ,936, ,937 Equipment 6,861,565 7,002, ,759 Work in Progress 286, ,776 - Less: Accumulated Depreciation (44,638,132) (47,266,500) (2,628,368) Total $ 91,513,934 $ 92,061,513 $ 547,579 Long-Term Obligations At year-end, the District had $28.4 million in long-term obligations outstanding presented below, a decrease of 5.2 percent from last year. Summary of Outstanding Long-Term Obligations June 30, 2016 Compared With June 30, 2017 June 30, 2016 June 30, 2017 Difference General Obligation Bonds $ 21,071,407 $ 20,976,869 $ (94,538) Bond Premium 1,385,126 1,279,334 (105,792) Certificates of Participation 340,000 - (340,000) Compensated Absences 545, ,456 (372,817) Flex Lease 726, ,581 (108,498) Capital Leases 947,297 1,107, ,377 Other Postemployment Benefits 4,990,667 4,293,708 (696,959) Total $ 30,005,849 $ 28,447,622 $ (1,558,227) Net Pension Liability (NPL) As of June 30, 2015, the District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, which required the District to recognize its proportionate share of the unfunded pension obligation for CalSTRS and CalPERS. As of June 30, 2017, District reported Deferred Outflows from pension activities of $16.6 million, Deferred Inflows from pension activities of $1.7 million, and a Net Pension Liability of $65.4 million. 12

91 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2017 FACTORS BEARING ON THE DISTRICT'S FUTURE At the time these financial statements were prepared and audited, the District was aware of the following existing conditions that could significantly affect its financial health in the future: In November 2013, the state held a general election and passed a proposition that will increase both income and sales taxes for periods of four and seven years, concurrently. This proposition will significantly increase state revenue, thereby, increasing state funding for schools, for the period of the taxes. The District cannot lose sight of the temporary nature of these, and the impact of the elimination, when doing long range planning and remains conservative in its projection. This is significant because this funding source is one of the major sources supporting the LCFF. The state's other traditional sources for funding schools must increase over this period in order to continue full funding and increases for the full implementation of the funding formula. The Adopted State Budget included the broadest change in educational funding seen in decades with the implementation of the LCFF. The new funding formula maintains the constructs of revenue limit and average daily attendance (ADA), but funds grade spans at different amounts based on the specific ADA of each span. In addition, supplemental funding is available for the 52 percent of district students who are designated low income, English language Learners of foster or homeless youth. These calculations are affected by statewide Cost of Living Allowances to arrive at a funding level that is intended to fund all students, in all districts, at the same level. However, the State is still not in a financial position to fully fund California schools. The gap between prior year ( ) funding and full funding is intended to be addressed over the seven to ten years during State budget adoption and may vary widely from year to year. For the year the District received percent of "the gap" and remains only 96.4 percent funded from all state funding sources. Since the gap funding percentages are determined within the State budget each, year, multi-year projections are subject to unknown variances. The District relies on the LCFF calculation factors as agreed to by the Department of Finance, FCMAT, the Department of Education and county school offices. The District is monitoring enrollments very closely and will be cautious in developing future budgets, especially as they affect revenues and staffing needs. Federal maintenance of effort rules make it challenging to reduce expenditures for special education programs. Therefore, the gap between funds provided specifically for these programs, and the actual cost of these programs and services continues to increase. This requires that funds generated within the LCFF are allocated for these programs (traditionally referred to as encroachment or district contribution). The District is aware of the increasing impact on the General Fund and continues to monitor special education programs and services to ensure students are receiving services that are both cost-effective and at the same time appropriately meet the needs of each child. 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 questions about this report or need additional financial information, please contact K. Duane Wolgamott, Chief Business Officer at (805) Ext , or Laura Becker, Director of Fiscal Services at (805) Ext or by mail to the District's Business Office, 800 Niblick Road, Paso Robles, CA,

92 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATEMENT OF NET POSITION JUNE 30, 2017 Governmental Business-Type Activities Activities Total ASSETS Deposits and investments $ 10,880,116 $ 26,792 $ 10,906,908 Receivables 4,415,971 25,279 4,441,250 Internal balances (Due from other funds) 117, ,457 Stores inventories 35,097 14,921 50,018 Nondepreciable capital assets 11,428,415-11,428,415 Capital assets being depreciated 127,899, ,899,598 Accumulated depreciation (47,266,500) - (47,266,500) Total Assets 107,510,154 66, ,577,146 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 16,606,689-16,606,689 LIABILITIES Accounts payable 6,466,090 37,156 6,503,246 Internal balances (Due to other funds) - 117, ,457 Unearned revenue 496, ,812 Long-term obligations: Current portion of long-term obligations other than pensions 1,116,447-1,116,447 Noncurrent portion of long-term obligations other than pensions 27,331,175-27,331,175 Total Long-Term Obligations 28,447,622-28,447,622 Aggregate net pension liability 65,392,524-65,392,524 Total Liabilities 100,803, , ,957,661 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 1,703,497-1,703,497 NET POSITION Net investment in capital assets 68,399,308-68,399,308 Restricted for: Debt service 1,240,115-1,240,115 Capital projects 1,661,916-1,661,916 Educational programs 1,343,987-1,343,987 Other activities 529, ,931 Unrestricted (51,564,959) (87,621) (51,652,580) Total Net Position $ 21,610,298 $ (87,621) $ 21,522,677 The accompanying notes are an integral part of these financial statements. 14

93 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Program Revenues Charges for Operating Services and Grants and Functions/Programs Expenses Sales Contributions Governmental Activities: Instruction $ 48,932,237 $ 155,547 $ 7,114,156 Instruction-related activities: Supervision of instruction 3,462,531 26,601 1,172,562 Instructional library, media, and technology 1,687,156 1,054 71,168 School site administration 3,895,925 (668) 107,004 Pupil services: Home-to-school transportation 1,785, Food services 2,461, ,194 1,273,236 All other pupil services 5,216,015 42, ,514 Administration: Data processing 1,279,579 5,264 1,858 All other administration 3,137,206 27, ,355 Plant services 9,095, , ,760 Ancillary services 1,145,489 40,646 26,048 Community services 531, , ,660 Interest on long-term obligations 1,098, Other outgo 1,058, , ,770 Total Governmental Activities 84,788,222 1,243,094 11,281,091 Business-Type Activities Enterprise services 257, Total School District $ 85,045,300 $ 1,243,094 $ 11,281,091 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning as Restated Net Position - Ending The accompanying notes are an integral part of these financial statements. 15

94 Net (Expenses) Revenues and Changes in Net Position Governmental Business-Type Activities Activities Total $ (41,662,534) $ - $ (41,662,534) (2,263,368) - (2,263,368) (1,614,934) - (1,614,934) (3,789,589) - (3,789,589) (1,785,739) - (1,785,739) (918,628) - (918,628) (4,565,404) - (4,565,404) (1,272,457) - (1,272,457) (2,835,946) - (2,835,946) (8,738,854) - (8,738,854) (1,078,795) - (1,078,795) (122,243) - (122,243) (1,098,982) - (1,098,982) (516,564) - (516,564) (72,264,037) - (72,264,037) - (257,078) (257,078) (72,264,037) (257,078) (72,521,115) 40,575,067-40,575,067 1,056,802-1,056,802 1,043,599-1,043,599 21,551,644-21,551,644 56,934-56,934 1,797, ,457 1,967,361 66,081, ,457 66,251,407 (6,182,087) (87,621) (6,269,708) 27,792,385-27,792,385 $ 21,610,298 $ (87,621) $ 21,522,677 15

95 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017 Capital Non-Major General Facilities Governmental Fund Fund Funds ASSETS Deposits and investments $ 7,045,247 $ 1,827,932 $ 1,881,911 Receivables 3,815, , ,625 Due from other funds 117, Stores inventories ,097 Total Assets $ 10,978,534 $ 1,946,448 $ 2,398,633 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 6,051,593 $ 284,532 $ 129,965 Unearned revenue 496, Total Liabilities 6,548, , ,965 Fund Balances: Nonspendable 10,500-35,097 Restricted 1,164,618 1,661,916 2,233,571 Assigned 226, Unassigned 3,028, Total Fund Balances 4,430,129 1,661,916 2,268,668 Total Liabilities and Fund Balances $ 10,978,534 $ 1,946,448 $ 2,398,633 The accompanying notes are an integral part of these financial statements. 16

96 Total Governmental Funds $ $ 10,755,090 4,415, ,457 35,097 15,323,615 $ 6,466, ,812 6,962,902 45,597 5,060, ,182 3,028,829 8,360,713 $ 15,323,615 16

97 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2017 Total Fund Balance - Governmental Funds $ 8,360,713 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is $ 139,328,013 Accumulated depreciation is (47,266,500) Net Capital Assets 92,061,513 An internal service fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the internal service fund are included with governmental activities. 125,026 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 5,671,972 The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. 3,460,851 The difference between projected and actual earnings on pension plan investments are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. 6,649,323 The differences between expected and actual experience in the measurement of the total pension liability are not recognized on the modified accrual basis, but are recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (302,975) The changes of assumptions is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (575,979) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. (65,392,524) The accompanying notes are an integral part of these financial statements. 17

98 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, Continued JUNE 30, 2017 Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. General obligation bonds, including premiums $ 22,256,203 Compensated absences 172,456 Flex lease 617,581 Capital leases 1,107,674 Other postemployment benefits 4,293,708 Total Long-Term Obligations $ (28,447,622) Total Net Position - Governmental Activities $ 21,610,298 The accompanying notes are an integral part of these financial statements. 18

99 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2017 Capital General Facilities Fund Fund REVENUES Local Control Funding Formula $ 57,552,695 $ - Federal sources 4,253,490 - Other State sources 7,058,173 31,800 Other local sources 4,134, ,568 Total Revenues 72,999, ,368 EXPENDITURES Current Instruction 46,132,819 - Instruction-related activities: Supervision of instruction 3,344,017 - Instructional library, media and technology 1,599,381 - School site administration 3,765,149 - Pupil services: Home-to-school transportation 1,605,635 - Food services - - All other pupil services 5,006,692 - Administration: Data processing 1,264,633 - All other administration 2,857,880 78,594 Plant services 7,578,547 1,049,933 Facility acquisition and construction 96,890 2,955,904 Ancillary services 1,157,267 - Community services - - Other outgo 1,058,807 - Debt service Principal - 893,121 Interest and other - 44,141 Total Expenditures 75,467,717 5,021,693 Deficiency of Revenues Over Expenditures (2,468,371) (4,062,325) Other Financing Sources (Uses) Transfers in 500, ,250 Other sources - 605,000 Transfers out (382,461) (270,000) Net Financing Sources (Uses) 117, ,250 NET CHANGE IN FUND BALANCES (2,350,812) (3,367,075) Fund Balance - Beginning as Restated 6,780,941 5,028,991 Fund Balance - Ending $ 4,430,129 $ 1,661,916 The accompanying notes are an integral part of these financial statements. 19

100 Non-Major Governmental Funds Total Governmental Funds $ - $ 57,552,695 1,533,581 5,787, ,585 7,345,558 2,428,414 7,490,970 4,217,580 78,176,294-46,132,819 34,186 3,378,203-1,599,381-3,765,149-1,605,635 2,306,018 2,306,018-5,006,692-1,264, ,300 3,088, ,992 8,876,472 5,669 3,058,463-1,157, , ,653-1,058, ,000 1,493, , ,520 4,418,197 84,907,607 (200,617) (6,731,313) 382,461 1,242, ,000 (590,270) (1,242,731) (207,809) 605,000 (408,426) (6,126,313) 2,677,094 14,487,026 $ 2,268,668 $ 8,360,713 19

