OFFICIAL STATEMENT DATED OCTOBER 3, 2012 NEW ISSUE Moody’s Rating: Aa2 BOOK-ENTRY Standard & Poor’s Rating: AA- Washington State School District Credit Enhancement Program: Aa1/AA+ See “RATINGS” and Appendix D “WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM” In the opinion of Koegen Edwards LLP, Bond Counsel, under existing law and assuming compliance with the tax covenants described herein, the interest on the Bonds is excluded from gross income for federal income tax purposes. Interest on the Bonds is not a specific preference item for purposes of federal alternative minimum tax. See, however, “TAX MATTERS” herein regarding certain other tax considerations. $19,370,000 Kent School District No. 415 King County, Washington Unlimited Tax General Obligation Refunding Bonds, Series 2012A DATED: As of the Date of Delivery DUE: December 1, as shown on inside cover Kent School District No. 415, King County, Washington (the “District”), Unlimited Tax General Obligation Refunding Bonds, Series 2012A (the “Bonds”), will be issued as fully registered bonds under a book-entry system, initially registered in the name of Cede & Co. (the “Registered Owner”), as nominee for The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form in the principal amount of $5,000 each, or any integral multiple thereof within a single maturity. Purchasers of the Bonds (the “Beneficial Owners”) will not receive certificates representing their beneficial ownership interests in the Bonds. Interest on the Bonds is payable on June 1 and December 1, commencing June 1, 2013, until maturity or prior redemption, whichever occurs first, by the fiscal agent of the state of Washington (the “State”), currently The Bank of New York Mellon in New York, New York (the “Registrar”). As long as DTC or its nominee is the registered owner of the Bonds, such payments will be made by the Registrar to DTC, which will, in turn, remit such principal and interest to DTC Participants, which will in turn remit such payments to the Beneficial Owners of the Bonds as described herein in Appendix C, “BOOK-ENTRY SYSTEM.” Maturity Schedule on Inside Cover The Bonds are not subject to redemption prior to their stated maturity dates. Proceeds of the Bonds will be used to: (i) refund a portion of the District’s Unlimited Tax General Obligation and Refunding Bonds, Series 2002, (ii) advance refund a portion of the District’s Unlimited Tax General Obligation Bonds, Series 2004, and (iii) pay the costs of issuance of the Bonds. See “PURPOSE AND APPLICATION OF BOND PROCEEDS” herein. The Bonds are general obligations of the District. For as long as the Bonds are outstanding, the District has irrevocably pledged to levy taxes annually without limitation as to rate or amount on all of the taxable property within the District in an amount sufficient, together with other money legally available and to be used therefor, to pay when due the principal of and interest on the Bonds, and the full faith, credit and resources of the District have been pledged irrevocably for the annual levy and collection of those taxes and the prompt payment of that principal and interest. The Bonds do not constitute a debt or indebtedness of King County, the State, or any political subdivision thereof other than the District. See “SECURITY FOR THE BONDS” herein. Payment of principal of and interest on the Bonds when due is guaranteed by the full faith, credit, and taxing power of the State under the provisions of the Washington State School District Credit Enhancement Program. See Appendix D attached hereto, “WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM.” This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as and if executed and delivered, and are subject to the approving bond counsel opinion of Koegen Edwards LLP, Spokane, Washington, Bond Counsel to the District, and certain other conditions. The fees of Bond Counsel are payable solely from the proceeds of the Bonds; hence, such fees are necessarily contingent upon the issuance of the Bonds. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York, or to the Registrar on behalf of DTC by Fast Automated Securities Transfer on or about October 25, 2012 (the “Date of Delivery”).
$19,370,000 Kent School District No. 415 King County, Washington Unlimited Tax General Obligation Refunding Bonds, Series 2012A
Due Interest Dec 1 Amount Rate Yield CUSIP No. (1) 2013 $2,265,000 2.00% 0.27% 495278M91 ** ** ** ** ** 2015 1,390,000 4.00 0.50 495278N25 2016 1,435,000 5.00 0.60 495278N33 2017 1,485,000 5.00 0.80 495278N41 2018 1,545,000 5.00 0.97 495278N58 2019 1,510,000 4.00 1.26 495278N66 2020 1,935,000 4.00 1.54 495278N74 2021 1,945,000 4.00 1.78 495278N82 2022 1,990,000 4.00 1.93 495278N90 2023 2,020,000 4.00 2.05 495278P23 2024 1,850,000 4.00 2.12 495278P31 (1) The CUSIP numbers herein are provided by CUSIP Global Services. These numbers are not intended to create a database and do not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers are provided herein for the convenience of reference only. CUSIP numbers are subject to change. CUSIP numbers are assigned by CUSIP Global Services. The District takes no responsibility for the accuracy of such CUSIP numbers.
No quotations from or summaries or explanations of the provisions of laws or documents herein purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. 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. The cover page hereof and appendices attached hereto are part of this Official Statement. No dealer, broker, sales representative, or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement in connection with the offering made hereby and, if given or made, such information or representations must not be relied upon as having been authorized by the District. The information and expressions of opinions herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the information set forth herein since the date hereof. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person, in any jurisdiction in which it is unlawful for such persons to make such offer, solicitation or sale. Certain statements contained in this Official Statement reflect not historical facts but forecasts and “forward- looking statements.” The words “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe” and similar expressions are intended to identify forward-looking statements. The achievement of certain results or other expectations contained in forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as described in the continuing disclosure undertaking of the District, the District does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations or events, conditions or circumstances on which such statements are based occur. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RESOLUTION HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. The District will undertake to provide continuing disclosure on certain matters, including annual financial information and specific material events, as more fully described herein. See “CONTINUING DISCLOSURE UNDERTAKING.” The CUSIP numbers herein are provided by Standard and Poor’s, CUSIP Global Services. These numbers are not intended to create a database and do not service in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for the convenience of reference only. CUSIP numbers are subject to change. The District takes no responsibility for the accuracy of such CUSIP numbers.
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KENT SCHOOL DISTRICT NO. 415 12033 SE 256th Street Kent, Washington 98030 (253) 373-7000 www.kent.k12.wa.us*
Board of Directors
Deborah J. Straus President Tim Clark Vice President Karen DeBruler Legislative Representative Agda Burchard Director Russ Hanscom Director
Administration
Dr. Edward Lee Vargas Superintendent Dr. Richard A. Stedry Chief Business Officer Dr. Linda Del Giudice Chief Accountability Officer Dr. R. Keith Beeman Chief Organizational Talent Officer Thuan Nguyen Chief Information and Automated Operations Officer Dr. Merri Rieger Chief Student Achievement Officer Ralph M. Fortunato Director of Fiscal Services
Certain County Officials
Lloyd Hara Assessor Ken Guy King County Department of Executive Services, Finance and Business Operations Division and ex officio Treasurer of the District
Bond Counsel
Koegen Edwards LLP Spokane, Washington
Financial Advisor
SDM Advisors, Inc. Mount Vernon, Washington
Registrar
Washington State Fiscal Agent The Bank of New York Mellon New York, New York
______* The District’s website is not part of this official statement and investors should not rely on information that is presented in the District’s website in determining whether to purchase the Bonds. This inactive textual reference to the District’s website is not a hyperlink and does not incorporate the District’s website by reference.
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TABLE OF CONTENTS INTRODUCTION ...... 1 THE BONDS ...... 1 Authorization ...... 1 Principal Amount, Date, Interest Rates and Maturities ...... 1 Form and Denomination ...... 1 Registrar ...... 1 Procedure in the Event of Revisions of Book-Entry Transfer System ...... 1 Redemption Provisions ...... 2 Purchase ...... 2 Failure to Redeem Bond ...... 2 Refunding or Defeasance of Bonds ...... 2 PURPOSE AND APPLICATION OF BOND PROCEEDS ...... 2 Plan of Refunding ...... 2 Verification of Mathematical Calculations ...... 2 Sources and Uses of Funds ...... 3 SECURITY FOR THE BONDS ...... 3 Washington State School District Credit Enhancement Program ...... 3 DEBT LIMITATION AND Debt Service Requirements ...... 4 General Obligation Debt Limitation ...... 4 Outstanding Debt ...... 5 Debt Capacity ...... 5 Net Direct and Estimated Overlapping Debt ...... 6 Future Financings ...... 7 Debt Payment Record ...... 7 SCHOOL FUNDING ...... 7 Introduction ...... 7 Federal Funding ...... 7 State Funding ...... 8 Local Funding ...... 9 Assessed Value and Tax Collections ...... 10 Assessed Valuation Determination ...... 10 Tax Collection Procedure ...... 10 Major Taxpayers ...... 11 THE DISTRICT ...... 11 Government Organization ...... 11 Board of Directors ...... 12 Key Administrative Officials ...... 12 Accounting Practices ...... 13 Fund Accounting ...... 13 Auditing of District Finances ...... 14 The Budgetary Process ...... 14 District Financial and budgetary information ...... 15 Investment Policy ...... 17 Risk Management ...... 19 Pension System ...... 19 Other Post Employment Benefits ...... 19 GENERAL AND ECONOMIC INFORMATION ...... 20 APPROVAL OF COUNSEL ...... 21 LITIGATION ...... 21 INITIATIVE AND REFERENDUM ...... 23 CONTINUING DISCLOSURE UNDERTAKING ...... 23 ENFORCEABILITY ...... 26 RATINGS ...... 26 FINANCIAL ADVISOR ...... 26 UNDERWRITING ...... 26 OFFICIAL STATEMENT ...... 26 APPENDICES FORM OF BOND COUNSEL OPINION ...... Appendix A 2011 AUDITED FINANCIAL STATEMENTS ...... Appendix B BOOK-ENTRY SYSTEM ...... Appendix C WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM ...... Appendix D
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OFFICIAL STATEMENT $19,370,000 Kent School District No. 415 King County, Washington Unlimited Tax General Obligation Refunding Bonds, Series 2012A
INTRODUCTION Kent School District No. 415, King County, Washington (the “District”), a first-class school district duly organized and existing under and by virtue of the laws of the state of Washington (the “State”), furnishes this Official Statement in connection with the offering of Unlimited Tax General Obligation Refunding Bonds, Series 2012A (the “Bonds”). This Official Statement, which includes the cover page, and appendices, provides information concerning the District and the Bonds. THE BONDS Authorization The Bonds are issued pursuant to Resolution No. 1398 adopted by the District’s Board of Directors (the “Board”) on May 23, 2012, and Resolution No. 1404, adopted by the Board on September 26, 2012 (collectively, the “Resolution”), in accordance with the provisions of the State Constitution and the authority of chapters 28A.530, 39.36, 39.46 and 39.53 of the Revised Code of Washington (“RCW”). Unless otherwise defined in this Official Statement, capitalized terms used herein will have the meaning or meanings as set forth in the Resolution. Principal Amount, Date, Interest Rates and Maturities The Bonds are to be dated and bear interest from their initial date of delivery. The Bonds will mature on the dates and in the principal amounts and will bear interest, payable semiannually on June 1 and December 1, commencing June 1, 2013 at the respective rates as set forth on the inside cover page of this Official Statement. Form and Denomination The Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company (“DTC”). DTC will act as securities depository for the Bonds. Individual purchases will initially be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds so purchased. See Appendix C – BOOK-ENTRY SYSTEM attached hereto. Registrar Principal of and interest on the Bonds will be payable by the fiscal agent of the State, currently The Bank of New York Mellon, in New York, New York (the “Registrar”), or such other fiscal agency or agencies as the King County Department of Executive Services, Finance and Operations Division, and ex officio Treasurer of the District (the “Treasurer”) may from time to time designate. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer by the Registrar to DTC, which, in turn, is obligated to remit such principal and interest to its participants for subsequent disbursement to the Beneficial Owners of the Bonds, as further described herein in Appendix C. Procedure in the Event of Revisions of Book-Entry Transfer System If DTC resigns as the securities depository and the District is unable to retain a qualified successor to DTC, or the District has determined that the Bonds are to be in certificated form, the District will execute, authenticate and deliver at no cost to the Beneficial Owners of the Bonds or their nominees, Bonds in fully registered form, in the denomination of $5,000 or any integral multiple thereof within a series and maturity. In the event the Bonds are transferred by the District in fully registered form, the Bonds may be paid by the Registrar. Thereafter, the principal of the Bonds will be payable upon due presentment and surrender thereof to the Registrar; interest on the Bonds will be payable by check mailed to the persons in whose names such Bonds are registered, at the address appearing upon the registration books at the close of business on the 15th day of the month preceding an interest payment date, or if requested in writing by a registered owner of Bonds prior to the applicable record date by electronic transfer on the interest payment date. The Bonds will be transferable as provided in the Resolution.
