7095000* Oley Valley School District

This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other changes without notice. The Bonds may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the applicable securities laws of any such jurisdiction. The School District has deemed this Preliminary Official Statement to be final for purposes of Rule 15c2-12(b)(1) of the Securities and Exchange Commission, except for certain information which has been omitted in accordance with such Rule and which will be provided in the final Official Statement. *Preliminary, subject tochange. Dated: ______,2017 or about______,2017. the School District in connection to with the issuance of the Advisor Bonds. Financial It is expected that the as Bonds will be available for servesdelivery through DTC in New Pennsylvania, York,Reading, LLC, New York,S&Lutions Financial on Pennsylvania. Reading, of Solicitor, District School Fegley, & Mancuso Brumbach, of Esquire, Stott, M. John by District School the for upon passed be will matters the Certain Bonds. the of to delivery upon furnished Counsel be to District, School Bond Pennsylvania, Reading, of PC, Lee, and Stevens of opinion legal approving the to subject and notice, without offer the of modification or including the Appendices heretotoobtaininformationessential tomakinganinformedinvestmentdecision. concurrently withthedeliveryofBonds______(“___”). issuing the2017Bonds. of costs the of payment the (ii) and “2012 ABonds”); (the 2012 Series Aof Bonds, Obligation General District’soutstanding School the of portion outstanding the on September13,2017. Department of Community and Economic Development, and pursuant to a Resolution which was adopted by the Board of School Directors of the School District §8001 Pa.C.S. 53 amended, as 177), (P.L. No. 1996 1158, 19, December of Act the by codified as such BondisregisteredasoftheRecordDatewithrespecttotheparticularinterestpaymentdate(See“THEBONDS,”herein). (or anysuccessorpayingagentatitsdesignatedoffice(s))andinterestonsuchBondwillbepayablebycheckmadeoutmailedtotheperson(s)inwhosename(s) office trust corporate specified Paying its the at to Agent Bond such of surrender upon due, when payable, be will Bonds the any,of if each premium, on redemption and of principal the discontinued, ever is Bonds the for System Only Book-Entry the of use the If Bonds. the of Owners Beneficial the to disbursement subsequent any,and if premium, for Participants redemption DTC to payments such of, remit turn in will Paying principal DTC the and by Agent, DTC to the directly made be will of payment, for due when payments Bonds, the on interest Bonds, the of owner registered the is DTC, for nominee as Co., & Cede as long So Bonds. the for made or provided for. The School District has appointed Manufacturers and Traders Trust Company (the “Paying Agent”), as paying agent and or,Bond such of maturity,to prior redemption sinking to subject duly is been Bond has such price if redemption the of payment if thereof, redemption for fund fixed date the until depository POWERS OF THE SCHOOL DISTRICT”herein). property within the School District, within the limits provided by law as to rate or amount for such purpose. irrevocably has pledged its full faith, credit and all available taxing power, which taxing power presently includes the power to levy ad valorem taxes on all taxable District School the payment real and appropriation budgeting, such for and Bonds, the in stated manner the in and place the at dates, the on thereon interest the and Bond punctually pay or cause to be paid from the sinking fund established under the Resolution or any other of its legally available revenues or funds the principal of every in its budget in each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year and will duly and be subjecttoregistrationoftransfer, exchangeandpaymentasdescribedherein. will Bonds the form, certificated in issued ever are Bonds “BOOK-ENTRYherein, See described circumstances Bonds. ONLYthe the under If, herein. SYSTEM” on interest and of principal of payment receive to Participant DTC a through, acts or is, who dealer a or broker a with account an maintain must purchaser that Bond, act through,DTCParticipants. a The purchasersoftheBondswillnotreceivephysicaldeliveryBonds.Forsolongasanypurchaserisbeneficialowner or are, who dealers and brokers its through DTC by maintained system only book-entry the under only thereof multiple integral any or $5,000 of denominations in of nominee and owner registered the as Co., Depository & The TrustNew (“DTC”), Company York,New York. acquired be may Bonds the of ownership Beneficial (the “Bonds” or the “2017 Bonds”); in registered form in denominations of $5,000 or any integral multiple thereof. The Bonds will be registered in the name of Cede Interest Due: Dated: exempt obligation”assuchphraseisdefinedintheCode. of theBondsshallbesubjecttoStateandlocaltaxationwithinCommonwealthPennsylvania. the Bonds or the interest thereon. Under the laws of the Commonwealth of Pennsylvania, profits, gains or income derived from the sale, exchange or other disposition Commonwealth ofPennsylvania,butthisexemptiondoesnotextendtogift,estate,successionorinheritancetaxesanyotherleviedassesseddirectly on purchasers The Bonds are offered when, as and if issued, by the School District and received by RBC Capital Markets, LLC (the “Underwriter”), subject to withdrawal Statement Official entire the read must Investors issue. this of summary a not is It only. reference quick for information certain contains page cover This Bond Insurance: of portion a of refunding advance an (i) toward: applied be will Bonds 2017 the of sale and issuance the from District School the by derived be to proceeds The Authorization for Issuance: The Bondsare subjecttoredemption prior tomaturityasdescribedherein. Interest on each of the Bonds is payable initially on May 15, 2018 and thereafter semiannually on May 15 and November 15 of each year until the maturity date The Bonds are general obligations of the School District, payable from its tax and other general revenues. The School District has covenanted that it will provide The Oley Valley School District (the “School District”) will issue its General Obligation Bonds, Series of 2017 in the aggregate principal amount of $7,095,000 tax “qualified a as Bonds the of each qualify to Code the of 265(b)(3)(B) Section of purposes for and under determined and designated has District School The Under thelawsofCommonwealthPennsylvania,Bondsandinterest ontheBondsshallbefree from taxationforStateandlocalpurposeswithinthe In theopinionofStevens&Lee,P.C., Reading,Pennsylvania,BondCounsel,assumingcontinuingcompliancebytheSchoolDistrictwithcertaincovenants Date ofDelivery May 15andNovember The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy issued PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER 28,2017 MATURITIES, AMOUNTS, RATES AND INITIAL REOFFERINGPRICES/YIELDS The Bonds are being issued in accordance with the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, General ObligationBonds,Seriesof2017 (Berks County, Pennsylvania) Oley Valley SchoolDistrict {As shownoninsidecover} {INSURER LOGO} $7,095,000* et seq Principal Due: (See “SECURITY FOR THE BONDS”and“TAXING ., (the “Debt Act”) with approval of the Pennsylvania the of approval with Act”) “Debt (the ., First Interest Payment: May 15,asshownoninsidefrontcover RATINGS: See“RATINGS” herein May 15,2018 $7,095,000* Oley Valley School District (Berks County, Pennsylvania) General Obligation Bonds, Series of 2017