101 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Total Net Change in Fund Balances - Governmental Funds $ (6,126,313) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which depreciation exceeds capital outlays in the period. Capital outlays $ 3,175,947 Depreciation expense (2,628,368) Net Expense Adjustment 547,579 Some of the capital assets acquired this year were financed with capital leases. The amount financed by the leases is reported in the governmental funds as a source of financing. On the other hand, the capital leases are not revenues in the Statement of Activities, but rather constitute long-term obligations in the Statement of Net Position. (605,000) In the Statement of Activities, compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures are measured by the amount of financial resources used (essentially, the amounts actually paid). Vacation earned was less than the amounts used by $372, ,817 In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year. (2,159,131) Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB costs are recognized when employer contributions are made. In the Statement of Activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: 696,959 In the government-wide financial statements, debt premiums are deferred and amortized over the life of the debt using the straight line method. 105,792 The accompanying notes are an integral part of these financial statements. 20

102 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, Continued FOR THE YEAR ENDED JUNE 30, 2017 Payment of principal on long-term obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds $ 600,000 Certificates of participation 340,000 Capital lease and Flex lease obligations 553,121 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities includes additional accumulated interest that was accreted on the District's capital appreciation general obligation bonds. (505,462) An internal service fund is used by the District's. The net revenue of the Internal Service Fund is reported with governmental activities. (2,449) Change in Net Position of Governmental Activities $ (6,182,087) The accompanying notes are an integral part of these financial statements. 21

103 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS Current Assets Business-Type Governmental Activities - Activities - Cafeteria Self Insurance Enterprise Fund Fund Deposits and investments $ 26,792 $ 125,026 Receivables 25,279 - Stores inventories 14,921 - Total Assets 66, ,026 LIABILITIES Current Liabilities Accounts payable 37,156 - Due to other funds 117,457 - Total Liabilities 154,613 - NET POSITION Restricted $ (87,621) $ 125,026 The accompanying notes are an integral part of these financial statements. 22

104 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2017 Business-Type Governmental Activities - Activities - Cafeteria Self Insurance Enterprise Fund Fund OPERATING REVENUES Local and intermediate sources $ 169,457 $ 4,562 OPERATING EXPENSES Payroll costs 152, Supplies and materials 97,191 5,428 Facility rental - 1,577 Other operating cost 7, Total Operating Expenses 257,078 7,885 Operating Loss (87,621) (3,323) NONOPERATING REVENUES Interest income Change in Net Position (87,621) (2,449) Total Net Position - Beginning - 127,475 Total Net Position - Ending $ (87,621) $ 125,026 The accompanying notes are an integral part of these financial statements. 23

105 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 Business-Type Governmental Activities - Activities - Cafeteria Self Insurance Enterprise Fund Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers $ 144,178 $ 4,587 Cash payments to suppliers of goods or services (74,956) (6,178) Cash payments to employees for services (152,559) (130) Cash payments for facility rentals - (1,577) Other operating cash payments (7,328) - Net Cash Used by Operating Activities (90,665) (3,298) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Interdistrict loans 117,457 - CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments Net Increase(Decrease) in Cash and Cash Equivalents 26,792 (2,424) Cash and Cash Equivalents - Beginning - 127,450 Cash and Cash Equivalents - Ending $ 26,792 $ 125,026 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (87,621) $ (3,323) Changes in assets and liabilities: (Increase)Decrease in receivables (25,279) 25 Increase in stores inventories (14,921) - Increase in accounts payable 37,156 - NET CASH USED BY OPERATING ACTIVITIES $ (90,665) $ (3,298) The accompanying notes are an integral part of these financial statements. 24

106 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 Agency Funds ASSETS Deposits and investments $ 299,962 LIABILITIES Due to student groups $ 299,962 The accompanying notes are an integral part of these financial statements. 25

107 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Paso Robles Joint Unified School District (the District) was organized in 1997 under the laws of the State of California. The District operates under a locally elected seven-member Board form of government and provides educational services to grades K - 12 as mandated by the State and Federal agencies. The District operates six elementary schools, two middle schools, one high school, one continuation high school, one independent study high school, and one independent study learning center. A reporting entity is comprised of the primary government, component unit, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Paso Robles Joint Unified School District, this includes general operations, food service, and student related activities of the District. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component unit has a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus is included in the financial statements of the District. The component unit, although a legally separate entity, is reported in the financial statements using the blended presentation method as if it were part of the District's operations because the governing board of the component unit is essentially the same as the governing board of the District and because its purpose is to finance the construction of facilities to be used for the direct benefit of the District. Certificates of participation issued by the Paso Robles Joint Unified School District Educational Facilities Corporation (the "Corporation") are included as long-term obligations in the government-wide financial statements. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into two broad fund categories: governmental and fiduciary. 26

108 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. Three funds currently defined as special revenue funds in the California State Accounting Manual (CSAM) do not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 14, Deferred Maintenance Fund, Fund 15, Pupil Transportation Fund, and Fund 17, Special Reserve Non-Capital Fund, are not substantially composed of restricted or committed revenue sources. While these funds are authorized by statute and will remain open for internal reporting purposes, these funds function effectively as extensions of the General Fund, and accordingly have been combined with the General Fund for presentation in these audited financial statements. As a result, the General Fund reflects an increase in assets of $764,674, liabilities of $7,460, and fund balance of $757,214. Revenues and expenditures increased by $6,282 and $890,957, respectively. Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections and 38100). 27

109 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Capital Project Funds The Capital Project funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Special Reserve Capital Outlay Fund The Special Reserve Capital Outlay Fund exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840). Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for, and the payment of, principal and interest on general long-term obligations. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections ). Tax Override Fund The Tax Override Fund is used for the repayment of voted indebtedness (other than Bond Interest and Redemption Fund repayments) to be financed from ad valorem tax levies. Proprietary Funds Proprietary funds are used to account for activities that are more business-like than government-like in nature. Business-type activities include those for which a fee is charged to external users or to other organizational units of the local education agency, normally on a full cost-recovery basis. Proprietary funds are generally intended to be self-supporting and are classified as enterprise or internal service. The District has the following proprietary funds: Enterprise Fund Enterprise funds may be used to account for any activity for which a fee is charged to external users for goods or services. The only enterprise fund of the District accounts for the financial transactions related to the Culinary Arts Academy of the District. Internal Service Fund Internal Service funds may be used to account for goods or services provided to other funds of the District on a cost-reimbursement basis. The District operates a Self Insurance Fund that is accounted for in an internal service fund. Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is agency funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for student body activities. Basis of Accounting - Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared. 28

110 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The government-wide statement of activities presents a comparison between expenses, both direct and indirect, and program revenues for each segment of the business-type activities of the District and for each governmental function, and exclude fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities, except for depreciation. Program revenues include charges paid by the recipients of the goods or services offered by the programs and 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 are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Net position should be reported as restricted when constraints placed on net position are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other activities result from special revenue funds and the restrictions on their use. Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column. The internal service fund is presented in a single column on the face of the proprietary fund statements. Governmental Funds All governmental funds are accounted for using the flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include reconciliations with brief explanations to better identify the relationship between the government-wide financial statements, prepared using the economic resources measurement focus and the accrual basis of accounting, and the governmental fund financial statements, prepared using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Proprietary Funds Proprietary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of these funds are included in the statement of net position. The statement of changes in fund net position presents increases (revenues) and decreases (expenses) in net total assets. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary funds. Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. Fiduciary funds are excluded from the government-wide financial statements because they do not represent resources of the District. 29

111 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Revenues Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 60 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to State-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose restrictions. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized. Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue. Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 60 days. Principal and interest on longterm obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation, are not recognized in the governmental funds but are recognized in the entity-wide statements. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the statement of cash flows. 30

112 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Investments Investments held at June 30, 2017, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor. Stores Inventories Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the first-in, first-out basis. The costs of inventory items are recorded as expenditures in the governmental funds when used. Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred. When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide statement of net position. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated. Depreciation is computed using the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements/infrastructure, 5 to 50 years; equipment, 2 to 15 years. Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the governmental and business-type activities columns of the statement of net position, except for the net residual amounts due between governmental and business-type activities, which are presented as internal balances. Compensated Absences Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net position as long-term obligations. 31

113 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, At retirement, each member will receive.004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time. Accounts Payable and Long-Term Obligations Accounts payable and long-term obligations are reported in the government-wide financial statements. In general, governmental fund accounts payable that are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. Debt Issuance Costs and Premiums In the government-wide financial statements, long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. Debt premiums and discounts are amortized over the life of the debt using the straight-line method. In governmental fund financial statements, debt premiums, and discounts are recognized in the current period. The face amount of the debt is reported as other financing sources. Premiums received on debt issuance are also reported as other financing sources. Discounts are reported as debt service expenditures. Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position also reports deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The District reports deferred outflows of resources for pension related items. In addition to liabilities, the Statement of Net Position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The District reports deferred inflows of resources for pension related items. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the California State Teachers' Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) plan for schools (Plans) and additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CalSTRS and CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Member contributions are recognized in the period in which they are earned. Investments are reported at fair value. 32

114 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Fund Balances - Governmental Funds As of June 30, 2017, fund balances of the governmental funds are classified as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed - amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board. The District currently does not have any committed funds. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or assistant superintendent of business services may assign amounts for specific purposes. Unassigned - all other spendable amounts. Spending Order Policy When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions. Net Position Net position represents the difference between assets and liabilities. Net position net of investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements report $4,775,949 of restricted net position. 33

115 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Operating Revenues and Expenses Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the District, these revenues are generated from the culinary program. Operating expenses are necessary costs incurred to provide the good or service that is the primary activity of the fund. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Interfund Activity Transfers between governmental and business-type activities in the government-wide financial statements are reported in the same manner as general revenues. Exchange transactions between funds are reported as revenues in the seller funds and as expenditures in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures to the funds that initially paid for them are not presented in the financial statements. Interfund transfers are eliminated in the governmental and business-type activities columns of the Statement of Activities, except for the net residual amounts transferred between governmental and business-type activities. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of San Luis Obispo bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. 34

116 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Change in Accounting Principles In June 2015, the GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures. The District has implemented the provisions of this Statement as of June 30, In December 2015, the GASB issued Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. Prior to the issuance of this Statement, the requirements of Statement No. 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. This Statement amends the scope and applicability of Statement No. 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The District has implemented the provisions of this Statement as of June 30,

117 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 In March 2016, the GASB issued Statement No. 82, Pension Issues - An Amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The District has implemented the provisions of this Statement as of June 30, 2017, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, New Accounting Pronouncements In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB 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 all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The requirements of this Statement are effective for financial statements for periods beginning after June 15, Early implementation is encouraged. In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. 36

118 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The requirements of this Statement are effective for reporting periods beginning after December 15, Early implementation is encouraged. In March 2017, the GASB issued Statement No. 85, Omnibus The objective of this Statement is to address practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits [OPEB]). Specifically, this Statement addresses the following topics: Blending a component unit in circumstances in which the primary government is a business-type activity that reports in a single column for financial statement presentation; Reporting amounts previously reported as goodwill and "negative" goodwill; Classifying real estate held by insurance entities; Measuring certain money market investments and participating interest-earning investment contracts at amortized cost; Timing of the measurement of pension or OPEB liabilities and expenditures recognized in financial statements prepared using the current financial resources measurement focus; Recognizing on-behalf payments for pensions or OPEB in employer financial statements; Presenting payroll-related measures in required supplementary information for purposes of reporting by OPEB plans and employers that provide OPEB; Classifying employer-paid member contributions for OPEB; Simplifying certain aspects of the alternative measurement method for OPEB; Accounting and financial reporting for OPEB provided through certain multiple-employer defined benefit OPEB plans. The requirements of this Statement are effective for reporting periods beginning after June 15, Early implementation is encouraged. In May 2017, the GASB issued Statement No. 86, Certain Debt Extinguishment Issues. The primary objective of this Statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources resources other than the proceeds of refunding debt are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The requirements of this Statement are effective for reporting periods beginning after June 15, Early implementation is encouraged. 37