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The information set forth in Appendix C has been provided by DTC. Beneficial Owners should confirm the information contained in Appendix C with DTC or the Participants. No Prior Redemption The Bonds are not subject to redemption prior to their stated maturity dates. Purchase The District has reserved the right to purchase any or all of the Bonds available in the open market at any time at any price. All Bonds so purchased shall be cancelled. Failure to Redeem Bonds If any Bond is not redeemed when properly presented at its maturity or redemption date, as applicable, the District will be obligated to pay interest on that Bond at the same rate provided in the Bond from and after its maturity or redemption date until such Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on deposit in the Debt Service Fund and the Bond has been called for payment by giving notice of that call to the Registered Owner of each of the unpaid Bonds. Refunding or Defeasance of Bonds If Government Obligations maturing at such times and bearing interest to be earned thereon in amounts sufficient to retire any or all of the Bonds in accordance with their terms are irrevocably set aside in a special trust account to effect such retirement and are pledged for such purpose, then no further payments need to be made to pay or secure the payment of such Bonds, and such Bonds will thereafter be deemed not to be outstanding. Defeasance of the Bonds may be made with cash, direct, non-callable obligations of the United States of America or any other permitted obligation under chapter 39.53 RCW. PURPOSE AND APPLICATION OF BOND PROCEEDS Proceeds of the Bonds will be used to: (i) refund a portion of the District’s Unlimited Tax General Obligation and Refunding Bonds, Series 2002; (ii) advance refund a portion of the District’s Unlimited Tax General Obligation Bonds, Series 2004; and (iii) pay the costs of issuance of the Bonds. Plan of Refunding Proceeds of the Bonds will be used, together with other legally available funds of the District, to advance refund the Unlimited Tax General Obligation Bonds, Series 2004, scheduled to mature on December 1, 2015 through 2024 (the “2004 Refunded Bonds”) and $2,285,000 of the Unlimited Tax General Obligation and Refunding Bonds, Series 2002, scheduled to mature on December 1, 2013 (the “2002 Refunded Bonds,” together with the 2004 Refunded Bonds, the “Refunded Bonds”). Funds will be deposited with U.S. Bank National Association, as Refunding Trustee, and held in cash or used to purchase noncallable direct obligations of the United States (“Government Obligations”). The amount deposited with the Refunding Trustee, together with interest on purchased Government Obligations, will be sufficient to pay interest on the 2002 Refunded Bonds on the scheduled payment date through December 1, 2012, and to redeem the 2002 Refunded Bonds on December 1, 2012, at a price equal to the principal amount thereof and to pay interest on the 2004 Refunded Bonds on each scheduled payment date through December 1, 2014, and to redeem the 2004 Refunded Bonds on December 1, 2014, at a price equal to the principal amount thereof. The 2002 Refunded Bonds mature on the dates and bear interest at the rates set forth in the following schedule: Unlimited Tax General Obligation Bonds, Series 2002 Maturity Principal Amount Interest Rate CUSIP Nos. December 1, 2013 $2,285,000 5.000% 495278L76
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The 2004 Refunded Bonds mature on the dates and bear interest at the rates set forth in the following schedule: Unlimited Tax General Obligation Bonds, Series 2004 Maturity Principal Amount Interest Rate CUSIP Nos. December 1, 2015 $1,510,000 4.000% 495278YZ0 December 1, 2016 1,560,000 4.000 495278ZA4 December 1, 2017 1,600,000 4.100 495278ZB2 December1, 2018 1,650,000 4.250 495278ZC0 December 1, 2019 1,605,000 5.000 495278ZD8 December 1, 2020 2,050,000 5.000 495278ZE6 December 1, 2021 2,090,000 5.000 495278ZF3 December 1, 2022 2,160,000 5.000 495278ZG1 December 1, 2023 2,220,000 5.000 495278ZH9 December 1, 2024 2,080,000 5.000 495278ZJ5 Verification of Mathematical Calculations Causey Demgen & Moore P.C. will verify the accuracy of the mathematical computations concerning the adequacy of the maturing principal amounts of and interest earned on the government obligations, to be placed together with other escrowed moneys in the escrow account to pay when due, pursuant to stated call for redemption, the principal of, and interest on the Refunded Bonds. Sources and Uses of Funds The proceeds from the Bonds are to be applied as follows: Sources of Funds Par Amount of Bonds $19,370,000 Transfer from Prior Debt Service Fund 488,513 Plus Premium 3,264,252 Total Sources of Funds $23,122,765 Uses of Funds Deposit to Refunding Escrow $22,948,937 Estimated Costs of Issuance (1) 173,828 Total Uses of Funds $23,122,765 (1) Includes bond rating fees, Purchaser’s spread, financial advisor’s fees, bond counsel fees, costs of printing and distributing the Preliminary and final Official Statements, and other costs incurred in connection with the issuance of the Bonds. SECURITY FOR THE BONDS The Bonds are general obligations of the District. For as long as the Bonds are outstanding, the District has irrevocably pledged to levy taxes annually without limitation as to rate or amount on all of the taxable property within the District in an amount sufficient, together with other money legally available and to be used therefor, to pay when due the principal of and interest on the Bonds, and the full faith, credit and resources of the District have been pledged irrevocably for the annual levy and collection of those taxes and the prompt payment of that principal and interest. The foregoing excess taxes, when collected, are required to be applied solely for the purpose of payment of principal and interest on the Bonds and for no other purpose until the Bonds will have been fully paid, satisfied and discharged. For a description of the manner in which taxes are levied and collected, see “ASSESSED VALUE AND TAX COLLECTIONS - Tax Collection Procedures” herein. The District may, subject to applicable laws, apply other money available to make payments with respect to the Bonds and thereby reduce the amount of future excess tax levies for such purpose. The Bonds do not constitute a debt or indebtedness of King County (the “County”), the State or any political subdivision thereof, other than the District. Washington State School District Credit Enhancement Program Payment of principal of and interest on the Bonds when due is guaranteed by the full faith, credit, and taxing power of the State under the provisions of the Washington State School District Credit Enhancement Program, as described in Appendix D attached hereto.
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DEBT LIMITATION AND DEBT SERVICE REQUIREMENTS The power of the District to contract debt of any kind is controlled and limited by State law. All debt must be set forth in accordance with detailed budget procedures and paid for out of identifiable receipts and revenues. The budget must be balanced for each fiscal year. It is unlawful for an officer or employee of the District to incur liabilities in excess of budgetary appropriations. General Obligation Debt Limitation Authorization of Total Debt. A school district may incur a total indebtedness, including voter-approved debt, not to exceed 5 percent of the assessed value of taxable property (the “Bond Assessed Value”), which includes all real and personal property, within the school district. See “DEBT LIMITATION AND DEBT SERVICE REQUIREMENTS – Outstanding Debt” and “- Debt Capacity” herein. Authorization of Voted Debt. Any election to authorize debt must have a voter turnout of at least 40 percent of those who voted in the last State general election and, of those voting, 60 percent must vote in the affirmative. The District’s Bonds met all voter approval criteria. Authorization of Non-Voted Debt. Washington municipal corporations, including the District, are authorized under State law to borrow money and issue short-term obligations, the proceeds of which may be used for any lawful purpose. Short-term obligations may be issued in anticipation of the receipt of revenues, taxes, or grants or the sale of bonds. These short-term obligations shall be repaid out of money derived from the source or sources in anticipation of which they were issued or from any money legally available for this purpose. In addition, RCW 28A.530.080 authorizes school districts, including the District, to incur long-term indebtedness without a vote of the people through the issuance of bonds payable out of the district's ordinary revenues and not out of tax levies made for such bonds. Such bonds may be issued to acquire real or personal property or make structural changes and additions to school facilities, including energy conservation improvements. School districts also are authorized to incur debt by purchasing real or personal property pursuant to a conditional sale (installment purchase) contract. In an emergency, school districts may authorize indebtedness outside the current budget. All expenditures for emergency purposes shall be paid by warrants from any available money in the fund properly chargeable with such expenditures. If there is insufficient money on hand in the fund, the warrants become registered interest- bearing warrants. In adopting the budget for any fiscal year, the Board will appropriate funds to retire any outstanding registered warrants issued since the adoption of the last preceding budget. The amount of all non-voted debt (including short-term obligations, conditional sale contracts, warrants and bonds) may not exceed 3/8ths of 1 percent of the Bond Assessed Value. See “DEBT LIMITATION AND DEBT SERVICE REQUIREMENTS” – “Outstanding Debt” and “Debt Capacity” herein.
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Outstanding Debt The District has $2,089,847 of outstanding limited general obligation debt as of September 1, 2012. The District has the following outstanding unlimited tax general obligation (“UTGO”) debt: Outstanding Unlimited Tax General Obligation Debt As of September 1, 2012 Amount Amount Unlimited Tax General Obligation Bonds Issued Outstanding UTGO Refunding Bonds, Series 2012 $14,600,000 $ 14,600,000 UTGO Refunding Bonds, Series 2010 12,995,000 12,995,000 UTGO Bonds, Series 2010 (Qualified School Construction Bonds) 15,000,000 15,000,000 UTGO Bonds, Series 2008 25,000,000 19,415,000 UTGO and Refunding Bonds, Series 2007 31,485,000 21,620,000 UTGO Bonds, Series 2006 35,000,000 31,795,000 UTGO Refunding Bonds, Series 2005 69,265,000 53,085,000 UTGO Bonds, Series 2004 (1) 24,500,000 3,100,000 UTGO Bonds, Series 2003 25,000,000 2,450,000 UTGO and Refunding Bonds, Series 2002 (1) 33,495,000 3,110,000 UTGO Refunding Bonds, Series 2001B 18,350,000 8,990,000 Total Unlimited Tax General Obligation Bonds $186,160,000 (1) Excludes the Refunded Bonds. Source: The District Debt Capacity Computation of Limitation of Indebtedness As of September 1, 2012 Total 2012 Tax Collection Year Bond Assessed Value $16,822,080,478 Total General Obligation Debt Capacity (5% of Bond Assessed Value) 841,104,024 Less: Outstanding Unlimited Tax General Obligation Bonds (186,160,000) Less: The Bonds (19,370,000) Less: Outstanding Non-voted Debt (2,089,847) Plus: Balance in UTGO Debt Service Fund 17,329,684 Remaining Total Debt Capacity $ 650,813,861 Non-voted General Obligation Debt Capacity (0.375% of Bond Assessed Value) $ 63,082,802 Less: Outstanding Non-voted Debt (2,089,847 Remaining Non-voted Debt Capacity $ 60,992,955
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Net Direct and Estimated Overlapping Debt The following table shows general obligation debt of the District, adjusted for the issuance of the Bonds, and estimated overlapping debt of other taxing entities in the District and certain debt ratios. Net Direct and Estimated Overlapping Debt As of February 1, 2012 Bond Assessed Value (2012 Tax Collection Year) - $16,822,080,478 Estimated District Population (2011) – 158,219 Net Direct Debt Unlimited Tax General Obligation Bonds $186,160,000 The Bonds 19,370,000 Limited General Obligation Bonds 2,089,847 Less: Cash and Investments in Debt Service Fund (17,329,684) Net Direct Debt $190,290,163 Estimated Overlapping Debt: King County $ 48,437,604 Cities 92,233,589 Fire Districts 4,166,828 Library District 9,850,505 Port of Seattle 19,716,388 Total Estimated Overlapping Debt $174,404,914 Total Estimated Direct and Overlapping Debt $364,695,077 Debt Ratios Direct Debt to Assessed Valuation 1.13% Direct and Overlapping Debt to Assessed Valuation 2.17% Direct Debt per Capita $ 1,203 Direct and Overlapping Debt per Capita $ 2,305 Per Capita Assessed Valuation $ 106,321 Sources: King County Office of Finance and Business Operations Division – Financial Management Section, the individual cities, and the Port of Seattle.
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The following table shows debt service for the District’s outstanding unlimited tax general obligation bonds. Summary of Unlimited Tax General Obligation Debt Service Requirements Outstanding Bonds The Bonds Calendar Total Debt Year Principal (1) Interest Subsidy (2) Total Principal Interest Service 2012 $ 20,670,000 $ 7,877,049 $ (769,050) $ 27,777,999 $ - $ - $ 27,777,999 2013 17,880,000 7,157,079 (769,050) 24,268,029 2,265,000 851,565 27,384,594 2014 20,640,000 6,311,416 (769,050) 26,182,366 - 728,850 26,911,216 2015 19,600,000 5,452,491 (769,050) 24,283,441 1,390,000 728,850 26,402,291 2016 20,310,000 4,594,116 (769,050) 24,135,066 1,435,000 673,250 26,243,316 2017 14,580,000 3,765,835 (769,050) 17,576,785 1,485,000 601,500 19,663,285 2018 15,415,000 3,172,698 (769,050) 17,818,648 1,545,000 527,250 19,890,898 2019 9,375,000 2,542,685 (769,050) 11,148,635 1,510,000 450,000 13,108,635 2020 9,745,000 2,196,697 (769,050) 11,172,647 1,935,000 389,600 13,497,247 2021 5,915,000 1,831,285 (769,050) 6,977,235 1,945,000 312,200 9,234,435 2022 6,150,000 1,610,660 (769,050) 6,991,610 1,990,000 234,400 9,216,010 2023 2,980,000 1,379,840 (769,050) 3,590,790 2,020,000 154,800 5,765,590 2024 2,630,000 1,239,463 (769,050) 3,100,413 1,850,000 74,000 5,024,413 2025 2,790,000 1,116,130 (769,050) 3,137,080 - - 3,137,080 2026 17,960,000 987,025 (769,050) 18,177,975 - - 18,177,975 2027 1,520,000 77,900 - 1,597,900 - - 1,597,900 Total $188,160,000 $51,312,369 $(11,535,750) $227,936,619 $19,370,000 $5,726,265 $253,032,884 (1) Excludes the Refunded Bonds. Includes $2,000,000 of principal paid by the District on June 1, 2012. (2) Reflects the 100 percent federal credit payment relating to the $15,000,000 Unlimited Tax General Obligation Bonds, 2010 (Taxable Qualified School Construction Bonds – Direct Payment to Issuer). Future Financings On February 7, 2006, the qualified electors of the District approved the issuance of bonds in the principal amount of not to exceed $106,000,000. The District has issued bonds under this authorization totaling $87,995,000 and therefore has remaining authorization of $18,005,000. The District does not plan to issue additional new debt within the next 12 months. The District periodically reviews its outstanding bonds for refunding opportunities and may issue bonds for refunding purposes if market conditions warrant. Debt Payment Record The District has always promptly met principal and interest payments on outstanding bonds when due. Additionally, no refunding bonds have been issued for the purpose of preventing an impending default.
SCHOOL FUNDING Introduction The District’s primary sources of revenue are State funds, local property taxes and federal funds. Collectively, these sources comprised 99.6 percent of the District’s total general, associated student body, capital projects and transportation fund revenues in the fiscal year ending August 31, 2012. In addition, the District receives income from local non-tax sources including tuition, sales of goods and supplies, food service, investment earnings, fines and damages, rentals and other miscellaneous sources, which are not available to pay outstanding voter approved general obligation bonds. These additional revenues comprised 0.4 percent of total funding, exclusive of excess property taxes collected to pay outstanding voter approved general obligation bonds, in the fiscal year ending August 31, 2012. Federal Funding The District receives federal funding from the following sources: Federal Revenue for Impact Aid, Federal Forests, Supplemental Handicapped Assistance, Remedial Education, Free and Reduced Lunch Program, and various other special purpose programs. In the fiscal year ended August 31, 2012, federal funds comprised an estimated $20,225,800 of total general fund revenues.