Dated: Date of Delivery Principal Due: May 15, as shown below Interest Due: May 15 and November 15 First Interest Payment: May 15, 2018

$7,095,000* General Obligation Bonds, Series of 2017

Due Principal Interest (May 15) Amount Rate Yield Price 2018 $ % % 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

$_____ Term Bonds due May 15, ___ @ ___% Priced to Yield ___%

*Preliminary, subject to change.

Oley Valley School District Berks County, Pennsylvania

BOARD OF SCHOOL DIRECTORS

Stephen S. Burns ...... President David R. Pollock, Jr...... Vice President Maria H. Jones ...... Secretary* Carl J. Kubitz ...... Treasurer Joanne L. Ewing ...... Member Christopher Hannum ...... Member Robert A. Heckman ...... Member Darrell L. Markley ...... Member Ralph Richard ...... Member Dawn Zackon ...... Member ______

*Non-Member

SUPERINTENDENT DR. TRACY SHANK. ED.D.

SCHOOL DISTRICT SOLICITOR JOHN M. STOTT, ESQUIRE BRUMBACH, MANCUSO & FEGLEY Reading, Pennsylvania

BOND COUNSEL STEVENS & LEE, P.C. Reading, Pennsylvania

FINANCIAL ADVISOR FINANCIAL S&LUTIONS LLC Reading, Pennsylvania

UNDERWRITER RBC CAPITAL MARKETS, LLC Lancaster, Pennsylvania

LIMITED SCOPE UNDERWRITER’S COUNSEL ECKERT SEAMANS CHERIN & MELLOT LLC Harrisburg, Pennsylvania

PAYING AGENT MANUFACTURERS AND TRADERS TRUST COMPANY Harrisburg, Pennsylvania

SCHOOL DISTRICT ADDRESS 17 Jefferson Street Oley, Pennsylvania 19547

No dealer, broker or any other person has been authorized by the School District to give any information or make any representation, other than those contained in this Official Statement, and if given or made, such other information and representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources which are believed to be reliable, but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. No representation is made by RBC Capital Markets, LLC as the Underwriter (the “Underwriter”), as to the accuracy or completeness of the information obtained from either the School District or from sources other than the School District. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement, nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof.

The quotations from and summaries and explanation of provisions of laws and documents contained herein, including the cover page, inside cover page and Appendices attached hereto, do not purport to be complete. Reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact.

______. (“___”) makes no representation regarding the Bonds or the advisability of investing in the Bonds, In addition, ___ has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding ___ supplied by ___ and presented under the heading “Bond Insurance” and “Appendix D – Specimen Municipal Bond Insurance Policy”.

The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing the Bonds into investment trust(s)) and others at prices lower than the public offering prices stated on the inside cover hereof.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME, WITHOUT PRIOR NOTICE.

The School District deems this Preliminary Official Statement to be final for the purpose of SEC Rule 15c2-12(b)(3).