119 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 In June 2017, the GASB issued Statement No. 87, Leases. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. The requirements of this Statement are effective for the reporting periods beginning after December 15, Early implementation is encouraged. NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments Deposits and investments as of June 30, 2017, are classified in the accompanying financial statements as follows: Governmental activities $ 10,880,116 Business type activities 26,792 Fiduciary funds 299,962 Total Deposits and Investments $ 11,206,870 Deposits and investments as of June 30, 2017, consist of the following: Cash on hand and in banks $ 299,962 Cash in revolving 10,500 Investments 10,896,408 Total Deposits and Investments $ 11,206,870 Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. 38

120 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. General Authorizations Limitations as they relate to interest rate risk and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District manages its exposure to interest rate risk by investing in the County Pool which purchases a combination of shorter term and longer term investments and which also times cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 39

121 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Segmented Time Distribution Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuations is provided by the following schedule that shows the distribution of the District's investments by maturity: Fair 12 Months More Than Investment Type Value or Less Months Months 60 Months County Pool $ 10,857,739 $ 10,857,739 $ - $ - $ - NOTE 3 - FAIR VALUE MEASUREMENTS The District categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset's fair value. The following provides a summary of the hierarchy used to measure fair value: Level 1 - Quoted prices in active markets for identical assets that the District has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets. Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, implied volatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level 2 input is required to be observable for substantially the full term of the asset. Level 3 - Unobservable inputs should be developed using the best information available under the circumstances, which might include the District's own data. The District should adjust that data if reasonably available information indicates that other market participants would use different data or certain circumstances specific to the District are not available to other market participants. Uncategorized - Investments in the San Luis Obispo County Treasury Investment Pool are not measured using the input levels above because the District's transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share. 40

122 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 4 - RECEIVABLES Receivables at June 30, 2017, consist of intergovernmental grants, entitlements, state apportionments, and local sources. All receivables are considered collectible in full. Capital Non-Major Governmental Cafeteria General Facilities Governmental Activities Enterprise Fund Fund Funds Total Fund Federal Government Categorical aid $ 1,054,042 $ - $ 289,057 $ 1,343,099 $ - State Government State grants and entitlements 1,612,635-56,626 1,669,261 - Local sources 1,149, , ,942 1,403,611 25,279 Total $ 3,815,830 $ 118,516 $ 481,625 $ 4,415,971 $ 25,279 NOTE 5 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2017, is as follows: Governmental Activities Capital Assets not being depreciated Construction in progress 286,776 Balance Balance July 1, 2016 Additions June 30, 2017 $ $ - $ 286,776 Land 8,938,214 2,203,425 11,141,639 Total Capital Assets Not Being Depreciated 9,224,990 2,203,425 11,428,415 Capital Assets being depreciated Land improvements 10,750, ,826 10,960,589 Buildings and improvements 109,314, , ,936,685 Furniture and equipment 6,861, ,759 7,002,324 Total Capital Assets Being Depreciated 126,927, , ,899,598 Less Accumulated Depreciation Land improvements 10,665, ,420 10,805,917 Buildings and improvements 28,968,819 2,268,379 31,237,198 Furniture and equipment 5,003, ,569 5,223,385 Total Accumulated Depreciation 44,638,132 2,628,368 47,266,500 Governmental Activities Capital Assets, Net $ 91,513,934 $ 547,579 $ 92,061,513 41

123 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Depreciation expense was charged as a direct expense to governmental functions as follows: Governmental Activities Instruction $ 1,708,439 Supervision of instruction 6,572 Instructional library, media, and technology 65,709 School site administration 72,280 Home-to-school transportation 210,269 Other pupil services 183,986 Food services 52,567 All other general administration 78,851 Data processing 13,142 Plant services 236,553 Total Depreciation Expenses Governmental Activities $ 2,628,368 NOTE 6 - INTERFUND TRANSACTIONS Interfund Receivables/Payables (Due To/Due From) Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivable and payable balances at June 30, 2017, between major and non-major governmental funds are as follows: Interfund Interfund Receivables Payables Governmental Activities General Fund $ 117,457 $ - Business-Type Activities Cafeteria Enterprise Fund $ - $ 117,457 The Cafeteria Enterprise Fund owes the General Fund for a temporary loan. $ 117,457 42

124 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Operating Transfers Interfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Interfund transfers for the year ended June 30, 2017, consist of the following: The General Fund transferred to the Cafeteria Non-Major Governmental Fund for disallowed expenditures per CDE audit. $ 381,032 The Special Reserve Capital Outlay Non-Major Governmental Fund transferred to the Capital Facilities Fund for reclassed RDA funds. 360,250 The Capital Facilities Fund transferred to the General Fund for Early Learning Academy Portables. 270,000 The Special Reserve Capital Outlay Non-Major Governmental Fund transferred to the General Fund for FEMA reimbursement. 230,000 The General Fund transferred to the Cafeteria Non-Major Governmental Fund for bad debt. 1,429 The Tax Override Non-Major Governmental Fund transferred to the General Fund to close the fund. 20 Total $ 1,242,731 NOTE 7 - ACCOUNTS PAYABLE Accounts payable at June 30, 2017, consists of the following: Captial Non-Major Total Cafeteria General Facilities Governmental Governmental Enterprise Fund Fund Funds Activities Fund Vendor payables $ 2,132,976 $ 284,532 $ 129,965 $ 2,547,473 $ 37,156 Salaries payable 1,343, ,343,151 - Health and Welfare benefits payable 1,460, ,460,679 - State principal apportionment 1,114, ,114,787 - Total $ 6,051,593 $ 284,532 $ 129,965 $ 6,466,090 $ 37,156 43

125 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 8 - UNEARNED REVENUE Unearned revenue at June 30, 2017, consists of the following: General Fund Federal financial assistance $ 16,508 State categorical aid 480,304 Total $ 496,812 NOTE 9 - LONG-TERM OBLIGATIONS Summary The changes in the District's long-term obligations during the year consisted of the following: Balance Balance Due in July 1, 2016 Additions Deductions June 30, 2017 One Year General obligation bonds $ 21,071,407 $ 505,462 $ 600,000 $ 20,976,869 $ 470,000 Bond premiums 1,385, ,792 1,279, ,792 Certificates of participation 340, , Compensated absences 545, , ,456 - Flex lease 726, , , ,202 Capital leases 947, , ,623 1,107, ,453 Other postemployment benefits 4,990,667 1,673,329 2,370,288 4,293,708 - Total $ 30,005,849 $ 2,783,791 $ 4,342,018 $ 28,447,622 $ 1,116,447 Payments on the general obligation bonds are made by the Bond Interest and Redemption Fund with local tax revenues. The Capital Facilities Fund makes payments for the certificates of participation and capital leases. The compensated absences will be paid by the fund for which the employee worked. The early retirement and postemployment benefits (OPEB) are paid by the General Fund. 44

126 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Bonded Debt The outstanding general obligation bonded debt is as follows: Bonds Bonds Issue Maturity Interest Original Outstanding Accreted Outstanding Date Date Rate % Issue July 1, 2016 Interest Redeemed June 30, /1/07 9/1/ $ 11,999,871 $ 2,432,826 $ 113,246 $ 375,000 $ 2,171,072 6/3/10 9/1/ ,000,127 9,933, ,216-10,325,797 1/26/16 9/1/ ,705,000 8,705, ,000 8,480,000 Total $ 21,071,407 $ 505,462 $ 600,000 $ 20,976,869 Debt Service Requirements to Maturity Series 2007 Current Interest Portion, required payments: Interest to Fiscal Year Principal Maturity Total 2018 $ 425,000 $ 21,250 $ 446,250 Capital Appreciation Portion, required payments: Obligation Current Interest Fiscal Year at Maturity Obligation to Accrete 2030 $ 1,345,000 $ 602,829 $ 742, ,395, , , ,440, , ,704 Total $ 4,180,000 $ 1,746,072 $ 2,433,928 45

127 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Series 2010 Current Interest Portion, required payments: Interest to Fiscal Year Principal Maturity 1 Total 2018 $ - $ 283,800 $ 283, , , , , , , , , ,419,000 1,419, ,419,000 1,419, ,419,000 1,419, ,300, ,600 5,296,600 Total $ 4,300,000 $ 6,672,600 $ 10,972,600 1 Bonds qualify as "Build America" bonds. Federal subsidies are expected to pay for up to 35 percent of required bond interest payments. Capital Appreciation Portion, required payments: Obligation Current Interest Fiscal Year at Maturity Obligation to Accrete $ 8,720,000 $ 2,615,696 $ 6,104, ,085,000 1,073,101 3,011, ,025,814 2,337,000 10,688,814 Total $ 25,830,814 $ 6,025,797 $ 19,805,017 1 Term bonds subject to mandatory early redemption Refunding General Obligation Bonds Interest to Fiscal Year Principal Maturity Total 2018 $ 45,000 $ 315,850 $ 360, , , , , , , , , , , , , ,070, ,000 4,938, ,165,000 88,300 2,253,300 Total $ 8,480,000 $ 2,408,950 $ 10,888,950 46

128 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Compensated Absences The long-term portion of compensated absences for the District at June 30, 2017, amounted to $172,456. Flex Lease On May 10, 2007, the District's Educational Facilities Corporation entered into an assignment agreement in the amount of $1,525,064 with an effective interest rate of 4.30 percent. Principal and interest payments are due each November 1 and May 1 through May 1, At June 30, 2017, future minimum payments were as follows: Interest to Fiscal Year Principal Maturity Total 2018 $ 113,202 $ 25,352 $ 138, ,124 20, , ,273 15, , ,666 9, , ,316 4, ,663 Total $ 617,581 $ 75,368 $ 692,949 Capital Leases The District has entered into agreements to lease various facilities and equipment. Such agreements are, in substance, purchases (capital leases) and are reported as capital lease obligations. The District's liability on lease agreements with options to purchase is summarized below: Principal Balance, July 1, 2016 $ 947,297 Additions 605,000 Payments 444,623 Balance, June 30, 2017 $ 1,107,674 The capital leases have minimum lease payments as follows: Year Ending Lease June 30, Payment 2018 $ 449, , , ,658 Total 1,160,690 Less: Amount Representing Interest 53,016 Present Value of Minimum Lease Payments $ 1,107,674 47

129 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Other Postemployment Benefits (OPEB) Obligation The District's annual required contribution for the year ended June 30, 2017, was $1,487,936, and contributions made by the District during the year were $2,186,096 (including the implicit rate subsidy factor of ). Interest on the net OPEB obligation and adjustments to the annual required contribution were $185,393 and $(184,192), respectively, which resulted in a decrease to the net OPEB obligation of $696,959. As of June 30, 2017, the net OPEB obligation was $4,293,708. See Note 12 for additional information regarding the OPEB obligation and the postemployment benefits plan. NOTE 10 - FUND BALANCES Fund balances are composed of the following elements: Capital Non-Major General Facilities Governmental Fund Fund Funds Total Nonspendable Revolving cash $ 10,500 $ - $ - $ 10,500 Stores inventories ,097 35,097 Total Nonspendable 10,500-35,097 45,597 Restricted Legally restricted programs 1,164, ,369 1,343,987 Capital projects - 1,661, ,253 1,981,169 Debt service - - 1,240,115 1,240,115 Food service , ,834 Total Restricted 1,164,618 1,661,916 2,233,571 5,060,105 Assigned Pupil transporation 118, ,194 Deferred maintenance 89, ,800 Cafeteria program 18, ,188 Total Assigned 226, ,182 Unassigned Reserve for economic uncertainties 3,028, ,028,829 Total $ 4,430,129 $ 1,661,916 $ 2,268,668 $ 8,360,713 48