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State Funding General. Funding for school districts is described, in part, in chapter 28.150 RCW (“The Washington Basic Education Act of 1977”). The State legislature (the “Legislature”) is required to appropriate funds for basic education, student transportation and special education programs for students with disabilities. Legislation passed in 1979 (chapters 28A.165 and 28A.180 RCW) recognized the State’s responsibility to fund bilingual and remediation programs. The Legislature may also appropriate funds to school districts for population factors, such as urban costs, enrollment fluctuations and for special programs, including, but not limited to, vocational-technical institutes, compensatory programs, bilingual education, urban, rural, racial and disadvantaged programs, programs for gifted students and other special programs. State funding is based primarily upon average full-time equivalent student enrollment. At each regular session in an odd-numbered year, the legislature is required to appropriate monies to the Office of the Superintendent of Public Instruction (“OSPI”) (i) from the State General Fund for the current use of the common schools during the ensuing biennium and (ii) from the Student Achievement Fund and the Education Construction Fund for the support of the Student Achievement Act during the ensuing biennium. Basic Education Allocation. The primary objective of the Basic Education Allocation formula is to equalize educational opportunities among the State’s public school districts. The Basic Education Allocation distribution formula is reviewed biennially by the OSPI and the Governor of the State (the “Governor”). The Governor will and OSPI may, pursuant to RCW 28A.150.260, recommend to the Legislature a formula based on the ratio of students to staff. Once the Legislature adopts a formula, it is used for the distribution of basic education allocation for each annual average full time equivalent student enrolled in a common school. In the event the Legislature rejects the distribution formula recommended without adopting a new distribution formula, the distribution formula utilized for the previous school year will remain effective. In the event of an unforeseen emergency, in the nature of either unavoidable costs to a district or unexpected variations in anticipated revenue of a district, OSPI is authorized to make an adjustment, not to exceed two years, in the allocation of funds. In addition to the basic education allocation, eligible school districts receive money from the State under the Local Effort Assistance Program (“LEA”). LEA was originally implemented in 1989 and seeks to equalize the tax burden by providing matching state funds to districts with low property values and high levy rates. The levy equalization percentage is currently 28.89 percent. Eligible school districts are those school districts with an assessed value (for excess levy purposes) per pupil lower than the State average. For fiscal year 2011-12, the District received $4,374,691 in LEA funding. For fiscal year 2012-13, the District anticipates receiving $4,503,699 in LEA funding. Passed by voters in November 2000, Initiative 732 (“I-732”) required the State to provide annual cost-of-living increases for Washington’s public school employees. The Legislature suspended inflation increases as provided by I-732 in 2003 and in the 2009-11 and 2011-13 State biennial budgets. McCleary et al. v State Ruling. In 2007, a coalition of parents, students, school districts, teachers’ unions and other nonprofit organizations, filed a lawsuit alleging that the State’s approach to funding the local school districts does not satisfy the State’s obligation under Article IX of the Washington State Constitution, which provides that it is the “paramount duty” of the State to make “ample provision” for education. On February 24, 2010, a King County Superior Court judge entered its Final Judgment in McCleary et al. v. State (Cause No. 07-2-02323-2 SEA), ruling that the State is currently failing to fulfill this constitutional duty and ordered the Legislature to address the issue. The State appealed the decision to the Washington State Supreme Court (“Supreme Court”). On January 5, 2012, the Supreme Court filed its decision, affirming the King County Superior Court decision that the State is failing to fulfill its constitutional duty. The Supreme Court determined that school funding reform enacted by the State Legislature in 2009, if fully funded, would meet the State’s constitutional duty to amply provide for education. The 2009 legislation directing school funding reform included a requirement for full funding by the State by 2018. The Supreme Court retained jurisdiction to ensure progress in the Legislature’s plan to fully implement the school funding reform by 2018. The District cannot predict what the Legislature may do in response to this case, or what effect (if any) subsequent Legislative actions may have on the District’s finances.
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Local Funding Pursuant to RCW 84.52.053 and Article VII, Section 2(a) of the State Constitution and upon voter approval, school districts in the State are authorized to levy excess property taxes for various purposes including maintenance and operation (“M&O Levies”), capital projects (“Capital Project Levies”), and the construction, modernization and remodeling of school district facilities (“Bond Levies”) and for transportation purposes (“Transportation Vehicle Levies”). Excess property tax levies for bonds are required to be approved by 60 percent of those voting and the number of votes cast must equal or exceed 40 percent of those voting in the last general election. The voter approval requirement for M&O, Capital Projects and Transportation Vehicle Levies is a simple majority. M&O Levies. The State Constitution allows school districts to submit voter propositions for M&O Levies for up to four years and gives school districts the authority to levy local excess property taxes provided the voters of the district approve the levy with a simple majority. In 1977 when the State assumed additional responsibility for funding schools, the Legislature limited school district M&O Levy authority by passing the levy lid law. This law establishes the maximum amount of a school district’s M&O Levy for a calendar year. In 1979 the levy lid law took effect, limiting excess General Fund revenue to 10 percent of the school district’s basic education allocation for the school year. The law allowed districts that historically relied on M&O Levies to be grandfathered in and exceed the 10 percent limit. In 1987 the levy lid limit was increased to 20 percent. In 1994, the levy base increased to 24 percent. The Legislature provides funding for additional staffing in K-4 classrooms beyond basic education. All districts receive this enhanced allocation, except for in the 2009-11 biennium. The Legislature, in 2010, approved Laws of 2010, Chapter 237 (“2010 Supplemental Levy Act”), enhancing the levy authority of school districts. For levy collections through calendar year 2017 a district’s levy base will include the amounts the districts would have received from state funding for I-728 and I-732. Districts are allowed to include in their levy bases any cuts to the K-4 class-size funding. The requirement that OSPI must offset the amount added to a district’s levy base is removed. The levy lid is increased by four percent, including districts which are currently grandfathered above 24 percent. For non-grandfathered districts, such as the District, a district’s maximum levy percentage is increased from 24.89 percent to 28.89 percent in 2011 through 2017 and returns to 24 percent every year thereafter. The levy-equalization percentage is increased to 14 percent for calendar years 2011 through 2017 and returns to 12 percent in calendar year 2018. Additional levies to provide for subsequently-enacted increases affecting the districts’ levy base or maximum levy percentages may be authorized by voters during the term of the levy collection period. RCW 84.52.0531 outlines the process for deriving a district’s levy limit. In 2010, the qualified electors of the District approved a four-year M&O Levy for collection in 2011 through 2014. The District anticipates collecting $58,994,829 in 2012, $62,000,000 in 2013 and $64,000,000 in 2014. The District does not expect to seek an additional increase of its levy amounts during the term of collection of its current levy pursuant to the 2010 Supplemental Levy Act. By law, taxes levied to pay principal of and interest on unlimited tax general obligation bonds, such as the Bonds, are not available for any other use. Thus, any possible decline in the District’s M&O Levy would not impair the security of the Bonds. Capital Projects and Transportation Vehicle Levies. One to six-year Capital Projects Levies and one to two- year Transportation Vehicle Levies may also be authorized by a school district’s voters (RCW 84.52.053). These levies require a simple majority vote of approval by the District’s voters. The 2010 Supplemental Levy Act does not apply to Capital Projects Levies or Transportation Vehicle Levies. The District’s qualified electors have authorized a capital improvement levy for computer and related information technology purposes. The District anticipates collecting $5,000,000 in 2012, 2013 and 2014. The District’s Historical Ad Valorem Levy Amounts Tax Capital Improvement Year M&O Bonds (Technology) Total 2012 $58,994,829 $29,003,761 $5,000,689 $92,999,278 2011 56,438,444 32,003,087 5,000,609 93,442,140 2010 50,490,769 31,004,294 5,000,665 86,495,728 2009 47,453,327 31,499,756 5,000,029 83,953,112 2008 44,164,252 32,002,843 5,000,656 81,167,751 Source: King County Department of Assessments
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The District’s Historical Ad Valorem Levy Rates Tax Capital Improvement Year M&O Bond (Technology) Total 2012 $3.55234 $1.74641 $0.30111 $5.59986 2011 3.25368 1.84496 0.28828 5.38692 2010 2.80694 1.72361 0.27800 4.80855 2009 2.30024 1.52691 0.24237 4.06952 2008 2.39044 1.73225 0.27067 4.39336 Source: King County Department of Assessments ASSESSED VALUE AND TAX COLLECTIONS Assessed Valuation Determination The County Assessor (the “Assessor”) determines the value of all real and personal property throughout the County (including the District) which is subject to ad valorem taxation. The Assessor is an elected official whose duties and methods of determining value are prescribed and controlled by statute and by detailed regulations promulgated by the Department of Revenue of the State. For tax purposes the assessed value of property is 100 percent of its actual value. The Assessor’s determinations are subject to revision by the County Board of Equalization and, for certain property, subject to further revisions by the State Board of Equalization. After all administrative procedures are completed; the Board receives the Assessor’s final certificates of assessed value of property within the school district. Set forth in the following table is Bond Assessed Value of taxable property located within the District for tax collection in the years 2008 through 2012. The Bond Assessed Value of the District includes 100 percent of estimated valuation, plus Timber Assessed Value, less senior citizens’ exemptions. Collection Total Bond Year Assessed Value 2012 $16,822,080,478 2011 17,559,853,978 2010 18,188,002,178 2009 20,813,029,644 2008 18,648,338,162 Source: King County Department of Assessments Tax Collection Procedure Property taxes are levied in specific amounts, and the rate for all taxes levied for all taxing districts in each county is determined, calculated, and fixed by the Assessor based upon the assessed valuation of the property within the various taxing districts. The Assessor extends the taxes to be levied within each taxing district upon a property tax roll, which contains the total amount of taxes to be so levied and collected. The property tax roll is delivered to the Treasurer by January 15th, who bills and collects the taxes as certified. All such taxes are due and payable on the 30th of April of each year; but if the amount due from a taxpayer exceeds fifty dollars, one-half may be paid then and the balance no later than October 31st of that year. Delinquent taxes are subject to interest at the rate of one percent per month until paid. In addition, a penalty of three percent will be assessed on June 1st of the year in which the tax was due; and eight percent on December 1st of the year the tax was due. The method of giving notice of payment of taxes due, the Treasurer’s accounting for the money collected, the distribution of the taxes among the various taxing districts, notices of delinquency, and collection procedures are all covered by detailed statutes. The lien for property taxes is prior to all other liens or encumbrances of any kind on real or personal property subject to taxation except for federal tax liens. By law, the Treasurer may commence foreclosure of a tax lien on real property after three years have passed since the first delinquency. The State’s courts have not decided whether the Homestead Law (chapter 6.13 RCW) may give the occupying homeowner a right to retain the first $125,000 of proceeds of the forced sale of the family residence or other “homestead” property for delinquent general property taxes. (See Algona vs. Sharp, 30 Wn. App. 837, 638 P.2d 627 (1982), holding the homestead right superior to the improvement district assessment). The United States Bankruptcy Court for the Western District of Washington has held that the Homestead Exemption applies to the lien for property taxes, while the State Attorney General has taken the position that it does not.
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The following table details the tax collection record for the District’s general levy. The collection record for the general levy is representative of the collection record for all local option taxes levied by the District. Tax Collection Record Collection Tax Collected Year of Levy Collected as of 7/31/2012 Year Levy Amount Percent Amount Percent 2012 (1) $93,029,304 $47,619,950 51.19% $47,619,950 51.19% 2011 93,045,994 91,484,481 98.32 92,208,164 98.72 2010 85,848,025 84,312,834 98.21 85,416,404 99.50 2009 83,645,581 81,865,537 97.87 83,558,741 99.90 2008 81,191,518 79,362,180 97.75 81,170,691 99.97 Source: King County Office of Finance and Business Operations Division – Financial Management Section Major Taxpayers The following table lists the largest taxpayers within the District, based on their 2012 tax collection year assessed value. 2012 Taxpayer Business Assessed Value Boeing Aerospace $402,371,903 PSE/Electric & Gas Utility 218,267,139 AMB Property LP Real Estate 112,726,200 Segale Properties Real Estate 111,481,000 Calstrs Paper Products 88,585,800 Qwest Corporation Inc. Communications 51,193,514 Red Mortgage Capital (IC USA No. 14 Holdings LP) Real Estate 29,896,000 Blue Properties LLC (Robbins-Hattrup Partnership) Real Estate 26,776,900 Property Reserve Real Estate 25,845,500 Hexcel Corporation Manufacturer 22,757,353 Source: King County Department of Assessments THE DISTRICT The District is located in the western portion of the County and serves all of the City of Covington, a portion of the cities of Auburn, Black Diamond, Maple Valley, Renton, SeaTac, a large portion of the City of Kent and a large portion of unincorporated King County. With a current estimated population of 158,219, the District encompasses approximately 71 square miles. The District operates 2 academies, 28 elementary schools, 6 middle schools and 4 high schools. Historical and projected full-time equivalent October 1 enrollments are shown in the following table: Historical Projected Year Enrollment Year Enrollment 2011-12 25,589 2016-17 26,618 2010-11 25,621 2015-16 26,394 2009-10 25,778 2014-15 26,188 2008-09 25,828 2013-14 25,978 2007-08 25,745 2012-13 25,765 Source: The District Government Organization The District is a first-class school district governed by a five-member Board and operates under the Constitution and laws of the State. Each director represents one of five areas within the District but is elected at large. Members of the Board are elected for four-year terms. The Board holds regular meetings twice a month and special meetings as needed. All meetings are open to the public as provided by law and agenda items are prepared in advance. The Board appoints a chief executive officer of the District, designated as the Superintendent, who serves at the discretion of the Board. The Superintendent is responsible to the Board for the administration of all schools and departments of the District and serves as the secretary to the Board. The Superintendent recommends District department heads, managers and legal and bond counsel; he maintains a permanent
11 journal of Board proceedings, records and certifies appropriate policies and resolutions and serves as custodian of official District records. Board of Directors The current members of the Board are: Member Position Current Term Expires Deborah J. Straus President November 2015 Tim Clark Vice President November 2013 Karen DeBruler Legislative Representative November 2015 Agda Burchard Director November 2013 Russ Hanscom Director November 2015 Key Administrative Officials Dr. Edward Lee Vargas, Superintendent: Dr. Edward Lee Vargas was appointed as Superintendent for the District in the spring of 2009. Dr. Vargas has held top leadership positions in large urban school districts in California, New Mexico, Texas, and Washington. Prior to being asked to provide leadership as a Superintendent in Residence to other system leaders around the country, Dr. Vargas was Superintendent for the very diverse 89,000 student Pre-K-Adult Hacienda La Puente Unified School District in Los Angeles County, where significant and rapid increases in student achievement received state and national attention. While in Texas, Dr. Vargas led the Ysleta Independent School District to become the highest achieving, and first 90-90-90, large urban district in the state. Earlier in his career, Dr. Vargas served as a classroom teacher, psycho-educational diagnostician, school psychologist and District Diagnostic Coordinator in the Albuquerque Public Schools, as well as a site administrator and Director in the Seattle Public Schools. Dr. Vargas then went on to serve as Assistant Superintendent of Support Services, Curriculum, Instruction, Assessment and Accountability in the Santa Ana Unified School District in Southern California before accepting his first superintendent post. Dr. Vargas received his Master’s from the University of New Mexico and his Doctorate in Leadership and Policy Studies from the University of Washington. Dr. Richard A. Stedry, Chief Business Officer: Dr. Stedry was hired by the District in 2010 bringing to the District 37 years of school business management experience and a total of 42 years experience in public education. Prior to coming to the District, Dr. Stedry served as the Deputy Superintendent for Business Services in Fontana, California. Dr. Stedry has held school business positions in Texas, South Carolina, Cleveland, Ohio and Kansas. He holds a Bachelor of Music Education, Master in Education and Educational Specialist degrees from Wichita State University and a Doctorate in Education from Oklahoma State University. Dr. Stedry has taught school finance, school business management, school facilities and education law at The University of South Carolina, Converse College and Oklahoma State University. Dr. Stedry also holds professional certificates as a Council of Educational Facilities Planners International Recognized Educational Facility Professional, Association of School Business Officials Registered School Business Administrator and Certified Chief Business Official with the California School Business Officials.