130 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 11 - EXPENDITURES (BUDGET VERSUS ACTUAL) At June 30, 2017, the following District major fund exceeded the budgeted amounts as follows: Expenditures and Other Uses Budget Actual Excess General Fund $ 72,991,373 $ 75,850,178 $ 2,858,805 NOTE 12 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION Plan Description The Postemployment Benefits Plan (the "Plan") is a single-employer defined benefit healthcare plan administered by the Paso Robles Joint Unified School District. The Plan provides medical and dental insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of approximately 85 retirees and beneficiaries currently receiving benefits and approximately 525 active plan members as of the actuarial date. Contribution Information The contribution requirements of plan members and the District are established and may be amended by the District and the Teachers Association (PRPE), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $1,716,066 (excludes implicit rate subsidy) to the plan, all of which was used for current premiums. Annual OPEB Cost and Net OPEB Obligation The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the Plan: Annual required contribution $ 1,487,936 Interest on net OPEB obligation 185,393 Adjustment to annual required contribution (184,192) Annual OPEB cost 1,489,137 Contributions made (2,186,096) Decrease in net OPEB obligation (696,959) Net OPEB obligation, beginning of year 4,990,667 Net OPEB obligation, end of year $ 4,293,708 49

131 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Trend Information Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Year Ended Annual Actual Percentage Net OPEB June 30, OPEB Cost Contribution Contributed Obligation 2017 $ 1,489,137 $ 2,186, % $ 4,293, ,102,449 1,432, % 4,990, ,905,366 1,231, % 4,320,482 The schedule of funding progress presented as required supplementary information following the notes to the financial statements, will present multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follows: Actuarial Accrued Liability UAAL as a (AAL) - Unfunded Percentage Actuarial Actuarial Projected AAL Funded of Covered Valuation Value of Unit (UAAL) Ratio Covered Payroll Date Assets (a) Method (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2016 $ - $ 17,338,647 $ 17,338, % $ 41,248, % 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, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. 50

132 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 In the July 1, 2016, actuarial valuation, the projected unit credit method was used. The actuarial assumptions included a 4.0 percent investment rate of return (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a combined equity and fixed income portfolio. Healthcare cost trend rates ranged from an initial 8.0 percent to an ultimate rate of 5.0 percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at July 1, 2017, was 29 years. NOTE 13 - 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. During fiscal year ending June 30, 2017, the District contracted with the Self Insured Schools of California II (SISC II) for property and liability insurance coverage. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year. Workers' Compensation For fiscal year 2017, the District participated in the Self Insurance Program for Employees (SIPE), an insurance purchasing pool. The intent of SIPE is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in SIPE. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in SIPE. Each participant pays its workers' compensation premium based on its individual rate. Total savings are then calculated and each participant's individual performance is compared to the overall savings. A participant will then either receive money from or be required to contribute to the "equity-pooling fund". This "equity pooling" arrangement insures that each participant shares equally in the overall performance of SIPE. Participation in SIPE is limited to districts that can meet SIPE selection criteria. Employee Medical Benefits The District has contracted with the Self Insured Schools of California III (SISC III) to provide employee health benefits. SISC III is a shared risk pool comprised of member districts. Rates are set through an annual calculation process. The District pays a monthly contribution, which is placed in a common fund from which claim payments are made for all participating districts. Claims are paid for all participants regardless of claims flow. The Board of Directors has a right to return monies to a district subsequent to the settlement of all expenses and claims if a district withdraws from the pool. 51

133 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Academic employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). For the fiscal year ended June 30, 2017, the District reported net pension liabilities, deferred outflows of resources, deferred inflows of resources, and pension expense for each of the above plans as follows: Collective Collective Collective Net Deferred Outflows Deferred Inflows Collective Pension Plan Pension Liability of Resources of Resources Pension Expense CalSTRS $ 46,221,373 $ 10,192,810 $ 1,127,518 $ 5,036,375 CalPERS 19,171,151 6,413, ,979 2,794,728 Total $ 65,392,524 $ 16,606,689 $ 1,703,497 $ 7,831,103 The details of each plan are as follows: California State Teachers' Retirement System (CalSTRS) Plan Description The District contributes to the State Teachers Retirement Plan (STRP) administered by the California State Teachers' Retirement System (CalSTRS). STRP is a cost-sharing multiple-employer public employee retirement system defined benefit pension plan. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2015, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial information are publically available reports that can be found on the CalSTRS website under Publications at: Benefits Provided The STRP provides retirement, disability and survivor benefits to beneficiaries. Benefits are based on members' final compensation, age, and years of service credit. Members hired on or before December 31, 2012, with five years of credited service are eligible for the normal retirement benefit at age 60. Members hired on or after January 1, 2013, with five years of credited service are eligible for the normal retirement benefit at age 62. The normal retirement benefit is equal to 2.0 percent of final compensation for each year of credited service. 52

134 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The STRP is comprised of four programs: Defined Benefit Program, Defined Benefit Supplement Program, Cash Balance Benefit Program, and Replacement Benefits Program. The STRP holds assets for the exclusive purpose of providing benefits to members and beneficiaries of these programs. CalSTRS also uses plan assets to defray reasonable expenses of administering the STRP. Although CalSTRS is the administrator of the STRP, the state is the sponsor of the STRP and obligor of the trust. In addition, the state is both an employer and nonemployer contributing entity to the STRP. The District contributes exclusively to the STRP Defined Benefit Program, thus disclosures are not included for the other plans. The STRP provisions and benefits in effect at June 30, 2017, are summarized as follows: STRP Defined Benefit Program Hire date On or before December 31, 2012 On or after January 1, 2013 Benefit formula 2% at 60 2% at 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Retirement age Monthly benefits as a precentage of eligible compensation 2.0% - 2.4% 2.0% - 2.4% Required employee contribution rate 10.25% 9.205% Required employer contribution rate 12.58% 12.58% Required state contribution rate 8.828% 8.828% Contributions Required member, District and State of California contributions rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. The contributions rates are expressed as a level percentage of payroll using the entry age normal actuarial method. In accordance with AB 1469, employer contributions into the CalSTRS will be increasing to a total of 19.1 percent of applicable member earnings phased over a seven-year period. The contribution rates for each plan for the year ended June 30, 2017, are presented above and the District's total contributions were $3,958,

135 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as follows: Total net pension liability, including State share: District's proportionate share of net pension liability $ 46,221,373 State's proportionate share of the net pension liability associated with the District 26,313,003 Total $ 72,534,376 The net pension liability was measured as of June 30, The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts and the State, actuarially determined. The District's proportionate share for the measurement period June 30, 2016 and June 30, 2015, respectively, was percent and percent, resulting in a net increase in the proportionate share of percent. For the year ended June 30, 2017, the District recognized pension expense of $5,036,375. In addition, the District recognized pension expense and revenue of $2,543,429 for support provided by the State. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 3,958,385 $ - Net change in proportionate share of net pension liability 2,559,848 - Difference between projected and actual earnings on pension plan investments 3,674,577 - Differences between expected and actual experience in the measurement of the total pension liability - 1,127,518 Total $ 10,192,810 $ 1,127,518 54

136 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows: Year Ended Deferred Outflows June 30, of Resources 2018 $ 80, , ,136, ,378,197 Total $ 3,674,577 The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is seven years and will be recognized in pension expense as follows: Deferred Year Ended Outflows/(Inflows) June 30, of Resources 2018 $ 299, , , , ,672 Thereafter (66,046) Total $ 1,432,330 55

137 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Actuarial Methods and Assumptions Total pension liability for STRP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2015, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2015, used the following methods and assumptions, applied to all prior periods included in the measurement: Valuation date June 30, 2015 Measurement date June 30, 2016 Experience study July 1, 2006 through June 30, 2010 Actuarial cost method Entry age normal Discount rate 7.60% Investment rate of return 7.60% Consumer price inflation 3.00% Wage growth 3.75% CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best estimate ranges were developed using capital market assumptions from CalSTRS general investment consultant. Based on the model for CalSTRS consulting actuary's investment practice, a best estimate range was determined by assuming the portfolio is re-balanced annually and that the annual returns are lognormally distributed and independent from year to year to develop expected percentiles for the long-term distribution of annualized returns. The assumed asset allocation is based on Teachers' Retirement Board of the California State Teachers' Retirement System (board) policy for target asset allocation in effect on February 2, 2012, the date the current experience study was approved by the board. Best estimates of ten-year geometric real rates of return and the assumed asset allocation for each major asset class used as input to develop the actuarial investment rate of return are summarized in the following table: Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 47% 6.30% Fixed income 12% 0.30% Real estate 13% 5.20% Private equity 13% 9.30% Absolute Return/Risk Mitigating Strategies 9% 2.90% Inflation sensitive 4% 3.80% Cash/liquidity 2% -1.00% 56

138 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Discount Rate The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments and administrative expense occurred midyear. Based on these assumptions, the STRP's fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability. The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate: Net Pension Discount Rate Liability 1% decrease (6.60%) $ 66,522,981 Current discount rate (7.60%) $ 46,221,373 1% increase (8.60%) $ 29,360,039 California Public Employees Retirement System (CalPERS) Plan Description Qualified employees are eligible to participate in the School Employer Pool (SEP) under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Law. A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2015 annual actuarial valuation report, Schools Pool Actuarial Valuation. This report and CalPERS audited financial information are publically available reports that can be found on the CalPERS website under Forms and Publications at: 57

139 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of service credit, a benefit factor and the member's final compensation. Members hired on or before December 31, 2012, with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. Members hired on or after January 1, 2013, with five years of total service are eligible to retire at age 52 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after five years of service. The Basic Death Benefit is paid to any member's beneficiary if the member dies while actively employed. An employee's eligible survivor may receive the 1957 Survivor Benefit if the member dies while actively employed, is at least age 50 (or 52 for members hired on or after January 1, 2013), and has at least five years of credited service. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The CalPERS provisions and benefits in effect at June 30, 2017, are summarized as follows: School Employer Pool (CalPERS) On or before On or after Hire date December 31, 2012 January 1, 2013 Benefit formula 2% at 55 2% at 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Retirement age Monthly benefits as a precentage of eligible compensation 1.1% - 2.5% 1.0% - 2.5% Required employee contribution rate 7.00% 6.00% Required employer contribution rate % % Contributions Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Total plan contributions are calculated through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. The contributions rates are expressed as percentage of annual payroll. The contribution rates for each plan for the year ended June 30, 2017, are presented above and the total District contributions were $1,713,

140 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions As of June 30, 2017, the District reported net pension liabilities for its proportionate share of the CalPERS net pension liability totaling $19,171,151. The net pension liability was measured as of June 30, The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts, actuarially determined. The District's proportionate share for the measurement period June 30, 2016 and June 30, 2015, respectively, was percent and percent, resulting in a net increase in the proportionate share of percent. For the year ended June 30, 2017, the District recognized pension expense of $2,794,728. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 1,713,587 $ - Net change in proportionate share of net pension liability 901,003 - Difference between projected and actual earnings on pension plan investments 2,974,746 - Differences between expected and actual experience in the measurement of the total pension liability 824,543 - Changes of assumptions - 575,979 Total $ 6,413,879 $ 575,979 The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows: Year Ended Deferred Outflows June 30, of Resources 2018 $ 417, , ,363, ,382 Total $ 2,974,746 59