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Labor Relations The District currently has 3,242 employees, which includes 1,682 certificated and 1,560 classified staff members. Those employees who are eligible under State law to be represented by a labor organization, are employed under provisions of negotiated contracts with eight separate labor organizations. The District enters into written bargaining agreements with each of the bargaining organizations, representing approximately 96 percent of the District’s employees. Agreements contain provisions on such matters as salaries, vacation, sick leave, medical and dental insurance, working conditions and grievance procedures. Following are the bargaining groups which represent District employees: Number of Expiration Date Bargaining Unit Employees Covered (1) of Contract Kent Education Association (teachers/certificated employees) 1,616 August 31, 2013 Kent Principals Association 63 June 30, 2012 (2) Kent Association of Educational Office Professionals - Public School Employees (secretarial/clerical) 284 August 31, 2012 (2) Kent Association of Para-educators 547 August 31, 2011 (2) Teamsters (bus drivers) 117 August 31, 2012 (2) Kent School Food Service Association 118 August 31, 2012 (2) American Federation of Teachers (maintenance/operations) 183 August 31, 2013 Coaches Association 122 June 30, 2012 (2) Total 3,050 (1) Some employees are members of more than one bargaining unit. (2) Contracts are under negotiation. Source: The District; as of September 1, 2012. Accounting Practices In the fund financial statements the modified accrual basis of accounting is used for all governmental funds. Under this basis, revenues are recognized when they become “measurable and available.” “Measurable” means knowing or being able to reasonably estimate the amounts and “available” means collectible within the current period or soon enough thereafter to pay current liabilities. Expenditures are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due. The District considers revenues derived from property taxes available when they are collected within 60 days after fiscal year-end. In the statement of fiduciary net assets and changes in fiduciary net assets, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. For additional information on accounting policies of the District, see Appendix B, “2011 AUDITEDFINANCIAL STATEMENTS.” Fund Accounting The accounts of the District are organized on the basis of funds and account groups, each of which is a separate accounting entity. The operations of each fund are accounted for with a separate set of self- balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. The various funds are grouped into governmental funds as follows: (i) General Fund. This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. (ii) Debt Service Fund. This fund is used to account for revenue sources that are legally restricted for the payment of general long-term debt principal, interest and related expenditures. (iii) Capital Projects Fund. This fund is used to account for resources set aside for the acquisition and construction of capital assets. It includes net rental income and net proceeds from the sale of real property and State grants for construction of school facilities. Non-refunding bond proceeds to finance the acquisition and construction of capital assets are deposited into this fund and disbursed during construction periods. (iv) Transportation Vehicle Fund. This fund is used to account for the purchases and major
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repairs of pupil transportation equipment. (v) Special Revenue Funds. These funds account for the proceeds of specific revenue sources that are legally restricted for specific purposes. The Associated Student Body program Fund (ASB Fund) is the only fund of this type. This fund is accounted for as a special revenue fund since the financial resources legally belong to the District. Auditing of District Finances The State Auditor is required to annually audit school districts with 8,000 or more FTE students, such as the District. The examination must include, among other things, the financial conditions and resources of the District, whether the laws and constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of the District. Reports of the State Auditor’s examinations are required to be filed in the office of the State Auditor and in the Business Office of the District. The most recent audit by the State Auditor of the District’s financial position covered the operating year September 1, 2010 through August 31, 2011 and is included as Appendix B. The Budgetary Process General Budgetary Policies. Chapter 28A.505 RCW and Chapter 392-123 Washington Administrative Code mandate school district budget policies and procedures. The budget is adopted by the Board after a public hearing. An appropriation is a prerequisite to expenditure. Appropriations lapse at the end of the fiscal period. Budgetary Basis of Accounting. For budget and accounting purposes, revenues and expenditures are accounted for on the modified accrual basis as prescribed by law for all governmental funds. Fund balance is budgeted as available resources and, pursuant to law, the budgeted ending fund balance cannot be negative. Encumbrances. Encumbrance accounting is employed in governmental funds. Purchase orders, contracts and other commitments for the expenditure of moneys are recorded in order to reserve a portion of the applicable appropriation. Encumbrances are closed at the end of the fiscal year and reopened the following year.
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DISTRICT FINANCIAL AND BUDGETARY INFORMATION The General Fund revenues and expenses shown in the tables below are summarized from the District’s audited financial statements for the past five fiscal years. The District’s fiscal year ends August 31. Statement of Revenues, Expenditures and Changes in General Fund Balance (1) Fiscal Year Ended August 31 2011 2010 2009 2008 2007 REVENUES Local $ 60,953,960 $ 56,088,157 $ 53,384,172 $ 51,702,489 $ 49,180,996 State 157,222,873 161,793,314 165,267,291 161,252,749 150,290,866 Federal 18,628,244 28,095,328 30,137,910 17,644,736 15,711,012 Federal Stimulus 11,253,518 - - - - Other 92,208 116,798 126,948 120,764 133,079 Total Revenues $248,150,803 $246,093,597 $248,916,321 $230,720,738 $215,315,953 EXPENDITURES Current Regular Instruction $131,446,537 $138,496,052 $121,510,427 $124,306,050 $117,443,092 Federal Stimulus 10,961,277 Special Education 30,752,315 30,751,643 31,040,817 30,121,247 24,762,334 Vocational Education 6,857,460 6,594,020 6,596,045 6,213,727 6,258,648 Compensatory 13,683,324 13,147,505 21,758,636 21,791,487 19,627,759 Other Instructional Programs 1,722,049 9,696,883 13,097,166 1,712,762 1,028,850 Community Services 446,591 426,953 396,764 418,994 340,800 Support Services 48,746,318 48,616,237 49,581,803 49,356,971 46,082,611 Capital Outlay Other 562,704 1,400,636 555,028 1,237,361 1,608,753 Debt Service Principal 70,639 - - - - Interest and Other Charges 23,159 - - - - Total Expenditures $245,272,373 $249,129,929 $244,536,686 $235,158,599 $217,152,847 Excess (Deficiency) of Revenues Over Expenditures $ 2,878,430 $ (3,036,332) $ 4,379,635 $ (4,437,861) $ (1,836,894) OTHER FINANCING SOURCES (USES) Sale of Surplus Equipment $ - $ 6,288 $ 24,707 $ 27,820 $ 11,842 Transfers (15,436) (15,436) (47,101) (47,096) (189,370) Other 26,034 - - - - Total Other Financing Sources and Uses $ 10,598 $ (9,148) $ (22,394) $ (19,276) $ (177,528) Net Change in Fund Balance $ 2,889,028 $ (3,045,480) $ 4,357,241 $ (4,457,137) $ (2,014,422) Fund Balance - Beginning $ 19,602,855 $ 22,648,335 $ 18,291,094 $ 23,010,065 $ 25,024,487 Prior Year Adjustments - - - (261,834) - Beginning Fund Balance, Restated - - - 22,748,231 - Fund Balance – Ending $ 22,491,883 $ 19,602,855 $ 22,648,335 $ 18,291,094 $ 23,010,065 (1) Source: Information for fiscal years 2007 through 2011 are based on audited financial statements of the District.
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Statement of Revenues, Expenditures and Changes in Fund Balance General Fund Budgeted 2010-11 and 2011-12 Fiscal Year Ended August 31 Budgeted Budgeted REVENUES AND OTHER FINANCING SOURCES 2011-12 2012-13 Local Taxes $ 57,607,900 $ 59,381,997 Local Nontax Support 7,048,075 6,755,400 State, General Purpose 132,993,499 134,633,500 State, Special Purpose 34,305,844 35,179,041 Federal, General Purpose 74,660 22,000 Federal, Special Purpose 20,750,578 21,376,763 Revenues from Other School Districts 45,000 145,000 Revenues from Other Entities 283,900 30,000 Other Financing Sources - 35,000 Total Revenues and Other Financing Sources $253,109,456 $257,558,701 EXPENDITURES Regular Instruction $140,746,444 $142,190,288 Federal Stimulus 120,000 7,000 Special Education Instruction 33,726,930 35,567,939 Vocational Education Instruction 6,819,880 7,336,122 Compensatory Education Instruction 14,832,680 17,032,662 Other Instructional Programs 5,417,337 6,536,317 Community Services 374,288 360,629 Support Services 51,604,600 53,059,433 Total Expenditures $253,642,159 $262,090,390 Other Financing Uses - Transfers Out 11,577 15,435 Total Expenditures and Other Financing Sources $253,653,736 $262,105,825 Excess of Revenues/Other Financing Sources Over(Under) Expenditures and Other Financing Uses $ (544,280) $ (4,547,124) BEGINNING FUND BALANCE Restricted for Other Items $ 1,500,000 $ - Restricted for Carryover of Restricted Revenues 2,275,000 2,158,707 Nonspendable Fund Balance - Inventory and Prepaid Items 450,000 400,000 Restricted for Uninsured Risks 1,500,000 1,375,000 Committed to Minimum Fund Balance Policy 9,349,247 12,259,258 Assigned to Contingencies 300,000 7,000,000 Unassigned Fund Balance 1,434,703 283,660 Total Beginning Fund Balance $ 16,808,950 $ 23,476,625 ENDING FUND BALANCE Restricted for Other Items $ 956,720 $ - Restricted for Carryover of Restricted Revenues 606,672 2,395,000 Nonspendable Fund Balance - Inventory and Prepaid Items 450,000 400,000 Restricted for Uninsured Risks 1,500,000 1,625,00 Committed to Minimum Fund Balance Policy 12,452,278 12,814,314 Assigned to Contingencies 300,000 1,650,000 Unassigned Fund Balance (1) - 45,187 Total Ending Fund Balance $ 16,265,670 $ 18,929,501 (1) The beginning and ending fund balances were estimated before the prior year end. State statutes set budgeted expenditures as the District’s legal expenditure limits. Given this constraint, the District traditionally budgets revenues and expenditures on a “worse case” basis. As a result, actual ending fund balances have historically been substantially higher than budgeted ending fund balances for the District’s General Fund. Source: The District
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Statement of Revenues, Expenditures and Changes in Debt Service Fund The Debt Service Fund revenues and expenses shown below are summarized from the District’s audited financial statements for the past five fiscal years. The District’s fiscal year ends August 31. Statement of Revenues, Expenditures and Changes in Debt Service Fund (1) Fiscal Year Ended August 31 REVENUES 2011 2010 2009 2008 2007 Local $31,349,669 $31,180,716 $31,509,785 $26,751,829 $23,513,187 Federal 442,204 - - - - Total Revenues $31,791,873 $31,180,716 $31,509,785 $26,751,829 $23,513,187
EXPENDITURES Debt Service: Principal $18,191,005 $22,874,361 $16,359,464 $15,100,119 $15,973,765 Interest and Other Charges 10,866,022 11,289,273 11,665,626 11,404,358 11,430,103 Total Expenditures $29,057,027 $34,163,634 $28,025,090 $26,504,477 $27,403,868 Excess (Deficiency) of Revenues Over Expenditures $ 2,734,846 $(2,982,918) $ 3,484,695 $ 247,352 $(3,890,681)
OTHER FINANCING SOURCES (USES) Bonds Issued $13,354,966 $ - $ - $16,485,000 $ - Bond Premium - - - 312,047 - Bond Issuance Cost - - - (116,889) - Payment to Refunded Bond Escrow Agent - - - (16,658,486) - Transfers 1,042,266 1,042,268 841,375 385,184 358,408 Other Financing Uses (13,172,372) - - - - Total Other Financing Sources (Uses) $ 1,224,860 $ 1,042,268 $ 841,375 $ 406,856 $ 358,408 Net Change in Fund Balance $ 3,959,706 $(1,940,650) $ 4,326,070 $ 654,208 $(3,532,273) Fund Balance - Beginning $ 8,423,469 $10,364,119 $ 6,038,051 $ 5,383,844 $ 8,916,116 Fund Balance – Ending $12,383,175 $ 8,423,469 $10,364,121 $ 6,038,052 $ 5,383,843 (1) Source: Information for fiscal years 2007 through 2011 are based on audited financial statements of the District. Investment Policy Chapter 39.59 RCW limits the investment of public funds by local governments to the following authorized instruments: (i) bonds of the State or any local government in the State or general obligation bonds of any other state or political subdivision thereof which has at the time of investment one of the three highest credit ratings of a nationally recognized rating agency, (ii) registered warrants of a local government in the same county as the local government making the investment, (iii) certificates of deposit and (iv) any investments authorized by law for the State Treasurer. In addition to these instruments, bond proceeds may be invested in qualified money market and mutual funds which restrict their portfolios to specified securities and post a bond with the State. King County Investment Pool. The King County Investment Pool (the “Pool”) invests cash reserves for all agencies of the County and more than 100 special purpose districts and other public entities such as fire, school, sewer and water districts and other public authorities. It is one of the largest investment pools in the State, with a typical recent asset balance in excess of $4 billion. On average, County agencies comprise between 35 percent and 40 percent of the Pool. The County’s Executive Finance Committee (the “Committee”) establishes the County’s investment policy and oversees the portfolio to ensure that specific holdings comply with both the investment policy and State law. The Pool is only allowed to invest in certain types of highly-rated securities, including certificates of deposit, U.S. treasury obligations, federal agency obligations, municipal obligations, repurchase agreements and commercial paper. .
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The following information has been provided by the County and is believed to be reliable, but has not been verified independently by the District. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the District. As a result of unprecedented turmoil and uncertainty in global credit markets surfacing in late August 2007, the County halted all purchases of commercial paper. In early September 2007, the County commissioned an outside financial consultant, Public Financial Management, Inc. (“PFM”), to review the Pool’s remaining investments in commercial paper and make recommendations going forward. PFM validated the County’s strategy of halting the purchase of any new commercial paper and recommended holding remaining assets to their maturity dates, while monitoring new developments in the commercial paper markets. In early 2008, the Pool held four impaired commercial paper investments in its portfolio with an outstanding par value of $207 million. For three of the four impaired investments (Cheyne, Rhinebridge and Mainsail), the County participated in restructuring auctions in 2008 and has recovered a total of $75.2 million, or about 50 percent of the adjusted par value of these securities. Since December 2008, the County has been receiving monthly pro rata cash payments from the receiver of Victoria, the County’s last remaining impaired commercial paper investment, totaling approximately $31.5 million through August 2012. These cash payments have reduced the County’s original adjusted par value in Victoria from $52.9 million to $21.4million. In September 2009, the County completed the restructuring process for Victoria and, based on consultations with legal and financial experts representing the County, elected to participate in an “Exchange Offer” in which the County’s pro rata share of assets in Victoria are transferred to a new company titled VFNC Trust. The financial analysis indicated that the Exchange Offer may result in a potential recovery in the range of $26.3 million to $40.4 million of the original $52.9 million, which accounts for cash collected to date and the bulk of anticipated monthly cash flow payments expected over the next five to six years (with some cash receipts extended beyond this time). The VFNC Trust investment will replace Victoria in the “impaired pool,” and it will continue to be separated from the larger “performing pool.” The impaired pool was established in 2008 by the County to help account for the recovery of funds from the various restructuring auctions and post-auction residual cash payments. The County has asked PFM to conduct quarterly reviews of all assets in the Pool. In its most recent assessment, dated June 30, 2012, PFM concluded that “the County’s Investment Pool is of sound credit quality and well diversified, and appears to provide ample liquidity.” The most recent portfolio review can be obtained at the following website, which is not incorporated into this Official Statement by reference: http://www.kingcounty.gov/operations/Finance/Treasury/InvestmentPool.aspx. After consulting with PFM and investment pool members, the Committee reauthorized the purchase of commercial paper at its January 25, 2012 meeting. However, no commercial paper has yet been purchased since the reauthorization. Standard & Poor’s Ratings Services (“S&P”) first rated the Pool in 2005 and assigned the Pool its highest rating of AAAf. In mid-January 2008, S&P took the temporary action of suspending its rating of the Pool with the understanding that the County could request a restored rating by separating any impaired investments into an impaired pool, which the County subsequently completed. S&P has since modified its rating criteria for investment pools, and the County is reconsidering the benefits, costs, and other factors associated with a pool rating. In addition, the County replaced its legacy financial systems with a new Oracle financial system in January 2012 and wants to ensure the stability of this new system prior to seeking a pool rating. Consequently, the Committee is expected to make a decision about whether to pursue a pool rating during the second half of 2012. Local Government Investment Pool. The Pool may invest in the State Local Government Investment Pool (“LGIP”), which was created by the Legislature in 1986 to provide a mechanism for political subdivisions to invest available funds and take advantage of the economies of scale and expertise of the LGIP to earn a competitive rate of return, security and liquidity of funds. The LGIP is a conservatively managed, highly liquid money market fund that is considered low-risk. The LGIP is restricted to investments with maturities of no more than 397 days and the average life typically is less than 120 days, with the following exceptions: (1) The maximum maturity of variable rate and floating rate securities meeting the requirements listed above will not exceed 762 days; and (2) Securities utilized in repurchase agreements. Permissible investments include U.S. government and agency securities, bankers’ acceptances, high quality commercial paper, repurchase and reverse repurchase agreements, and certificates of deposit issued by
18 qualified State depositories. The State Treasurer’s Office administers the LGIP and reports that as of June 2012, the LGIP had over 450 participants and a balance of approximately $9.3 billion. In its management of the LGIP, the State Treasurer is required to adhere, at all times, to the principles appropriate for the prudent investment of public funds. These are, in priority order, (1) the safety of principal; (2) the assurance of sufficient liquidity to meet cash flow demands; and (3) to attain the highest possible yield within the constraints of the first two goals. Historically, the LGIP has had sufficient liquidity to meet all cash flow demands. Risk Management The District became a member of the Schools Insurance Association of Washington (the “SIAW”) on September 1, 2001. Chapter 48.62 RCW authorizes the governing body of any one or more governmental entities to form together into or join a pool or organization for the joint purchasing of insurance, and/or joint self-insuring, and/or joint hiring or contracting for risk management services to the same extent that they may individually purchase insurance, self-insure, or hire or contract for risk management services. SIAW was formed on September 1, 1995, and presently has 45 member districts. The SIAW allows members to jointly purchase insurance coverage and provide related services, such as administration, risk management, claims administration, etc. Coverage for Public Officials Liability is on a “claims made basis.” All other coverages are on an “occurrence basis.” The SIAW provides the following forms of group purchased insurance coverage for its members: property, earthquake, liability, automobile liability, boiler and machinery, crime, excess liability and educators’ legal liability. The SIAW acquires liability insurance from unrelated underwriters that are subject to a per-occurrence deductible of $100,000. Members are responsible for the first $1,000 of the deductible amount of each claim, while the SIAW is responsible for the remaining $99,000. Insurance carriers cover insured losses over $100,000 to the limits of each policy. Since the SIAW is a cooperative program, there is a joint liability among the participating members towards the sharing of the $99,000 portion of the deductible. The SIAW, however, purchases a stop loss policy in the amount of $5,529,000 to reduce risk to members. Pension System Substantially all of the District’s full-time and qualifying part-time employees participate in one of several statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (the “DRS”), a department within the primary government of the State, issues a publicly available comprehensive annual financial report (a “CAFR”) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems, Communications Unit, P.O. Box 48380, Olympia, WA 98504- 8380, or by visiting the DRS website at www.wa.gov/DRS/drs.html. Information on such website is not a part of this Official Statement. Detailed information about the plans and contributions thereto are included in the Notes to Financial Statements contained in Appendix B hereto. Other Post Employment Benefits The Governmental Accounting Standards Board’s (“GASB”) standard concerning Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions (“OPEB”) is known as “GASB 45”. OPEB includes post employment healthcare, as well as other forms of post employment benefits when provided separately from a pension plan. The standard provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. Detailed information about the plans and contributions thereto are included in the Notes to Financial Statements contained in Appendix B hereto.
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GENERAL AND ECONOMIC INFORMATION The County encompasses 2,128 square miles, ranking eleventh in geographical size of the State’s 39 counties. The County is the largest by population in the State and is the financial, economic and industrial center of the Pacific Northwest Region. The City of Kent encompasses 28.75 square miles and is the third largest city in the County. Population The County ranks first in population of the State’s 39 counties. Eighty-two percent of the County’s population is located within its 39 incorporated towns and cities. Historical and current population figures for the County, the City of Kent and the City of Covington are provided below: Year King County City of Kent City of Covington 2012 1,957,000 119,100 17,760 2011 1,942,600 118,200 (1) 17,640 2010 1,931,249 92,411 17,575 2009 1,909,300 88,380 17,530 2008 1,884,200 86,980 17,360 (1) The City of Kent increase due to an annexation effective June 1, 2010. Source: Washington State Office of Financial Management; 2010 from U.S. Census. Industry and Employment The County possesses a diversified economy with a strong manufacturing sector, balanced with health care, U.S. military, government, trade, higher education and a burgeoning high technology sector. The primary manufactured products in the County include aerospace parts, chemicals, machinery, food products and electronics. The following information was provided by the Boeing Company (“Boeing”). Boeing is the largest employer in the Puget Sound area. Total airplane deliveries for 2011 were 477, compared to 462 in 2010. Boeing had revenues of more than $64.3 billion in 2010 and $68.3 billion in 2009. In 2001, Boeing moved its corporate headquarters from the Puget Sound area to Chicago, Illinois. Through July 2012, Boeing reported the following unfilled orders for aircraft: Aircraft Unfilled Orders 737 2,790 747 81 767 75 777 349 787 844 Established in 1861, the University of Washington (the “University”) is one of the oldest and largest state- owned universities on the West Coast, according to the University. The University has 18 schools and colleges and offers instruction in more than 200 academic disciplines. As one of the top research and development facilities in the nation with 150 specialized research centers the University received $1.5 billion in grants and contracts in Fiscal Year 2011. Civilian Labor Force and Employment Annual Average King County July 2012 July 2011 2011 2010 2009 2008 2007 Civilian Labor Force 1,125,290 1,109,020 1,105,550 1,107,060 1,115,980 1,091,720 1,068,970 Employment 1,037,380 1,016,400 1,015,970 1,006,000 1,020,090 1,043,300 1,030,030 Unemployment 87,910 92,620 89,580 101,060 95,890 48,420 38,940 Unemployment Rate 7.8% 8.4% 8.1% 9.1% 8.6% 4.4% 3.6% Washington State Civilian Labor Force 3,528,190 3,492,700 3,484,820 3,516,470 3,522,800 3,472,120 3,386,770 Employment 3,233,300 3,178,100 3,165,350 3,167,400 3,193,290 3,283,920 3,232,650 Unemployment 294,890 314,600 319,470 349,070 329,510 188,200 154,120 Unemployment Rate 8.4% 9.0% 9.2% 9.9% 9.4% 5.4% 4.6% Source: Washington State Employment Security Department, not seasonally adjusted
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Largest Employers in the City of Kent Employer Type of Business Employees The Boeing Company Aerospace 5,300 Boeing Australia Ltd. Aerospace 4,487 Kent School District (1) Education 3,242 City of Kent Government 800 Mikron Industries Inc. Manufacturing 700 REI Retail 689 Sysco Food Service Distribution Center Food Service 680 Maleng Regional Justice Center Government 630 Sysco Food Service of Seattle Headquarters Food Service 600 Oberto Sausage Company Food Processing 447 (1) Source: The District as of September 1, 2012. Source: City of Kent as of January 2012, unless otherwise specified Indices for the County Economic indicators for the County are provided as follows: Taxable Retail Sales and Median Family Income Taxable Median Year Retail Sales Family Income (1) 2011 $40,403,613,957 $66,294 2010 38,789,860,543 65,383 2009 39,149,685,710 65,877 2008 45,158,574,084 67,027 2007 47,178,009,959 65,489 (1) Median Family Income for 2011 is projected and 2010 is preliminary. Sources: Taxable Retail Sales - Washington State Department of Revenue Median Family Income - Washington State Office of Financial Management. APPROVAL OF COUNSEL Legal matters incident to the authorization, issuance and sale of Bonds by the District are subject to the approving bond counsel opinion of Koegen Edwards LLP, Spokane, Washington, Bond Counsel to the District. The fees of Bond Counsel are payable solely from the proceeds of the Bonds; hence, such fees are necessarily contingent upon the issuance of the Bonds. A copy of the opinion of Bond Counsel in the form set forth as Appendix A hereto will be delivered upon the issuance of the Bonds. LITIGATION There is no controversy or litigation pending or, to the best knowledge of the District, threatened which will affect the issuance and delivery of the Bonds, the levy and collection of taxes to pay the principal and interest thereon, the proceedings and authority under which the Bonds are issued and said taxes levied, or the validity of the Bonds. TAX MATTERS General. In the opinion of Koegen Edwards LLP, Bond Counsel, assuming compliance by the District with the continuing requirements described in this section under the subheading “Continuing Requirements,” the interest on the Bonds is excludable from gross income for federal income tax purposes under existing federal law and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations under existing federal law. In the opinion of Koegen Edwards LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described in the preceding sentence assumes compliance by the District with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the Bonds. Failure to comply with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Bonds.