141 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability, changes of assumptions, and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is 3.9 years and will be recognized in pension expense as follows: Deferred Year Ended Outflows/(Inflows) June 30, of Resources 2018 $ 400, , ,405 Total $ 1,149,567 Actuarial Methods and Assumptions Total pension liability for the SEP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2015, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2015, used the following methods and assumptions, applied to all prior periods included in the measurement: Valuation date June 30, 2015 Measurement date June 30, 2016 Experience study July 1, 1997 through June 30, 2011 Actuarial cost method Entry age normal Discount rate 7.65% Investment rate of return 7.65% Consumer price inflation 2.75% Wage growth Varies by entry age and service Mortality assumptions are based on mortality rates resulting from the most recent CalPERS experience study adopted by the CalPERS Board. For purposes of the post-retirement mortality rates, those revised rates include five years of projected ongoing mortality improvement using Scale AA published by the Society of Actuaries. 60

142 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first ten years) and the longterm (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 51% 5.71% Global debt securities 20% 2.43% Inflation assets 6% 3.36% Private equity 10% 6.95% Real estate 10% 5.13% Infrastructure and Forestland 2% 5.09% Liquidity 1% -1.05% Discount Rate The discount rate used to measure the total pension liability was 7.65 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Based on these assumptions, the School Employer Pool fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability. The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate: Net Pension Discount rate Liability 1% decrease (6.65%) $ 28,603,464 Current discount rate (7.65%) $ 19,171,151 1% increase (8.65%) $ 11,316,894 61

143 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Alternative Plan As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by social security or an alternative plan. The District has elected to use the Self-Insured Schools of California (SISC) defined benefit plan as its alternative plan. For all employees who were members in the plan prior to January 1, 2014, the District is required to make contributions of 3.7 percent of the employees' salary. For all employees who entered the plan subsequent to January 1, 2014, the District is required to make contributions of 2.1 percent of the employees' salary and the employee is required to contribute 1.6 percent. There is no specified length of time an employee must work for the District in order to receive benefits. The benefits are 100 percent vested from the date of participation. The District made contributions of $48,067 to this plan during the fiscal year ended June 30, 2017, of which $13,471 was the employee portion. Copies of the SISC defined benefit plan annual financial report may be obtained from the SISC executive office. On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $2,219,380 (8.828 percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. NOTE 15 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30,

144 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 16 - PARTICIPATION IN JOINT POWERS AUTHORITIES The District is a member of the Self Insured Schools of California III (SISC III), Self Insurance Program for Employees (SIPE), and the Self Insured Schools of California II (SISC II) joint powers authorities (JPAs). The District pays an annual premium to the applicable entity for its health, workers' compensation, and property liability coverage. The relationships between the District and the JPAs are such that they are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are generally available from the respective entities. The District has appointed one board member to the governing board of each JPA. During the year ended June 30, 2017, the District made payments of $6,516,745, $1,146,360, and $380,452 to SISC III, SIPE, and SISC II, respectively for its health, workers' compensation, and property liability coverage. NOTE 17 - RESTATEMENT OF PRIOR YEAR NET POSITION The District had a prior year accounts receivable carryover balance that will not be recognized. As a result, the effect on the current fiscal year is as follows: Statement of Net Position Net Position - Beginning $ 28,653,573 Restatement - Accounts Receivable (861,188) Net Position - Beginning as Restated $ 27,792,385 Statement of Revenues, Expenditures, and Changes in Fund Balances Fund Balance - General Fund Beginning $ 7,642,129 Restatement - General Fund Accounts Receivable (861,188) Fund Balance - General Fund Beginning as Restated $ 6,780,941 63

145 REQUIRED SUPPLEMENTARY INFORMATION 64

146 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2017 Variances - Favorable (Unfavorable) Budgeted Amounts Final Original Final Actual to Actual REVENUES Local Control Funding Formula $ 56,912,399 $ 58,493,514 $ 57,552,695 $ (940,819) Federal sources 3,672,971 4,598,862 4,253,490 (345,372) Other State sources 4,668,049 5,313,929 7,058,173 1,744,244 Other local sources 3,589,633 4,134,562 4,134, Total Revenues 68,843,052 72,540,867 72,999, ,479 EXPENDITURES Current Certificated salaries 31,306,578 31,434,520 32,077,883 (643,363) Classified salaries 12,289,302 11,759,603 12,254,386 (494,783) Employee benefits 15,650,480 15,391,551 17,645,415 (2,253,864) Books and supplies 3,088,218 4,997,097 4,025, ,444 Services and operating expenditures 6,793,241 8,169,351 8,431,442 (262,091) Other outgo 862, , ,507 (224,417) Capital outlay 18, , ,431 49,698 Total Expenditures 70,009,042 72,610,341 75,467,717 (2,857,376) Deficiency of Revenues Over Expenditures (1,165,990) (69,474) (2,468,371) (2,398,897) Other Financing Sources (Uses) Transfers in 500, , , Transfers out - (381,032) (382,461) (1,429) Net Financing Sources (Uses) 500, , ,559 (1,409) NET CHANGE IN FUND BALANCES (665,990) 49,494 (2,350,812) (2,400,306) Fund Balance - Beginning as Restated 6,780,941 6,780,941 6,780,941 - Fund Balance - Ending $ 6,114,951 $ 6,830,435 $ 4,430,129 $ (2,400,306) See accompanying note to required supplementary information. 65

147 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2017 Actuarial Accrued Liability UAAL as a (AAL) - Unfunded Percentage Actuarial Actuarial Projected AAL Funded of Covered Valuation Value of Unit (UAAL) Ratio Covered Payroll Date Assets (a) Method (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2016 $ - $ 17,338,647 $ 17,338, % $ 41,248, % July 1, 2014 $ - $ 18,844,185 $ 18,844, % $ 35,583, % July 1, 2012 $ - $ 16,316,150 $ 16,316, % $ 31,524, % See accompanying note to required supplementary information. 66

148 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY FOR THE YEAR ENDED JUNE 30, 2017 CalSTRS District's proportion of the net pension liability (asset) % % District's proportionate share of the net pension liability (asset) $ 46,221,373 $ 38,266,246 State's proportionate share of the net pension liability (asset) associated with the District 26,313,003 20,238,626 Total $ 72,534,376 $ 58,504,872 District's covered - employee payroll $ 28,981,044 $ 25,646,757 District's proportionate share of the net pension liability (asset) as a percentage of its covered - employee payroll % % Plan fiduciary net position as a percentage of the total pension liability 70% 74% CalPERS District's proportion of the net pension liability (asset) % % District's proportionate share of the net pension liability (asset) $ 19,171,151 $ 13,224,095 District's covered - employee payroll $ 11,681,877 $ 9,936,479 District's proportionate share of the net pension liability (asset) as a percentage of its covered - employee payroll % % Plan fiduciary net position as a percentage of the total pension liability 74% 79% Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 67

149 % $ $ $ 30,558,899 18,452,783 49,011,682 23,775, % 77% % $ $ 10,087,174 9,366, % 83% 67

150 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF DISTRICT CONTRIBUTIONS FOR THE YEAR ENDED JUNE 30, 2017 CalSTRS Contractually required contribution $ 3,958,385 $ 3,109,666 Contributions in relation to the contractually required contribution 3,958,385 3,109,666 Contribution deficiency (excess) $ - $ - District's covered - employee payroll $ 31,465,700 $ 28,981,044 Contributions as a percentage of covered - employee payroll 12.58% 10.73% CalPERS Contractually required contribution $ 1,713,587 $ 1,383,952 Contributions in relation to the contractually required contribution 1,713,587 1,383,952 Contribution deficiency (excess) $ - $ - District's covered - employee payroll $ 12,338,616 $ 11,681,877 Contributions as a percentage of covered - employee payroll % % Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 68

151 2015 $ $ $ 2,277,432 2,277,432-25,646, % $ $ $ 1,169,623 1,169,623-9,936, % 68

152 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2017 NOTE 1 - PURPOSE OF SCHEDULES Budgetary Comparison Schedule This schedule presents information for the original and final budgets and actual results of operations, as well as the variances from the final budget to actual results of operations. Schedule of Other Postemployment Benefits (OPEB) Funding Progress This schedule is intended to show trends about the funding progress of the District's actuarially determined liability for postemployment benefits other than pensions. Schedule of the District's Proportionate Share of the Net Pension Liability This schedule presents information on the District's proportionate share of the net pension liability (NPL), the plans' fiduciary net position and, when applicable, the State's proportionate share of the NPL associated with the District. In the future, as data becomes available, ten years of information will be presented. Changes in Benefit Terms There were no changes in benefit terms since the previous valuations for both CalSTRS and CalPERS. Changes in Assumptions There were no changes in economic assumptions for either the CalSTRS or CalPERS plans from the previous valuations. Schedule of District Contributions This schedule presents information on the District's required contribution, the amounts actually contributed, and any excess or deficiency related to the required contribution. In the future, as data becomes available, ten years of information will be presented. 69

153 SUPPLEMENTARY INFORMATION 70

154 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed Through California Department of Education: Title I - Part A, Basic $ 1,584,336 Title I - Part C, Migrant Education ,237 Title I - Part C, Migrant Education - Even Start ,458 Title I - Part G, Advance Placement Incentive Program ,762 Title II - Part A, Supporting Effective Instruction ,072 Title II - Part B, Math and Science Partnerships ,870 Title III - English Language Acquisition - LEP ,937 Title III - English Language Acquisition - IEP ,273 Special Education Cluster Special Education, Basic Local Assistance ,093,139 Special Education, Basic Local Assistance, Private School ,657 Special Education, Preschool Grants ,851 Special Education, Preschool Local Entitlement A ,050 Subtotal Special Education Cluster 1,373,697 Vocational Educational Grants Technology Secondary II ,907 Total U.S. Department of Education 4,009,549 U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed Through California Department of Health Care Services: Child Care and Development Block Grant ,345 Medi-Cal Administrative Activities ,433 Medi-Cal Billing ,508 Total U.S. Department of Health and Human Services 343,286 U.S. DEPARTMENT OF AGRICULTURE Passed Through California Department of Education: Child Nutrition Cluster: National School Lunch ,549 Especially Needy Breakfast ,382 Basic Breakfast ,414 Meals Supplements - Snack ,080 Food Distribution - Commodities ,811 Subtotal Child Nutrition Cluster 1,434,236 Total U.S. Department of Agriculture 1,434,236 Total Expenditures of Federal Awards $ 5,787,071 See accompanying note to supplementary information. 71

155 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2017 ORGANIZATION The Paso Robles Joint Unified School District was established in 1997 and consists of an area comprising approximately 650 square miles. The District operates six elementary schools, two middle schools, one high school, one continuation high school, one independent study high school, one independent study learning center, and an online school for grades There were no boundary changes during the year. GOVERNING BOARD MEMBER OFFICE TERM EXPIRES Field Gibson President 2018 Dave Lambert Clerk 2020 Chris Bausch Member 2020 Tim Gearhart Member 2018 Dr. Kathleen Hall Member 2018 Joel Peterson Member 2020 Joan Summers Member 2020 ADMINISTRATION Chris Williams Kenneth Duane Wolgamott Frank Panian Babette DeCou Laura Becker Superintendent Chief Business Officer Chief Human Resources Officer Chief Academic Officer Director of Fiscal Services See accompanying note to supplementary information. 72