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Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Registered Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Registered Owner. Registered Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Registered Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Registered Owner or the Registered Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Notwithstanding Bond Counsel’s opinion that interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75 percent of the excess of such corporation’s adjusted current earnings over its alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the Registered Owners of the Bonds. The extent of these other tax consequences will depend upon such Registered Owner’s particular tax status and other items of income or deduction. Bond Counsel has expressed no opinion regarding any such consequences. Purchasers of the Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of social security or railroad retirement benefits, taxpayers otherwise entitled to claim the earned income credit, or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the Bonds. Bonds Designated Qualified Tax-Exempt Obligations. The District has designated the Bonds as “qualified tax- exempt obligations” pursuant to and as defined in Section 265(b) of the Code. Backup Withholding. As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations such as the Bonds is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made after March 31, 2007, to any Registered Owner who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. The new reporting requirement does not in and of itself affect or alter the excludability of interest on the Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Changes in Federal Tax Law. From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if
22 implemented or concluded in a particular manner, could adversely affect the market value of the Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds or the market value thereof would be impacted thereby. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation. Possible Consequences of Tax Compliance Audit. The Internal Revenue Service (the “IRS”) has established a general audit program to determine whether issuers of tax-exempt obligations, such as the Bonds, are in compliance with requirements of the Code that must be satisfied in order for interest on those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS would commence an audit of the Bonds. Depending on all the facts and circumstances and the type of audit involved, it is possible that commencement of an audit of the Bonds could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of its ultimate outcome. Tax Risks to Bondholders Loss of Exemption of Interest from Federal Income Taxes. The exemption of interest on the Bonds from federal income taxes is dependent upon continuing compliance by the District with the requirements of the Code, which the District has covenanted to do. If the interest on the Bonds should be declared taxable by the IRS or legislation or regulations are adopted or there is a final determination by a judicial or administrative authority requiring interest on the Bonds to be included in the recipient’s gross income for federal income tax purposes, the interest rate will remain unchanged. Neither the Bonds nor the Ordinance securing them provides for an adjustment of the interest rate or for mandatory redemption of the Bonds in the event that the interest on the Bonds is declared taxable. If interest on the Bonds should become subject to federal income taxation, the market value of the Bonds may be adversely affected. Bond Audits. The Bonds could be audited by the IRS. Bond Counsel will render an opinion with respect to the tax-exempt status of the Bonds, as described under the caption “TAX MATTERS.” No ruling with respect to the tax-exempt status of the Bonds has been or will be sought from the IRS, however, and opinions of counsel are not binding on the IRS or the courts. There can be no assurance that an audit of the Bonds would not adversely affect the market value and liquidity of the Bonds. INITIATIVE AND REFERENDUM Under the State Constitution, the voters of the State have the ability to initiate legislation through the power of initiative and referendum. Initiatives and referenda are submitted to the voters upon receipt of petitions signed by at least eight percent (initiatives) and four percent (referenda) of the number of voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Qualifying initiatives to the voters are submitted at the next state general election and must be approved by a majority of voters to be enacted into law. Initiatives to the Legislature are submitted to the Legislature at its regular session each January. Once submitted, the Legislature must either adopt the initiative as proposed, reject the proposed initiative (in which case the initiative must be placed on the ballot at the next state general election) or approve an amended version of the proposed initiative (in which case both the amended version and the original proposal must be placed on the next state general election ballot). Any initiative approved by a majority of voters may not be amended or repealed by the Legislature within a period of two years following enactment, except by a vote of two–thirds of all the members elected to each house of the Legislature; after two years, the law is subject to amendment or repeal by the Legislature in the same manner as other laws. Future Legislation. Additional initiative petitions may be filed from time to time. The District cannot predict whether any initiatives affecting the District will qualify to be submitted to the people for vote or, if submitted, will be approved. Likewise, the District cannot predict what actions the Legislature may take, if any, regarding future initiatives approved by voters, CONTINUING DISCLOSURE UNDERTAKING In accordance with Section (b)(5) of Securities and Exchange Commission (the “SEC”) Rule 15c2-12 under the Securities and Exchange Act of 1934, as the same may be amended from time to time (the “Rule”), the District has agreed to provide the information and notices described by 17 CFR § 240.15c2-12(b)(5) with respect solely to the Bonds (the “Undertaking”). Notwithstanding any other provision of the Resolution to the contrary, neither the registered owner or holder of Bonds of any series other than the Bonds, nor any trustee
23 acting on their behalf, shall be entitled to any right or to exercise any remedy provided to the Holders under the Undertaking based upon the District’s failure to observe, or refusal to comply with, the covenants contained in the Undertaking. Definitions for Purposes of the Undertaking. Solely for the purposes of the Undertaking, the following terms shall have the following meanings unless the context otherwise requires: “Annual Financial Information” means an annual update of: (i) the financial information and operating data of the type set forth in the Official Statement in the table entitled “Statement of Revenues, Expenditures and Changes in General Fund Balance” and “Statement of Revenues, Expenditures and Changes in Debt Service Fund Balance;” (ii) the assessed valuation of taxable property in the District; (iii) the ad valorem taxes levied and percentage of taxes collected by the District; (iv) the District’s property tax levy rates per $1,000 of assessed valuation; and (v) the District’s outstanding general obligation debt. “Audited Financial Statements” means, with respect to the District, financial statements prepared and audited pursuant to the laws of the State (presently RCW 43.09.200 through 43.09.285), as such laws may be amended from time to time. “EMMA” means the MSRB’s Electronic Municipal Market Access system, which shall receive all required filings under Rule 15c2-12 beginning July 1, 2009. “Holder” means any Registered Owner of a Bond and any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power which includes the power to vote, or to direct the voting of, a Bond; and/or (ii) investment power which includes the power to dispose, or direct the disposition of, a Bond. “MSRB” means the Municipal Securities Rulemaking Board or any successor in functions thereto. “Official Statement” means the District’s final official statement relating to the Bonds, together with any amendments thereto. “Required Filings” means any filing made pursuant to the Undertaking. “Rule 15c2-12” means Rule 15c2-12 of the SEC, as amended. “SEC” means the Securities and Exchange Commission or any successor in functions thereto. Annual Financial Information. The District will provide to EMMA within nine months after the end of each fiscal year, commencing on or before May 31, 2014, Annual Financial Information for the District in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB. Presently, the District’s fiscal year commences on September 1. All or any portion of the Annual Financial Information may be incorporated in the Annual Financial Information by cross reference to any other documents which have been filed with: (i) EMMA; or (ii) the SEC; or (iii) if the document is an official statement, with the MSRB. Annual Financial Information for any fiscal year containing any modified operating data or financial information for such fiscal year shall explain, in narrative form, the reasons for such modification and the effect of such modification on the Annual Financial Information being provided for such fiscal year. If a change in accounting principles is included in any such modification, the initial Annual Financial Information after such modification shall present a comparison between the financial statements or information prepared on the basis of the modified accounting principles and those prepared on the basis of the former accounting principles. The District will provide notice of the modification of operating data or financial information or change in accounting principles to EMMA. Audited Financial Statements. To the extent the District’s Audited Financial Statements are not submitted as part of the Annual Financial Information, the District will provide to EMMA the Audited Financial Statements of the District (commencing with the audited financial statements for the fiscal year ending August 31, 2013), when and if such Audited Financial Statements are available. Although the District may submit a comprehensive annual financial report (a “CAFR”) together with its Audited Financial Statements, there is no requirement to do so hereunder, and the dissemination of a CAFR in any year shall not be construed as a requirement to disseminate a CAFR in any subsequent year. Event Notices. The District will provide to EMMA, within 10 business days of the occurrence, notice of any of the following events with respect to the Bonds: (i) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure
24 to perform; (v) defeasances; (vi) rating changes; (vii) tender offers; and (viii) bankruptcy, insolvency, receivership or similar proceeding of an obligated person, if any. The District will provide to EMMA, within 10 business days of the occurrence, notice of any of the following events with respect to the Bonds, if material: (i) non-payment related defaults; (ii) modifications to rights of security holders; (iii) bond calls (optional, contingent or unscheduled Bond calls other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release 34 23856); (iv) release, substitution, or sale of property securing repayment of the Bonds; (v) 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 action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; (vi) the appointment of a successor or additional trustee or the change of name of a trustee; and (vii) adverse tax opinions, the issuance by the IRS of a proposed or final determination of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other notice of determination with respect to the tax status of the Bonds, or other events affecting the tax status of the Bonds. Notice of Late Filing. The District is to provide to EMMA in a timely manner, notice of a failure of the District to provide the required Annual Financial Information on or before the date set forth herein. Term of the Undertaking. The term of the Undertaking commences on the date of closing and initial delivery of the Bonds to the Registered Owners and shall terminate when the Bonds have been paid in full or defeased in accordance with the Resolution. The District is to provide notice of such defeasance to EMMA; provided, such notice shall not be a condition to such defeasance. Amendments. Notwithstanding any provision of the Resolution to the contrary, the District may amend the Undertaking in conformity with the Rule, as interpreted from time to time by the courts, the SEC, or the SEC staff. Upon the adoption of any amendment to the Rule, the Undertaking shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the District and all holders under the Undertaking shall thereafter be determined, exercised and enforced thereunder, subject in all respects to such modification and amendments, and all terms and conditions of any such amendment shall be deemed to be part of the terms and conditions of the Undertaking for any and all purposes. If the consent of holders is necessary for such amendment, only the holders of the Bonds shall be considered for purposes of determining whether such consent has been rendered. Additional Information. Nothing in the Undertaking shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in the Undertaking or any other means of communication, or including any other information in any Required Filing, in addition to that which is required by the Undertaking. If the District chooses to include any information in any Required Filing in addition to that which is specifically required by the Undertaking, the District shall have no obligation under the Undertaking to update such information or include it in any future Required Filing. Defaults of this Undertaking. If the District shall fail to comply with any provision of the Undertaking, then any holder may enforce, for the equal benefit and protection of all holders similarly situated, by mandamus or other suit or proceeding at law or in equity, such provision against the District and any of the officers, agents and employees of the District, and may compel the District or any such officers, agents or employees to perform and carry out their duties under the Undertaking; provided, that the sole and exclusive remedy for breach of the Undertaking shall be an action to compel specific performance of the obligations of the District hereunder and no person or entity shall be entitled to recover monetary damages hereunder under any circumstances. Rescission Rights. The District hereby reserves the right to rescind the Undertaking without the consent of the holders in the event the Rule is repealed by the SEC or is ruled to be invalid by a federal court and the time to appeal from such decision has expired. In the event of a partial repeal or invalidation of the Rule, the District hereby reserves the right to rescind those provisions of the Undertaking that were required by those parts of the Rule that are so repealed or invalidated. EMMA. Any filing under the Undertaking may be made solely by transmitting such filing to EMMA as provided at http://emma.msrb.org. Prior Compliance. The District submitted the required annual information and operating data approximately 15 days beyond the required deadline in 2009 for its Outstanding Bonds, and as a result provided notice of its failure to provide this information in a timely manner to EMMA. The filing date for the District’s Limited Tax General Obligation and Refunding Bonds, Series 2001, was amended by Ordinance No. 2007-49 to conform to the filing date for other bonds of the District. The District is now in compliance with all prior undertakings under the Rule.
25
ENFORCEABILITY The provisions of the Bonds and the Resolution, constitute contracts between the District and the owner or owners of the Bonds, and such provisions are enforceable by the registered owner or owners in a court of competent jurisdiction in the State by mandamus or other appropriate remedy, subject to judicial discretion and the valid exercise of sovereign police power of the State and may be limited by laws affecting the rights of creditors. RATINGS The Bonds have been rated “Aa2” and “AA-” by Moody’s Investors Service, Inc. (“Moody’s”) and Standard and Poor’s Ratings Services (“S&P”), respectively. The Bonds are guaranteed under the provisions of the Washington State School District Credit Enhancement Program, which is rated “Aa1” and “AA+” by Moody’s and S&P (See Appendix D). The ratings were applied for by the District and certain information was supplied by the District to the rating agencies to be considered in evaluating the Bonds. The ratings reflect only the view of the rating agencies and an explanation of the significance of the ratings may be obtained from Moody’s and S&P. There is no assurance that the ratings will be retained for any given period of time or that the ratings will not be revised downward or withdrawn entirely by the rating agencies if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the ratings would likely have an adverse effect on the market price of the Bonds. An explanation of the significance of the ratings may be obtained from Moody’s, 7 World Trade Center, 250 Greenwich Street, New York, NY 10007 and S&P, Public Finance Department, 55 Water Street, New York, New York, 10041. FINANCIAL ADVISOR SDM Advisors, Inc. has served as financial advisor to the District relative to the preparation of the Bonds for sale, timing of the sale and other factors relating to the Bonds. The financial advisor has not audited, authenticated or otherwise verified the information set forth in this Official Statement or other information provided relative to the Bonds. SDM Advisors, Inc. makes no guaranty, warranty or other representation on any matter related to the information contained in the Official Statement. The financial advisor is an independent financial advisory firm and is not engaged in the business of underwriting, marketing, trading or distributing municipal securities. The financial advisor’s compensation is contingent on the sale and delivery of the Bonds. UNDERWRITING The Bonds are being purchased by J.P. Morgan Securities LLC, (the “Purchaser”) at a price of $22,552,210.21. The Bonds will be re-offered at a price of $22,634,252.20. The Purchaser may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the initial offering prices set forth on cover hereof, and such initial offering prices may be changed from time to time by the Purchaser. After the initial public offering, the public offering prices may be varied from time to time. OFFICIAL STATEMENT Statements in this Official Statement, including 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 or the Purchaser and the Owners of the Bonds. The preparation and distribution of this Official Statement has been authorized by the District. Dated October 3, 2012.
KENT SCHOOL DISTRICT NO. 415 King County, Washington
By: /s/ Richard A. Stedry, Ed.D Richard A. Stedry, Ed.D., Chief Business Officer
26
APPENDIX A FORM OF BOND COUNSEL OPINION
[LETTERHEAD OF KOEGEN EDWARDS LLP]
[Date of Issuance]
The Honorable President and Members of the Board of Directors Kent School District No. 415 12033 SE 256th Street Kent, Washington 98030
Re: Kent School District No. 415, King County, Washington; Unlimited Tax General Obligation Refunding Bonds, Series 2012A; Principal Amount of $19,370,000; Dated October 25, 2012
Honorable President and Members of the Board of Directors:
We have acted as bond counsel in connection with the issuance by Kent School District No. 415, King County, Washington (the “District”), of $19,370,000 aggregate principal amount of the above-captioned bonds (the “Bonds”). The Bonds are authorized pursuant to chapters 28A.530, 39.36, 39.46 and 39.53 RCW and Resolution No. 1398, adopted by the Board of Directors of the District (the “Board”) on May 23, 2012, and Resolution No. 1404, adopted by the Board on September 26, 2012 (collectively, the “Resolution”), the Official Notice of Sale pertaining to the Bonds and the successful bid of J.P. Morgan Securities, LLC, New York, New York, for the Bonds. The Bonds are being issued to currently refund $2,285,000 of the District’s outstanding Unlimited Tax General Obligation and Refunding Bonds, Series 2002 (the “2002 Refunded Bonds”), authorized by Resolution No. 1111, adopted by the Board on October 23, 2002, and advance refund $18,525,000 of the District’s outstanding Unlimited Tax General Obligation Bonds, Series 2004 (the “2004 Refunded Bonds”), authorized by Resolution No. 1176, adopted by the Board on November 10, 2004. Capitalized terms used herein shall have the meanings given to them in the Resolution.