156 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2017 Final Report As Adjusted per Audit Second Period Annual Second Period Annual Report Report Report Report Regular ADA Transitional kindergarten through third 1, , , , Fourth through sixth 1, , , , Seventh and eighth Ninth through twelfth 2, , , , Total Regular ADA 6, , , , Extended Year Special Education Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth Total Extended Year Special Education Special Education, Nonpublic, Nonsectarian Schools Seventh and eighth Ninth through twelfth Total Special Education, Nonpublic, Nonsectarian Schools Extended Year Special Education, Nonpublic, Nonsectarian Schools Seventh and eighth Ninth through twelfth Total Extended Year Special Education, Nonpublic, Nonsectarian Schools Total ADA 6, , , , See accompanying note to supplementary information. 73

157 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, Number of Days Minutes Actual Traditional Multitrack Grade Level Requirement Minutes Calendar Calendar Status Kindergarten 36,000 53, N/A Complied Grades ,400 Grade 1 53, N/A Complied Grade 2 53, N/A Complied Grade 3 53, N/A Complied Grades ,000 Grade 4 56, N/A Complied Grade 5 56, N/A Complied Grade 6 59, N/A Complied Grades ,000 Grade 7 59, N/A Complied Grade 8 59, N/A Complied Grades ,800 Grade 9 65, N/A Complied Grade 10 65, N/A Complied Grade 11 65, N/A Complied Grade 12 65, N/A Complied See accompanying note to supplementary information. 74

158 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2017 Summarized below are the fund balance reconciliations between the Unaudited Actual Financial Report and the audited financial statements. General Fund FUND BALANCE Balance, June 30, 2017, Unaudited Actuals $ 6,406,104 Decrease in: Accounts receivable - prior year receivable reversal (861,188) Increase in: Accounts payable - Local Control Funding Formula (1,114,787) Balance, June 30, 2017, Audited Financial Statement $ 4,430,129 See accompanying note to supplementary information. 75

159 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2017 GENERAL FUND (Budget) , , Revenues 5 $ 71,066,847 $ 72,993,084 $ 67,752,178 $ 59,520,406 Other sources and transfers in 80, , ,143 22,301 Total Revenues 3 71,146,847 73,493,084 68,634,321 59,542,707 Expenditures 70,494,121 74,576,760 68,957,714 57,300,099 Other uses and transfers out - 382, , ,614 Total Expenditures and Other Uses 3 70,494,121 74,959,221 69,075,838 58,247,713 INCREASE/(DECREASE) IN FUND BALANCE $ 652,726 $ (1,466,137) $ (441,517) $ 1,294,994 ENDING FUND BALANCE $ 4,325,641 $ 3,672,915 $ 5,139,052 $ 5,580,569 AVAILABLE RESERVES 2 $ 5,675,719 $ 3,028,829 $ 5,232,742 $ 6,051,333 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO 8.1% 4.0% 7.6% 10.4% LONG-TERM OBLIGATIONS Not Available $ 28,447,622 $ 30,005,849 $ 27,896,556 AVERAGE DAILY ATTENDANCE AT P-2 6,696 6,468 6,321 6,242 The General Fund balance has decreased by $1,907,654 over the past two years. The fiscal year budget projects an increase of $652,726 (17.8 percent). For a district this size, the State recommends available reserves of at least 3.0 percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating deficits in two of the past three years but anticipates incurring an operating surplus during the fiscal year. Total long-term obligations have increased by $551,066 over the past two years. Average daily attendance has increased by 226 over the past two years. Additional growth of 228 ADA is anticipated during fiscal year Budget 2018 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. 3 On behalf payments have been excluded from revenues and expenditures in this schedule for the 2015 fiscal year. 4 General Fund amounts do not include activity related to the consolidation of the Fund 14, Deferred Maintenance Fund, Fund 15, Pupil Transportation Fund, and Fund 17, Special Reserve Non-Capital Fund as required by GASB Statement No Revenues for the 2016 fiscal year have been restated, reduced, due to an accounts receivable that will not be recognized in the amount of $861, Fund balance was restated for the year ending June 30, 2016, as described in Note 17 of the Notes to Financial Statements. See accompanying note to supplementary information. 76

160 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2017 Child Development Cafeteria Building Fund Fund Fund ASSETS Deposits and investments $ 54,676 $ 267,867 $ 319,253 Receivables 140, ,472 - Stores inventories - 35,097 - Total Assets $ 194,829 $ 644,436 $ 319,253 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 15,460 $ 114,505 $ - Fund Balances: Nonspendable - 35,097 - Restricted 179, , ,253 Total Fund Balances 179, , ,253 Total Liabilities and Fund Balances $ 194,829 $ 644,436 $ 319,253 See accompanying note to supplementary information. 77

161 Bond Total Special Reserve Interest and Non-Major Capital Outlay Redemption Tax Override Governmental Fund Fund Fund Funds $ - $ 1,240,115 $ - $ 1,881, , ,097 $ - $ 1,240,115 $ - $ 2,398,633 $ - $ - $ - $ 129, ,097-1,240,115-2,233,571-1,240,115-2,268,668 $ - $ 1,240,115 $ - $ 2,398,633 77

162 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017 Child Development Cafeteria Building Fund Fund Fund REVENUES Federal sources $ 99,345 $ 1,434,236 $ - Other State sources 140, ,763 - Other local sources 497, ,759 2,225 Total Revenues 737,457 2,409,758 2,225 EXPENDITURES Current Instruction-related activities: Supervision of instruction 34, Pupil services: Food services - 2,306,018 - Administration: All other administration 32, ,122 - Plant services 30, ,291 - Facility acquisition and construction - - 5,669 Community services 522, Debt service Principal Interest and other Total Expenditures 619,718 2,643,431 5,669 Excess (Deficiency) of Revenues Over Expenditures 117,739 (233,673) (3,444) Other Financing Sources (Uses) Transfers in - 382,461 - Transfers out Net Financing Sources (Uses) - 382,461 - NET CHANGE IN FUND BALANCES 117, ,788 (3,444) Fund Balance - Beginning 61, , ,697 Fund Balance - Ending $ 179,369 $ 529,931 $ 319,253 See accompanying note to supplementary information. 78

163 Bond Total Special Reserve Interest and Non-Major Capital Outlay Redemption Tax Override Governmental Fund Fund Fund Funds $ - $ - $ - $ 1,533,581-7, ,585 4,102 1,056, ,428,414 4,102 1,064, ,217, , ,306, , , , , , , , ,379-1,149,379-4,418,197 4,102 (85,361) 20 (200,617) ,461 (590,250) - (20) (590,270) (590,250) - (20) (207,809) (586,148) (85,361) - (408,426) 586,148 1,325,476-2,677,094 $ - $ 1,240,115 $ - $ 2,268,668 78

164 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2017 NOTE 1 - PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying 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 Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. The District has not elected to use the ten percent de minimis cost rate as covered in Section Indirect (F&A) costs of the Uniform Guidance. Local Education Agency Organization Structure This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration. 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. The District neither met nor exceeded its target funding. 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 the requirements as required by Education Code Section 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. 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. 79

165 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2017 Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. 80

166 INDEPENDENT AUDITOR'S REPORTS 81

167 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Governing Board Paso Robles Joint Unified School District Paso Robles, 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, the businesstype activities, each major fund, and the aggregate remaining fund information of Paso Robles Joint Unified School District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise Paso Robles Joint Unified School District's basic financial statements, and have issued our report thereon dated December 5, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Paso Robles Joint 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 Paso Robles Joint Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Paso Robles Joint 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. 82

168 Compliance and Other Matters As part of obtaining reasonable assurance about whether Paso Robles Joint Unified School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Paso Robles Joint Unified School District in a separate letter dated December 5, 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. Fresno, California December 5,

169 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Governing Board Paso Robles Joint Unified School District Paso Robles, California Report on Compliance for Each Major Federal Program We have audited Paso Robles Joint Unified School District's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Paso Robles Joint Unified School District's (the District) major Federal programs for the year ended June 30, Paso Robles Joint Unified School District's major Federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its Federal awards applicable to its Federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of Paso Robles Joint Unified School District's major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about Paso Robles Joint 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 Paso Robles Joint Unified School District's compliance. 84

170 Opinion on Each Major Federal Program In our opinion, Paso Robles Joint 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, Report on Internal Control Over Compliance Management of Paso Robles Joint 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 Paso Robles Joint Unified School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Paso Robles Joint Unified School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or 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. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Fresno, California December 5,

171 INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE Governing Board Paso Robles Joint Unified School District Paso Robles, California Report on State Compliance We have audited Paso Robles Joint Unified School District's compliance with the types of compliance requirements as identified in the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting that could have a direct and material effect on each of the Paso Robles Joint Unified School District's State government programs as noted below for the year ended June 30, Management's Responsibility Management is responsible for compliance with the requirements of State laws, regulations, and the terms and conditions of its State awards applicable to its State programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance of each of the Paso Robles Joint Unified School District's State programs based on our audit of the types of compliance requirements referred to above. 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 the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Paso Robles Joint 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 opinions. Our audit does not provide a legal determination of Paso Robles Joint Unified School District's compliance with those requirements. Basis for Qualified Opinion on Attendance Accounting and Reporting and Proper Expenditure of Education Protection Account Funds As described in the accompanying Schedule of Findings and Questioned Costs as items through , Paso Robles Joint Unified School District did not comply with requirements regarding Attendance Accounting and Reporting and Proper Expenditure of Education Protection Account Funds. Compliance with such requirements is necessary, in our opinion, for Paso Robles Joint Unified School District to comply with the requirements applicable to that program. 86

172 Qualified Opinion on Attendance Accounting and Reporting and Proper Expenditure of Education Protection Account Funds In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, Paso Robles Joint Unified School District complied, in all material respects, with the types of compliance requirements referred to above for the year ended June 30, Unmodified Opinion on Each of the Other Programs In our opinion, Paso Robles Joint Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 2017, except as described in the Schedule of State Awards Findings and Questioned Costs section of the accompanying Schedule of Findings and Questioned Costs. In connection with the audit referred to above, we selected and tested transactions and records to determine the Paso Robles Joint Unified School District's compliance with the State laws and regulations applicable to the following items: Procedures Performed LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS Attendance Yes Teacher Certification and Misassignments Yes Kindergarten Continuance Yes Independent Study Yes Continuation Education Yes Instructional Time Yes Instructional Materials Yes Ratios of Administrative Employees to Teachers Yes Classroom Teacher Salaries Yes Early Retirement Incentive No (see below) Gann Limit Calculation Yes School Accountability Report Card Yes Juvenile Court Schools No (see below) Middle or Early College High Schools No (see below) K-3 Grade Span Adjustment Yes Transportation Maintenance of Effort Yes Mental Health Expenditures Yes SCHOOL DISTRICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS Educator Effectiveness California Clean Energy Jobs Act After School Education and Safety Program: General Requirements After School Before School Proper Expenditure of Education Protection Account Funds Unduplicated Local Control Funding Formula Pupil Counts Local Control Accountability Plan Independent Study - Course Based Immunizations Yes Yes Yes Yes No (see below) Yes Yes Yes No (see below) Yes 87

173 Procedures Performed CHARTER SCHOOLS Attendance Mode of Instruction Non Classroom-Based Instruction/Independent Study for Charter Schools Determination of Funding for Non Classroom-Based Instruction Annual Instruction Minutes Classroom-Based Charter School Facility Grant Program No (see below) No (see below) No (see below) No (see below) No (see below) No (see below) The District did not offer an Early Retirement Incentive Program during the current year; therefore, we did not perform procedures related to the Early Retirement Incentive Program. The District does not have any Juvenile Court Schools; therefore, we did not perform procedures related to Juvenile Court Schools. The District does not have any Middle or Early College High Schools; therefore, we did not perform procedures related to Middle or Early College High Schools. The District does not offer a Before School Education and Safety Program; therefore, we did not perform procedures related to the Before School Education and Safety Program. The District does not offer Independent Study - Course Based program; therefore, we did not perform any procedures related to Independent Study - Course Based Program. Additionally, the District does not operate any Charter Schools; therefore, we did not perform procedures for Charter School Programs. Fresno, California December 5,

174 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 89

175 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2017 FINANCIAL STATEMENTS Type of auditor's report issued: Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major Federal programs: Material weakness identified? Significant deficiency identified? Type of auditor's report issued on compliance for major Federal programs: Any audit findings disclosed that are required to be reported in accordance with Section (a) of the Uniform Guidance? Identification of major Federal programs: Unmodified No None reported No No None reported Unmodified No CFDA Numbers Name of Federal Program or Cluster Title I - Part A, Basic Title II - Part B, Math and Science Partnerships Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ 750,000 Yes STATE AWARDS Type of auditor's report issued on compliance for programs: Unmodified for all programs except for the following programs which were qualified: Unmodified Name of Program Attendance Accounting and Reporting Proper Expenditure of Education Protection Account Funds 90

176 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 None reported. 91

177 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 None reported. 92

178 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 The following findings represent instances of noncompliance and questioned costs relating to State program laws and regulations. The findings have been coded as follows: Five Digit Code AB 3627 Finding Type Attendance State Compliance Attendance Accounting and Reporting Criteria According to Standards and Procedures for Audits of California K-12 Local Educational Agencies , prescribed in the California Code of Regulations and published by the Education Audit Appeals Panel, attendance reports must be amended for any change in ADA. [Education Code Sections (a)(1) and (a)] Condition During our audit of the Second Period (P-2) Attendance Report and the Annual Attendance Report, we determined the District incorrectly calculated ADA for several line items. The following table represents the changes made to the original P-2 and Annual reports as a result of audit procedures. Second Period Attendance Report Dissallowed Estimated Reporting ADA from Final Dollar Value Line & Original P-2 per State Finding Audited (including Gradespan P-2 Audit Difference P ) A-1 (funding based on P-2 ADA) TK-3 1, , (28.87) - 1, $ (225,771) 4-6 1, , (23.55) - 1, (174,973) (18.11) (136,953) , , (50.77) (9.30) 2, (506,221) A-2 (funding based on Annual ADA) TK Dollar Value for P-2 mistated ADA $ (1,043,918) 93

179 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 Annual Attendance Report Dissallowed Estimated Reporting ADA from Final Dollar Value Line & Original Annual per State Finding Audited (including Gradespan Annual Audit Difference Annual ) A-1 (funding based on P-2 ADA) , , (9.25) 2, $ - A-2 (funding based on Annual ADA) TK , , , ,727 Dollar Value for Annual mistated ADA $ 29,894 Total Dollar Value (Questioned Cost) $ (1,014,024) Effect The District must revise their Second Period Attendance Report and the Annual Period Attendance Report to reflect the above changes. The estimated fiscal impact amounted to a net decrease of approximately $1,014,024 based on a comparison of State apportionment funding calculated using the original and audited average daily attendance figures. Cause For line A-1 the Second Period Attendance Report, the district performed an unnecessary calculation to year to date Average Daily Attendance (ADA) figures reported by the attendance system, Aeries. Every month the District would convert the monthly ADA into a daily rate. During the preparation of the Second Period Attendance Report, the District took the average of the daily rates calculated previously, divided that figure by eight (total attendance months in period), and then multiplied it by the P2 divisor (142). This calculation resulted in overstated ADA being reported. For line A-2 of the Second Period Attendance Report, during the calculation of the ADA, the district used incorrect data as part of the calculation. Specifically, the report used by the District has several columns that report different aspects of the attendance of the program. While performing the ADA calculation, the District used figures from the wrong column. This resulted in understated ADA being reported. For line A-1 of the Annual Period Attendance Report, this misstated ADA was due to an instance discussed in depth at State Finding

180 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, For line A-2 of the Annual Period Attendance Report, during the calculation of the ADA, the district used incorrect data as part of the calculation. Specifically, the report used by the District has several columns that reports different aspects of the attendance of the program. While performing the ADA calculation, the District used figures from the wrong column. This resulted in understated ADA being reported. Recommendation The District needs to revise the Second Period Attendance Report and the Annual Period Attendance Report to reflect the correct ADA. Corrective Action Plan Revised P-2 and Annual Attendance Reports have been submitted to the San Luis Obispo County Office of Education. Corrections have been made to the procedures used and staff assigned to process the Attendance Reports. Also, ADA projections have been adjusted to align with the adjusted ADA percentages. Attendance Accounting and Reporting Criteria According to Standards and Procedures for Audits of California K-12 Local Educational Agencies , prescribed in the California Code of Regulations and published by the Education Audit Appeals Panel, the monthly site summaries used for summarizing attendance for the P-2 and Annual Attendance Reports should provide accurate information. In addition, districts are required to abide by all procedures approved by the California Department of Education (CDE) when the District applied for approval of its online attendance system. Condition During our audit of the attendance system at Paso Robles High School, we discovered the site was not following the online attendance policies that were approved by the CDE. These policies require controls in place to ensure that any student, on any given day, that had only one period of attendance was actually present for that period or if the attendance was not reported correctly by the teacher. Effect We determined an error rate for the periods we tested and applied that rate to reported average daily attendance for both the Second Period of Attendance and the Annual Period of Attendance for Paso Robles High School. For the Second Period of Attendance, the resulting effect of that error rate was a decrease in the Line A-1, grades 9-12, of 9.30 ADA. For the Annual Period of Attendance, the resulting effect of that error rate was a decrease in the Line A-1, grades 9-12, of 9.25 ADA. 95

181 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 The estimated fiscal impact is $78,367. Cause The site is not following procedures that include printing a "students with one or more unverified period absences" report on a daily basis and following up on all such instances noted to verify that students who were marked absent for all periods except one were actually present for that one period. Recommendation The attendance staff should implement procedures that include printing a "students with one or more unverified period absences" report on a daily basis and following up with teachers and parents on all such instances noted to verify that students who were marked absent for all periods except one were actually present for that one period. If it is determined that a student was not actually present for that one period or if it cannot be determined, then the attendance staff should modify attendance in the system to report that student with an all day absence. All reports and related notations must be retained for audit purposes. Corrective Action Plan The revised P-2 and Annual Attendance Reports that were submitted to the San Luis Obispo County Office of Education included these adjustments. Corrections have been made to the procedures used at PRHS and attendance reports are being run regularly to monitor this issue. Proper Expenditure of Education Protection Account Funds Criteria Proposition 30, The Schools and Local Public Safety Protection Act of 2012, approved by the voters on November 6, 2012, temporarily increases the state's sales tax rate for all taxpayers and the personal income tax rates for upper-income taxpayers. The new revenues generated from Proposition 30 are deposited into a newly created state account called the Education Protection Account (EPA). The California Constitution, Article XIII, Section 36(e), Paragraph (6) states "A community college district, county office of education, school district, or charter school shall have sole authority to determine how the moneys received from the Education Protection Account are spent in the school or schools within its jurisdiction, provided, however, that the appropriate governing board or body shall make these spending determinations in open session of a public meeting of the governing board or body and shall not use any of the funds from the Education Protection Account for salaries or benefits of administrators or any other administrative costs. Each community college district, county office of education, school district, and charter school shall annually publish on its Internet Web site an accounting of how much money was received from the Education Protection Account and how that money was spent." 96

182 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 Condition During our audit of EPA funds, we discovered the District used a portion of the funds for general administration which is not compliant with the use of funds outlined in the California Constitution. Effect The disbursement of EPA funds for general administrative costs has made the District not in compliance with the funding requirements. Cause There is an internal control deficiency that allowed the funds to be incorrectly charged for nonqualifying expenditures. Questioned Cost The amount the District expended for school administration was $3,900. Recommendation The District must have proper internal controls to ensure compliance with all State laws and regulations. Corrective Action Plan Internal controls have been modified and EPA fund expenditures are now in line with all State laws and regulations. 97

183 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 There were no audit findings reported in the prior year's schedule of financial statement findings. 98

184 Governing Board Paso Robles Joint Unified School District Paso Robles, California In planning and performing our audit of the financial statements of Paso Robles Joint Unified School District, for the year ended June 30, 2017, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. However, during our audit we noted matters that are opportunities 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 5, 2017, on the government-wide financial statements of the District. PASO ROBELS HIGH SCHOOL - ASSOCIATED STUDENT BODY (ASB) Stale Dated Checks Observation During our audit of the outstanding check listing for the September 2016 bank reconciliation, we discovered 19 checks that were over six months old, making the probability of them clearing the account quite low. Specifically, the checks dated back to May 2014 and totaled $2, Recommendation Outstanding checks over six months old should be credited back to the appropriate account and taken off the subsequent bank reconciliation. The amounts should be credited to the appropriate account and described as "outstanding check written off-cleared". GEORGE FLAMSON MIDDLE SCHOOL - ASSOCIATED STUDENT BODY (ASB) Cash Disbursements Observation During our audit of the site's cash disbursement procedures, we determined that internal controls over the disbursement process are not always being followed. We found that not all Purchase Orders/Check Requests had dates to accompany the approval signatures. Without being dated, we were unable to confirm if purchases were pre-approved. Additionally, found instances where there was no invoice available as supporting documentation for the purchase. 99

185 Governing Board Paso Robles Joint Unified School District Recommendation All purchases must be preapproved by a board-designated official, a student organization representative, and the certificated employee who is the student organization advisor. Each approving person should sign and date the Purchase Order form. In order to provide proper controls over spending, the site should ensure there is an adequate invoice that supports the disbursement amount. Revenue Potentials Observation Fundraiser Approval Forms, "Revenue Potential" forms, are not consistently used by the site to document fundraising revenues and expenditures and when used are not always completed in full (the recap section is blank). Additionally, the bookkeeper is not given copies of the approved form to know when to expect deposits from clubs. Recommendation Since the revenue potential form is a vital internal control tool, it should be used to document potential revenues and expenditures including actual revenue and actual expenditures. The bookkeeper should also be made aware of any fundraising events to know when funds should be coming in. Using the form allows an analysis of the fundraiser to be conducted, indicating to the staff the success or failure of the completed project. The "Revenue Potential" form also indicates weak control areas in the fundraising procedures at the site, including lost or stolen merchandise, problems with collecting all moneys due and so forth. The "Revenue Potential" form used at the site should contain four major elements. These are: Potential Income-This lists the selling price of the item multiplied by the number of items purchased to compute the total income that should be deposited from this fundraiser if all the items were sold and all the money was turned in. This element should also be utilized to track the cost of the items, check numbers used to purchase the items, and the purchase dates. This purchasing information is a good reference source for future sales and also tracks to cost so that profits can be determined. Receipts/Fundraiser Deposits-This records all deposits turned in which are from funds generated from the sale. The receipt number issued to the advisor should log the date and deposit amount. This is necessary to be able to recap the deposits of the sale and to trace these deposits to the appropriate accounts at the end of the sale to the appropriate accounts to ensure that all postings were correct. Analysis-This section is used to compare the potential income as calculated in the potential income section to the actual funds raised as calculated in the receipts/fundraiser deposits section. The difference between these two amounts should be documented and explained. The explanation can consist of merchandise not sold, merchandise lost or destroyed, or funds lost or stolen. Recap-This section figures the net profit of the sale. Further fundraisers of this type can be planned or canceled depending on the information calculated in this section. 100