In such connection, we have examined the record of proceedings submitted to us relative to the issuance of the Bonds including the Resolution; the Escrow Agreement, dated October 25, 2012 (the “Escrow Agreement”), between the District and U.S. Bank National Association (the “Refunding Trustee”); the report of Causey Demgen & Moore P.C., verifying that the deposits in the Escrow Account together with interest earnings thereon will be sufficient to redeem the 2002 Refunded Bonds on December 1, 2012, and the 2004 Refunded Bonds on December 1, 2014 (the “Verification Report”); the arbitrage and tax regulatory certificate of the District in connection with the Bonds dated the date of this opinion letter (the “Tax Certificate”); other certifications of the District; and such other documents and matters deemed necessary by us to render the opinions set forth herein. In doing so, we have not undertaken to verify independently the accuracy of the factual matters represented, warranted or certified therein; and we have assumed the genuineness of all signatures thereto.
The opinions expressed herein are based upon an analysis and interpretation of existing laws, regulations, rulings and court decisions. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have neither undertaken to determine nor to inform any person whether any such actions are taken or omitted or events do occur. Furthermore, we have assumed compliance with the agreements and covenants contained in the Resolution and the Tax Certificate, including (without limitation) agreements and covenants with which compliance is necessary to ensure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to their date of issuance. We call attention to the fact that the rights and obligations under the Bonds, the Resolution and the Tax Certificate may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights; to the application of equitable principles; to the exercise of judicial discretion in appropriate cases; and to the limitations contained in the constitution and the laws of the state of Washington (the “State”) regarding legal remedies against the District.
Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions:
A-1
1. The District has lawful authority for the issuance of the Bonds; and the Bonds constitute legal, valid and binding unlimited tax general obligations of the District payable from ad valorem taxes levied and to be levied upon all taxable property within the District, together with other legally available money, without limitation as to rate or amount. The full faith, credit and resources of the District have been irrevocably pledged to the punctual and full payment of the principal of, premium, if any, and interest on the Bonds.
2. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”). Interest on the Bonds is not a tax preference item for purposes of calculating the federal individual or corporate alternative minimum tax.
3. The Escrow Agreement has been duly authorized, executed and delivered by the District and assuming due authorization, execution and delivery thereof by the Refunding Trustee, constitutes a legal, valid and binding agreement of the District enforceable against the District in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally or by the exercise of judicial discretion in appropriate cases.
4. The 2002 Refunded Bonds and the 2004 Refunded Bonds have been defeased under the resolutions under which they were issued and are no longer deemed to be Outstanding under such resolutions.
In expressing the opinions set forth herein, we are relying in part on the Verification Report to verify certain mathematical computations as to the sufficiency of the money and investments deposited into the Escrow Account to pay interest on the 2002 Refunded Bonds on December 1, 2012, and to redeem the 2002 Refunded Bonds on December 1, 2012, at the price of one hundred percent of the principal amount thereof, and to pay interest on the 2004 Refunded Bonds up to and including December 1, 2014, and to redeem the 2004 Refunded Bonds on December 1, 2014, at the price of one hundred percent of the principal amount thereof, and to verify the yield on the Bonds and on the investments and money deposited into the Escrow Account.
We express no opinion on whether any portion of the interest on the Bonds is excluded from adjusted current earnings when calculating corporate alternative minimum taxable income.
The District has not designated the Bonds as “Qualified Tax-Exempt Obligations” pursuant to Section 265(b) of the Code.
We are members of the bar of the State. The foregoing opinion is limited to matters involving laws of the State and federal laws of the United States (subject to current interpretations, if any, of the Supreme Court of the United States and the United States Court of Appeals for the Ninth Circuit), and we do not express any opinion as to the laws of any other jurisdictions.
This opinion letter is given as of the date hereof. We assume no obligation to update, revise or supplement this opinion letter to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. As bond counsel, we are passing upon only those matters set forth in this opinion letter and not upon the accuracy or completeness of any statements made in connection with any sale of the Bonds or upon any federal tax consequences arising from the receipt or accrual of interest on or the ownership of the Bonds except those specifically addressed above.
We bring to your attention the fact that the foregoing opinions are expressions of our professional judgment on the matters expressly addressed and do not constitute guarantees of result.
Respectfully submitted,
KOEGEN EDWARDS LLP
A-2
Washington State Auditor’s Office
Financial Statements and Federal Single Audit Report Washington State Auditor Brian Sonntag
May 7, 2012
Kent School District No. 415 Board of Directors King County Kent School District No. 415 Kent, Washington
Audit Period Report on Financial Statements and Federal Single Audit September 1, 2010 through August 31, 2011 Please find attached our report on Kent School District No. 415’s financial statements and compliance with federal laws and regulations.
Report No. 1007620 We are issuing this report in order to provide information on the District’s financial condition.
B-1 Sincerely,
2011
BRIAN SONNTAG, CGFM STATE AUDITOR AUDITED
FINANCIAL
Issue Date May 7, 2012
STATEMENTS
APPENDIX
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388 FAX (360) 753-0646 http://www.sao.wa.gov B Table of Contents Federal Summary
Kent School District No. 415 Kent School District No. 415 King County King County September 1, 2010 through August 31, 2011 September 1, 2010 through August 31, 2011
Federal Summary ...... 1 The results of our audit of Kent School District No. 415 are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards ...... 3 FINANCIAL STATEMENTS
Independent Auditor’s Report on Compliance with Requirements That Could Have a Direct An unqualified opinion was issued on the financial statements of the governmental activities and and Material Effect on Each Major Program and on Internal Control over Compliance in each major fund. Accordance with OMB Circular A-133 ...... 5
Internal Control Over Financial Reporting: Independent Auditor’s Report on Financial Statements ...... 7 Financial Section ...... 9 Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies.
Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. B-2 We noted no instances of noncompliance that were material to the financial statements of the District.
FEDERAL AWARDS
Internal Control Over Major Programs:
Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies.
Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses.
We issued an unqualified opinion on the District’s compliance with requirements applicable to each of its major federal programs.
We reported no findings that are required to be disclosed under section 510(a) of OMB Circular A-133.
______Washington State Auditor's Office 1 Identification of Major Programs: Independent Auditor’s Report on Internal The following were major programs during the period under audit: Control over Financial Reporting and on CFDA No. Program Title
Compliance and Other Matters in Accordance 84.410 Education Jobs Fund 84.010 Title I Cluster, Part A with Government Auditing Standards 84.027 Special Education Cluster - Grants to States (IDEA, Part B) 84.173 Special Education Cluster - Preschool Grants (IDEA Preschool)" Kent School District No. 415 84.389 ARRA - Title I Cluster, Part A (Recovery Act) 84.391 ARRA - Special Education Cluster, IDEA Part B (Recovery Act) King County 84.392 ARRA - Special Education Cluster, Preschool Grants (Recovery Act) September 1, 2010 through August 31, 2011
The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $893,198. Board of Directors Kent School District No. 415 The District did not qualify as a low-risk auditee under OMB Circular A-133. Kent, Washington
We have audited the financial statements of the governmental activities and each major fund of Kent School District No. 415, King County, Washington, as of and for the year ended August 31, 2011, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated February 17, 2012.
B-3 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.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit, we considered the District’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over financial reporting.
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.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.
______Washington State Auditor's Office Washington State Auditor's Office 2 3 COMPLIANCE AND OTHER MATTERS Independent Auditor’s Report on Compliance As part of obtaining reasonable assurance about whether the District’s financial statements are free of material misstatement, we performed tests of the District’s compliance with certain with Requirements That Could Have a Direct 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. and Material Effect on Each Major Program and 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. on Internal Control over Compliance in
The results of our tests disclosed no instances of noncompliance or other matters that are Accordance with OMB Circular A-133 required to be reported under Government Auditing Standards. Kent School District No. 415 This report is intended for the information and use of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public King County record and its distribution is not limited. It also serves to disseminate information to the public September 1, 2010 through August 31, 2011 as a reporting tool to help citizens assess government operations.
Board of Directors Kent School District No. 415 Kent, Washington
COMPLIANCE BRIAN SONNTAG, CGFM B-4 STATE AUDITOR We have audited the compliance of Kent School District No. 415, King County, Washington, with the types of compliance requirements described in the U.S. Office of Management and February 17, 2012 Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended August 31, 2011. The District’s major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the District’s management. Our responsibility is to express an opinion on the District’s compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the District’s compliance with those requirements.
In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended August 31, 2011.
______Washington State Auditor's Office Washington State Auditor's Office 4 5 INTERNAL CONTROL OVER COMPLIANCE Independent Auditor’s Report on Financial The management of the District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable Statements to federal programs. In planning and performing our audit, we considered the District’s internal control over compliance with the requirements that could have a direct and material effect on a Kent School District No. 415 major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance King County in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the September 1, 2010 through August 31, 2011 effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance. Board of Directors A deficiency in internal control over compliance exists when the design or operation of a control Kent School District No. 415 over compliance does not allow management or employees, in the normal course of performing Kent, Washington their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over We have audited the accompanying financial statements of the governmental activities and compliance, such that there is a reasonable possibility that material noncompliance with a type each major fund of Kent School District No. 415, King County, Washington, as of and for the of compliance requirement of a federal program will not be prevented, or detected and year ended August 31, 2011, which collectively comprise the District’s basic financial corrected, on a timely basis. statements as listed on page 9. These financial statements are the responsibility of the District’s management. Our responsibility is to express opinions on these financial statements Our consideration of internal control over compliance was for the limited purpose described in based on our audit. the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not We conducted our audit in accordance with auditing standards generally accepted in the United B-5 identify any deficiencies in internal control over compliance that we consider to be material States of America and the standards applicable to financial audits contained in Government weaknesses, as defined above. Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the This report is intended for the information of management, the Board of Directors, federal financial statements are free of material misstatement. An audit includes examining, on a test awarding agencies and pass-through entities. However, this report is a matter of public record basis, evidence supporting the amounts and disclosures in the financial statements. An audit and its distribution is not limited. It also serves to disseminate information to the public as a also includes assessing the accounting principles used and significant estimates made by reporting tool to help citizens assess government operations. management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of Kent School District No. 415, as of August 31, 2011, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America.