186 Governing Board Paso Robles Joint Unified School District Constitutions Observation During our audit, we found that the Associated Student Body does not have a Constitution or Charter on file at the site. This document is necessary for the recognition of the Associated Student Body organization at the site. As stated in the Associated Student Body Accounting Manual, Fraud Prevention Guide and Desk Reference published by the Fiscal Crisis & Management Assistance Team (FCMAT) which is available at in order for the Student Body organization to be recognized, they must submit for approval a constitution or charter to the board designated authority. Recommendation The Associated Student Body organization should submit for approval a constitution or charter to the board, in order to be recognized. Budgeting Observation During our audit, we found that the student body organization at the site does not incorporate a budget into their control procedures as suggested in the Associated Student Body Accounting Manual, Fraud Prevention Guide and Desk Reference published by the Fiscal Crisis & Management Assistance Team (FCMAT) which is available at as prepared by the School Business Services Division of the California Department of Education. Recommendation The manual suggests preparing budgets to control and monitor the financial activities of the student body organizations. The ASB (including all clubs) should prepare a budget at the beginning of the school year. Some aspects that the Department of Education highlights are: Updates will be necessary to the budget as circumstances change; the budgeting procedures are an ongoing process. The preliminary budget should include the beginning balances of the organizations, estimated sources of income, and estimated expenditures. The surplus left over in the accounts at the end of the year must be kept at a minimum. The underlying focus of a student body is that the funds generated by a group of students should be spent during the same year for the benefit of those students. The budget should be compared regularly to the actual financial activities of the organizations. One reason for this is to ensure that no organization enters into a deficit spending situation during the year. We will review the status of the current year comments during our next audit engagement. Fresno, California December 5,

187 APPENDIX C FORM OF OPINION OF BOND COUNSEL [Date] Board of Trustees Paso Robles Joint Unified School District 800 Niblick Road Paso Robles, CA Re: $ General Obligation Bonds of School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District San Luis Obispo County, California Election of 2016, Series A Final Approving Opinion of Bond Counsel Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the Paso Robles Joint Unified School District (the District ) of $ aggregate principal amount of the General Obligation Bonds of School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District, San Luis Obispo County, California, Election of 2016, Series A (the Bonds ), under and pursuant to the provisions of Sections and et seq. of the Education Code of the State of California, Resolution No. adopted by the Board of Trustees on March 13, 2018 (the Resolution ), and the provisions of the Paying Agent Agreement, dated as of May 1, 2018, by and between U.S. Bank National Association, as Paying Agent, and the District (the Paying Agent Agreement ). In such capacity, we have examined such law and such certified proceedings, certificates, and other documents as we have deemed necessary to render this opinion. Regarding questions of fact material to our opinion, we have relied upon the representations of the District contained in the Paying Agent Agreement and in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Attention is called to the fact that we have not been requested to examine, and have not examined, any documents or information relating to the District other than the record of proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof, which has been, or may be supplied to any purchaser of the Bonds. Based upon the foregoing, we are of the opinion that, under existing law: C-1

188 1. The Bonds constitute valid and binding obligations of the District payable in accordance with the terms described therein. 2. The Paying Agent Agreement constitutes a valid and binding obligation of the District and creates a valid lien on the funds pledged by the Paying Agent Agreement for the security of the Bonds. 3. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, The opinion set forth in the preceding sentence is subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. taxes. 4. The interest on the Bonds is exempt from State of California personal income The rights of the holders of the Bonds and the enforceability of the Bonds and the Paying Agent Agreement are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights generally, and by equitable principles, whether considered at law or in equity. We express no opinion regarding tax consequences arising with respect to the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on the Bonds other than as expressly set forth herein. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts for circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, DANNIS WOLIVER KELLEY C-2

189 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE $40,000,000 * GENERAL OBLIGATION BONDS OF SCHOOL FACILITIES IMPROVEMENT DISTRICT NO. 1 OF THE PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT SAN LUIS OBISPO COUNTY, CALIFORNIA ELECTION OF 2016, SERIES A This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Paso Robles Joint Unified School District (the District ) in connection with the issuance of $40,000,000* aggregate principal amount of the General Obligation Bonds of School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District, San Luis Obispo County, California, Election of 2016, Series A (the Bonds ) pursuant to a paying agent agreement, dated as of April 26, 2018 (the Paying Agent Agreement ), between the District and U.S. Bank National Association (the Paying Agent ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being delivered by the District for the benefit of the Bondholders and Beneficial Owners of the Bonds and to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. Unless the context otherwise requires, the definitions set forth in the Paying Agent Agreement apply to this Disclosure Certificate. The following additional capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the District pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Certificate. Beneficial Owner means any person that (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Bondholders mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. Dissemination Agent means the District, or any successor Dissemination Agent designated in writing by the District and that has filed with the District a written acceptance of such designation. * Preliminary, subject to change. D-1

190 MSRB means the Municipal Securities Rulemaking Board. Official Statement means the final Official Statement dated, 2018, relating to the Bonds. Opinion of Counsel means a written opinion of a law firm or attorney experienced in matters relating to interpretation of the Rule. Participating Underwriter means, the underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Repository shall mean MSRB or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Rule means 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. Significant Event means any of the events listed in subsection (a) of Section 5 (Reporting of Significant Events) of this Disclosure Certificate. Section 3. Provision of Annual Reports. a. Delivery of Annual Report to Repository. The District shall, or shall cause the Dissemination Agent to, not later than 290 days after the end of the District s fiscal year (which currently ends on June 30), commencing with the report for the fiscal year, provide to the Repository an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Reports) of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 (Content of Annual Reports) of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. b. Change of Fiscal Year. If the District s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(b) (Notice of Significant Events). c. Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (Delivery of Annual Report to Repository) for providing the Annual Report to the Repository, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the District. D-2

191 d. Report of Non-Compliance. If the District is unable to provide an Annual Report to the Repository by the date required in subsection (a) (Delivery of Annual Report to Repository), the Dissemination Agent shall send a notice in a timely manner to the Repository in substantially the form attached as Exhibit A. e. Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate and stating the date it was provided. Section 4. Content of Annual Reports. The District s Annual Report shall contain or include by reference the following: a. Financial Statements. The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles. If the District s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a) (Delivery of Annual Report to Repository), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; b. Most Recent Interim Financial Report. The most recent Interim Financial Report submitted to the District s governing board in accordance with Education Code section (or its successor statutory provision) together with any supporting materials submitted to the governing board; year; c. Annual Budget. The District s approved annual budget for the then-current fiscal d. Assessed Value. Assessed value of taxable property (secured, unsecured, and total) in the District as shown on the most recent equalized assessment roll; and e. Average Daily Attendance. The most recently available Average Daily Attendance for the District. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities that have been submitted to each of the Repositories 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 District shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. a. Significant Events. Pursuant to the provisions of this Section, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than 10 business days after the occurrence of the event: D-3

192 (i) (ii) difficulties; principal and interest payment delinquencies; unscheduled draws on debt service reserves reflecting financial (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) (vii) tender offers; defeasances; (viii) rating changes; or (ix) person. bankruptcy, insolvency, receivership or similar event of the obligated b. Significant Events If Material. The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than 10 business days after the occurrence of the event: (i) unless described in paragraph 5(a)(v) hereof, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; (ii) (iii) (iv) (v) modifications to rights of Bond Holders; optional, unscheduled or contingent Bond calls; release, substitution, or sale of property securing repayment of the Bonds; non-payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or appointment of a successor or additional paying agent or the change of name of a paying agent. c. Notice of Significant Events. Whenever the District obtains knowledge of the occurrence of a Significant Event as described in Section 5(a) hereof, or determines that knowledge of the occurrence of a listed event described in Section 5(b) hereof would be material D-4

193 under applicable Federal securities law, the District shall file, or shall cause the Dissemination Agent (if not the District) to file, a notice of such occurrence with the Repository, in an electronic format as prescribed by the Repository, in a timely manner not in excess of 10 business days after the occurrence. Section 6. Filings with the Repository. All documents provided to the Repository under this Disclosure Certificate shall be filed in a readable PDF or other electronic format as prescribed by the Repository and shall be accompanied by identifying information as prescribed by the Repository. Section 7. Termination of Reporting Obligation. The District s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds or upon the delivery to the District of an Opinion of Counsel to the effect that continuing disclosure is no longer required by the Rule. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Significant Event under Section 5(b) (Notice of Significant Events). Section 8. Dissemination Agent. a. Appointment of Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the District, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District. b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the District from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, Bondholders or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the District. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the District that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: a. Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a) (Delivery of Annual Report to Repository), 4 (Content of Annual Reports), or 5(a) (Significant Events), it may only be made in connection with a change in circumstances that D-5

194 arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or the type of business conducted; b. Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would, based upon an Opinion of Counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and c. Consent of Bondholders; Non-impairment Opinion. The amendment or waiver either (i) is approved by the Bondholders in the same manner as provided in the Paying Agent Agreement for amendments to the Paying Agent Agreement with the consent of Bondholders, or (ii) does not, based on an Opinion of Counsel, materially impair the interests of the Bondholders or Beneficial Owners. If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the District shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Significant Event under Section 5(c) (Notice of Significant Events), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event. Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, any Bondholder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Paying Agent Agreement, and the sole remedy under this Disclosure Certificate if the District fails to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and D-6

195 the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including reasonable attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or Beneficial Owners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the District or an Opinion of Counsel. The obligations of the District 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 Certificate. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Bondholders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. IN WITNESS WHEREOF the District has caused this Continuing Disclosure Certificate to be signed by its authorized officer on the date written below. Dated:, 2018 PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT By: Chris Williams, Superintendent D-7

196 EXHIBIT A FORM OF NOTICE TO REPOSITORY OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Paso Robles Joint Unified School District Name of Securities: General Obligation Bonds of School Facilities Improvement District No. 1 of the Paso Robles Joint Unified School District San Luis Obispo County, California Election of 2016, Series A Date of Issuance:, 2018 NOTICE IS HEREBY GIVEN that Paso Robles Joint Unified School District (the District ) has not provided an Annual Report with respect to the above-named Bonds for the fiscal year ended June 30,, as required by a Continuing Disclosure Certificate executed on, 2017, with respect to the above-captioned securities. The District anticipates that the Annual Report will be filed by. Dated: PASO ROBLES JOINT UNIFIED SCHOOL DISTRICT [Sample Only] D-8

197 APPENDIX E BOOK-ENTRY-ONLY SYSTEM The following description of the Depository Trust Company ( DTC ), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. Neither the District nor the Paying Agent takes any responsibility for the information contained in this Appendix. When used in this Appendix, the term Bonds will mean the Bonds. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (i) payments of interest, principal or premium, if any, with respect to the Bonds, (ii) bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Bonds, in the aggregate principal amount of the issue, and will be deposited with DTC. DTC, the world s largest 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 the Bonds. 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 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 E-1

198 Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from District or Paying Agent on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, Paying Agent, or District, 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 District or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. E-2

199 A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to Paying Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant s interest in the Bonds, on DTC s records, to Paying Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Bonds to Paying Agent s DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to District or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, the Bonds are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, the Bonds will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof. E-3

200 APPENDIX F COUNTY OF SAN LUIS OBISPO INVESTMENT POOL QUARTERLY REPORT ENDING MARCH 31, 2017 The treasury investment policy is available at the internet website of the San Luis Obispo County Office of the Auditor, Controller, Treasurer, Tax Collector at Neither the District nor the Underwriter has independently verified this information and neither guarantees the completeness or accuracy thereof. Further information regarding the County treasury investment policy and monthly report may be obtained by contacting the County of San Luis Obispo, Auditor, Controller, Treasurer, Tax Collector, 1055 Monterey St, Rm D290, San Luis Obispo, California 93408, Telephone (805) , Facsimile (805) The following quarterly report reflects the balance in the County investment pool dated as of March 31, F-1

201 F-2

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