BRIAN SONNTAG, CGFM STATE AUDITOR In accordance with Government Auditing Standards, we have also issued our report on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and February 17, 2012 other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 10 through 17, budgetary comparison on pages 55 through 56 and information on postemployment benefits other than pensions on page 57 be presented to supplement the basic financial statements. Such information, although
______Washington State Auditor's Office Washington State Auditor's Office 6 7 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 Financial Section 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 Kent School District No. 415 consisted of inquiries of management about the methods of preparing the information and King County comparing the information for consistency with management’s responses to our inquiries, the September 1, 2010 through August 31, 2011 basic financial statements, and other knowledge we obtained during the 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 REQUIRED SUPPLEMENTARY INFORMATION an opinion or provide any assurance. Management’s Discussion and Analysis – 2011 Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the District’s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by BASIC FINANCIAL STATEMENTS U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial Statement of Net Assets – 2011 statements. Such information is the responsibility of management and was derived from and Statement of Activities – 2011 relates directly to the underlying accounting and other records used to prepare the financial Fund Balance Sheet – Governmental Funds – 2011 statements. The information has been subjected to the auditing procedures applied in the audit Reconciliation Balance Sheet/Statement of Net Assets – 2011 of the basic financial statements and certain additional procedures, including comparing and Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental reconciling such information directly to the underlying accounting and other records used to Funds – 2011 prepare the financial statements or to the financial statements themselves, and other additional Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund procedures in accordance with auditing standards generally accepted in the United States of Balance/Statement of Activities – 2011
B-6 America. In our opinion, the information is fairly stated in all material respects in relation to the Statement of Fiduciary Net Assets – Fiduciary Funds – 2011 basic financial statements taken as a whole. Statement of Changes in Fiduciary Net Assets – Fiduciary Funds – 2011 Notes to Basic Financial Statements – 2011
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule – General Fund – 2011 Budgetary Comparison Schedule – Special Revenue Fund (Associated Student Body BRIAN SONNTAG, CGFM Fund) – 2011 STATE AUDITOR Information on Post-Employment Benefits other than Pensions – 2011
February 17, 2012 SUPPLEMENTARY INFORMATION
Schedule of Expenditures of Federal Awards – 2011 Notes to the Schedule of Expenditures of Federal Awards – 2011
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Kent School District #415 ______Schedule of Expenditures of Federal Awards Fiscal Year Ending August 31, 2011
Federal Pass Other Expenditures Indirect Amt. Agency Through Federal Program Title CFDA # ID Direct Pass - Notes (included in District Name Agency Number Award Through Total Ref. Exp. Total) Prog. #
U. S. Dept of WA OSPI School Breakfast Program 10.553 N/A $1,069,623 $1,069,623 Agriculture National School Lunch Program WA OSPI 10.555 N/A $5,284,722 $5,284,722 Cash Assistance National School Lunch Program WA OSPI 10.555 N/A $572,044 $572,044 4 Non-Cash Assistance (Commodities) Summer Food Service Program for Children
Washington StateAuditor's Office WA OSPI 10.559 N/A $178,302 $178,302 Cash Assistance 8909 Summer Food Service Program for Children WA OSPI 10.559 N/A $1,268 $1,268 4 Non-Cash Assistance (Commodities) Office of State School & Roads - Grants to States 10.665 N/A $74,660 $74,660 2
58 Treasurer
Subtotal U.S. Dept of Agriculture $0 $7,180,619 $7,180,619
U. S. Dept of JROTC Program 12.999 N/A $74,053 $74,053 1 6900 6902 Defense
Subtotal U.S. Dept of Defense $74,053 $0 $74,053
Office of Institute of Secretary of Museum & Grants to States 45.310 10-SSS-c-003 $35,000 $35,000 State WA 7956 Library Srvs. State Library
Subtotal Institute of Museum & Library $0 $35,000 $35,000 Services
Kent School District #415 ______Schedule of Expenditures of Federal Awards Fiscal Year Ending August 31, 2011
Federal Pass Other Expenditures Indirect Amt. Agency Through Federal Program Title CFDA # ID Direct Pass - Notes (included in District Name Agency Number Award Through Total Ref. Exp. Total) Prog. #
U. S. Dept of Indian Education - Grants to LEA 84.060 S060A091032 $78,556 $78,556 6899 Education S215L060036- Fund for the Improvement of Education 84.215 09 $736,493 $736,493 7917-20
WA OSPI Title I Grants to Local Educational Agencies 84.010 200560 $3,507,785 $3,507,785 3, 5 $170,534 5150-59 Washington StateAuditor's Office 303729 2450 WA OSPI Special Education - Grants to States 84.027 $4,616,710 $4,616,710 3 337337 2452
WA OSPI Vocational Education - Basic Grants to States 84.048 1720425 $175,248 $175,248 3860
WA OSPI Special Education - Preschool Grants 84.173 365379 $117,774 $117,774 3 2451 59 Safe & Drug Free Schools & WA OSPI 84.186 950614 $20,304 $20,304 5 $398 5238 Communities - State Grants WA OSPI Education for Homeless Children and Youth 84.196 456091 $24,390 $24,390 5180 Twenty-First Century Community WA OSPI 84.287 993525 $198,505 $198,505 5 $4,194 5265 Learning Centers WA OSPI Education Technology State Grants 84.318 721775 $19,773 $19,773 5 $961 5226 WA OSPI Advanced Placement Program 84.330 887285 $10,998 $10,998 5104 401212 WA OSPI English Language Acquisition Grants 84.365 $782,816 $782,816 3, 5 $14,495 6418 6420 410458 WA OSPI Improving Teacher Quality State Grants 84.367 520078 $749,482 $749,482 5 $36,437 5213-14 WA OSPI ARRA - Education Technology State Grants 84.386 724368 $85,934 $85,934 5, 6 $4,177 1991 WA OSPI ARRA - Ed for Homeless Children and Youth 84.387 457251 $25,390 $25,390 5, 6 $1,234 1891 WA OSPI ARRA - Title I Grants to LEA 84.389 240567 $2,145,086 $2,145,086 5, 6 $104,284 1192-94 WA OSPI ARRA - Special Education - Grants to States 84.391 310366 $3,617,980 $3,617,980 5, 6 $175,890 1491 WA OSPI ARRA - Special Education - Preschool Grants 84.392 370528 $87,453 $87,453 5, 6 $4,251 1492 WA OSPI Education Jobs Fund 84.410 960057 $5,242,217 $5,242,217 6 1350 U of CA, National Writing Project 84.928 N/A $13,230 $13,230 7975 Berkley
Subtotal U.S. Dept of Education $815,049 $21,441,075 $22,256,124 B-32
Kent School District #415 ______Schedule of Expenditures of Federal Awards Fiscal Year Ending August 31, 2011
Federal Pass Other Expenditures Indirect Amt. Agency Through Federal Program Title CFDA # ID Direct Pass - Notes (included in District Name Agency Number Award Through Total Ref. Exp. Total) Prog. #
U. S. Dept WA DSHS Health / Refugee and Entrant Assistance Schools Out 93.576 N/A $110,000 $110,000 7914 Human Washington Discretionary Grants Services Seattle-King County Dept. ARRA - Prevention and Wellness Communities D40530D 93.724 $49,458 $49,458 5, 6 $2,404 1910 1920 of Public Putting Prevention to Work (CPPW) 06985 Health Washington StateAuditor's Office Puget Sound Block Grants for Prevention and Treatment of 93.959 06913 $68,000 $68,000 7994 ESD Substance Abuse
Subtotal U.S. Dept Health/Human Services $0 $227,458 $227,458 60
Total 10-11 Total Federal Awards Expended $889,102 $28,884,152 $29,773,254 $519,259 Federal Indirects ______Kent School District #415 Notes to the Schedule of Expenditures of Federal Awards Year Ending 8-31-11
NOTE 1 - BASIS OF ACCOUNTING The Schedule of Expenditures of Federal Awards is prepared on the same basis of accounting as the district's financial statements. The Kent School District uses the modified accrual basis of accounting. Expenditures represent only the federally funded portions of the program. District records should be consulted to determine amounts expended or matched from non-federal sources.
NOTE 2 - UNIT COST CONTRACTS Under certain programs, Kent School District receives a fixed amount for the activity, regardless of the district's expenditures. Expenditures for these programs are listed as the amount received from the grantor. Washington StateAuditor's Office NOTE 3 - SCHOOLWIDE PROGRAMS Kent School District operates a "schoolwide program" in nineteen elementary buildings. Using federal funding, schoolwide programs are designed to upgrade an entire educational program within a school for all students, rather than limit services to certain targeted students. The following federal program amounts were expended by the Kent School District in schoolwide programs:
61 Special Ed IDEA-B & Section 619 (84.027, 84.173) $2,220,716; Title I-A (84.010) $2,495,001; Title III (84.365) $7,664; ARRA Title I-A (84.389) $1,045,770; ARRA Special Ed IDEA-B & Section 619 (84.391, 84.392) $350,261
NOTE 4 - NON-CASH AWARDS FOOD COMMODITIES The amount of food commodities reported on the schedule is the market value of commodities distributed by the Kent School District during the current year. The value is determined by OSPI.
NOTE 5 - FEDERAL INDIRECT RATE The Kent School District used the federal restricted rate of 5.11%, except where limited by program.
NOTE 6 - American Recovery and Reinvestment Act (ARRA) Of the amount shown for this program, 100% was paid from ARRA funds. ABOUT THE STATE AUDITOR'S OFFICE
The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms.
Our mission is to work with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws.
The State Auditor's Office employees are located around the state to deliver services effectively and efficiently.
Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. B-33 The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service.
We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program.
State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Performance Audit Larisa Benson Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900
Website www.sao.wa.gov Subscription Service https://www.sao.wa.gov/EN/News/Subscriptions/
(SAO FACTS.DOC - Rev. 09/11)
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APPENDIX C BOOK-ENTRY SYSTEM
BOOK-ENTRY SYSTEM The information in this section concerning the Depository Trust Company, New York, New York (“DTC”) and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. Beneficial Owners (as hereinafter defined) should therefore confirm the following with DTC or the Participants (as hereinafter defined). For purposes of this section, references to the Issuer mean the District, and references to Agent mean the Registrar. For the purposes of this Official Statement, the term “Beneficial Owner” includes the person for whom the Participant acquires an interest in the Bonds. 1. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds in the principal amount of such maturity and will be deposited with DTC. 2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing services. 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, and trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. 3. Purchases of the Bonds under the DTC system, in denominations of $5,000 or any integral multiple thereof, 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 the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 4. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. When notices are given, they will be sent by the Registrar to DTC only. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct
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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. 6. Redemption notices will be sent to DTC. If less than all of the Bonds 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. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Registrar, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Registrar, or the 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 any other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the District and the Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of the book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates 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.
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APPENDIX D WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM
WASHINGTON STATE SCHOOL DISTRICT CREDIT ENHANCEMENT PROGRAM
The following information has been furnished by the state of Washington for use in this Official Statement. The issuer of the Bonds offered pursuant to this Official Statement (the “Offered Bonds”) makes no representation as to the accuracy or the completeness of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. Definitions “Act” means the Washington State School District Credit Enhancement Program Act, chapter 39.98 Revised Code of Washington. “Program” means the Washington State School District Credit Enhancement Program established by the Act. “Program Bond” means any voted general obligation bond issued by a school district, holding a certificate issued pursuant to the Act for such a bond. “State” means the State of Washington. Program Provisions Article VIII, section 1(e) of the Constitution of the State and the Act allow the State to guarantee any voted general obligation bonds issued by a school district. Payment of the principal of and interest on Program Bonds when due is guaranteed by the full faith, credit and taxing power of the State under the provisions of the Act. The Act provides as follows: The full faith, credit, and taxing power of the State is pledged to guarantee full and timely payment of the principal of and interest on Program Bonds as such payments become due. However, in the event of any acceleration of the due date of the principal by reason of mandatory redemption or acceleration resulting from default, the payments guaranteed shall be made in the amounts and at the times as payments of principal would have been due had there not been any acceleration. The State guarantee does not extend to the payment of any redemption premium. The Act further provides that the State pledges to and agrees with the owners of any Program Bonds that the State will not alter, impair, or limit the rights vested by the Program with respect to the Program Bonds until the Program Bonds, together with applicable interest, are fully paid and discharged. However, an alteration, impairment, or limitation of such rights is not precluded if full provision is made by law for the payment of the Program Bonds. Program Procedures In accordance with applicable law, the County Assessor for each school district with outstanding, unpaid Program Bonds is required to levy property taxes approved by the voters for repayment of the Program Bonds. In accordance with applicable law, the County Treasurer for each school district with outstanding, unpaid Program Bonds is required to collect property taxes approved by the voters for repayment of the Program Bonds. The County Treasurer is required to transfer money sufficient for each scheduled debt service payment to the paying agent on or before any principal or interest payment date for the Program Bonds. A County Treasurer who is unable to transfer to the paying agent funds required to make any scheduled debt service payments on the Program Bonds on or prior to the payment date, due to the lack of adequate funds, is required to immediately provide notice to the State Treasurer and to the paying agent. If sufficient funds are not transferred to the paying agent at the time required to make a scheduled debt service payment on the Program Bonds, the paying agent is required to immediately notify the State Treasurer. Pursuant to the Act, the State legislature is required to appropriate, in each and every biennial appropriations act, such amount as may be required to make timely payment on the Program Bonds. If sufficient money to make any scheduled debt service payment on the Program Bonds has not been transferred to the paying agent in a timely manner, the paying agent is required to make such scheduled debt service payment and the State Treasurer is required to transfer sufficient money to the paying agent for such payment.
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Each school district is responsible for paying in full the principal of and interest on its Program Bonds. The State Treasurer is required to recover from the school district any funds paid by the State on behalf of that school district under the Program. The State Treasurer will charge interest in connection with the recovery of funds under the Act. In addition to charging interest, the State Treasurer may impose a penalty on a school district for which the State made a payment under the Program, which penalty may not be more than five percent of the amount paid by the State pursuant to its guarantee for each instance in which a payment by the State is made. A payment by the State Treasurer discharges the obligation of the school district to its Program Bond owners for the payment, but does not retire any Program Bond that has matured. The terms of that Program Bond remain in effect until the State is repaid. Any such payment by the State transfers the rights represented by the general obligation of the school district from the Program Bond owners to the State. If the State has made all or part of a debt service payment on behalf of a school district that has issued Program Bonds, the State Treasurer may (a) direct the school district and the County Treasurer to restructure and revise, to the extent permitted by law, the collection of excess levy taxes for the payment of Program Bonds on which the State Treasurer has made payments under the Act to the extent necessary to obtain repayment to the State Treasurer; and (b) require, to the extent permitted by law, that the proceeds of such taxes be applied to the school district’s obligations to the State if all outstanding obligations of the school district payable from such taxes are fully paid or their payment is fully provided for. Outstanding Certificates of Eligibility and Outstanding Program Bonds As of August 7, 2012, the State has guaranteed the following under the Act (not including the Offered Bonds):
Number of school districts with Certificates of Eligibility 185 Number of Program Bond issues guaranteed 504 Aggregate total principal amount outstanding of Program Bonds guaranteed $8,447,474,542.69 Program Contact Person Requests for information regarding the Program may be directed to: Office of the State Treasurer Attn: Deputy Treasurer Debt Management Division Legislative Office Building 2nd Floor P.O. Box 40200 Olympia, WA 98504 0200 Phone: (360) 902 9050 Fax: (360) 902 9045 State of Washington - Financial and Operating Information The State’s most recent audited financial statements and the financial and operating information relating to the State included in the most recent official statement for the State’s general obligation debt are on file with the Municipal Securities Rulemaking Board (the “MSRB”), in an electronic format as prescribed by the MSRB, and are incorporated by this reference in this Official Statement. State of Washington - Continuing Disclosure The State has undertaken (the “Undertaking”) to provide (1) not later than seven months after the end of each fiscal year in each fiscal year that the Offered Bonds are outstanding, either directly or through a designated agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB, (a) audited financial statements of the State for such fiscal year prepared (except as noted therein) in accordance with generally accepted accounting principles as promulgated by the Government Accounting Standards Board, as such principles may be changed from time to time, except that if the audited financial statements are not available by such date, unaudited financial statements in a format similar to the audited financial statements most recently prepared for the State shall be provided, and the State’s audited financial statements shall be provided when and if they become available; and (b) the financial and operating information relating to the State included in most recent official statement for the State’s general obligation debt; and (2) to the MSRB, in a timely manner, notice of its failure to provide the foregoing in such manner. The Undertaking is subject to amendment or termination under the circumstances and in the manner permitted by SEC Rule 15c2-12.
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The right to enforce the provisions of the Undertaking shall be limited to a right to obtain specific performance of the State’s obligations thereunder, and any failure by the State to comply with the provisions of the Undertaking shall not be a default with respect to the Offered Bonds. The Undertaking inures to the benefit of the State and the issuer, any underwriter and any holder of the Offered Bonds, and does not inure to the benefit of or create any rights in any other person.
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