{REMAINDER OF PAGE LEFT INTENTIONALLY BLANK}

TABLE OF CONTENTS

INTRODUCTION ...... 1

PURPOSE OF THE ISSUE ...... 1

SOURCES AND USES OF FUNDS ...... 1 Escrow Verification ...... 2 THE BONDS ...... 2 Description ...... 2 Transfer, Exchange and Registration ...... 2 SECURITY FOR THE BONDS ...... 3 Pledge of the School District’s Full Faith, Credit and Taxing Power ...... 3 Commonwealth Enforcement of Debt Service Payments ...... 3 Pennsylvania Budget Adoption ...... 3 ACT 85 of 2016 ...... 4 REDEMPTION OF THE BONDS ...... 5 Optional Redemption ...... 5 Mandatory Redemption ...... 5 Notice of Redemption ...... 5 Manner of Redemption ...... 6 BOOK-ENTRY ONLY SYSTEM ...... 6

BOND INSURANCE ...... 8 BOND INSURANCE RISK FACTORS……………………………………………………………………………………………………………8 THE SCHOOL DISTRICT ...... 9 Introduction ...... 9 Administration ...... 9 School Facilities ...... 10 Enrollment Trends ...... 10 SCHOOL DISTRICT FINANCES ...... 10 Introduction ...... 10 Financial Reporting ...... 11 Budgeting Process in School Districts under the Taxpayer Relief Act ...... 11 Summary and Discussion of Financial Results...... 13 TAXING POWERS OF THE SCHOOL DISTRICT ...... 16 General ...... 16 LEGISLATION AFFECTING LOCAL TAXING POWERS OF SCHOOL DISTRICTS ...... 16 State Law Authorizing Replacement of the School District's Occupation Tax with an Increase in the Local Earned Income Tax ...... 17 Act 48 of 2003 ...... 18 Tax Levy Trends ...... 18 Other Taxes ...... 22 DEBT AND DEBT LIMITS ...... 23 Debt Statement ...... 23 Debt Limit and Remaining Borrowing Capacity ...... 24 The Swap - Outstanding Interest Rate Swap Agreement ...... 25 Future Financing ...... 25 LABOR RELATIONS ...... 25 School District Employees ...... 25 SCHOOL DISTRICT PENSION PROGRAM ...... 26 Pension Program ...... 26 Recent Events Regarding District Contributions ...... 27 Other Post-Employment Benefits ...... 28

LITIGATION ...... 28

DEFAULTS AND REMEDIES ...... 28

TAX EXEMPTION ...... 28 Federal Tax Laws ...... 28 Tax Exemption ...... 29 Regulations, Future Legislation ...... 30 CONTINUING DISCLOSURE UNDERTAKING ...... 30

RATINGS ...... 31 UNDERWRITING ...... 31 LEGAL OPINIONS ...... 32 CERTAIN RELATIONSHIPS AMONG THE PARTIES………………………………………………………………………………………32 FINANCIAL ADVISOR ...... 32

MISCELLANEOUS ...... 33

APPENDIX A - DEMOGRAPHIC AND ECONOMIC INFORMATION RELATING TO THE OLEY VALLEY SCHOOL DISTRICT

APPENDIX B - FORM OF OPINION OF BOND COUNSEL

APPENDIX C - AUDITED FINANCIAL REPORT (for fiscal year ended June 30, 2016) APPENDIX D - SPECIMEN MUNICIPAL BOND INSURANCE POLICY

APPENDIX E - PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT

iii

$7,095,000* Oley Valley School District (Berks County, Pennsylvania) General Obligation Bonds, Series of 2017

INTRODUCTION

This Official Statement, including the cover and inside cover pages hereof and Appendices hereto, is furnished by Oley Valley School District, Berks County, Pennsylvania (the “School District”), in connection with the offering of its $7,095,000* aggregate principal amount of General Obligation Bonds, Series of 2017 (the “2017 Bonds”) dated as of the date of their delivery. The Bonds are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on September 13, 2017 (the “Resolution”), and pursuant to the Local Government Unit Debt Act, 53 Pa. C.S. Chs. 80-82 (the “Debt Act”), of the Commonwealth of Pennsylvania (the “Commonwealth”).

PURPOSE OF THE ISSUE

The proceeds to be derived by the School District from the issuance and sale of the 2017 Bonds will be applied toward: (i) the advance refunding of a portion of the School District’s outstanding General Obligation Bonds, Series A of 2012 (the “Refunded 2012 A Bonds”); and (ii) the payment of the costs of issuing the 2017 Bonds.3

A portion of the proceeds of the Bonds will be deposited in escrow pursuant to the terms of an escrow agreement (the “2012 A Bonds Escrow Agreement”), to be executed by and between the School District and Manufacturers and Traders Trust Company, as escrow agent (the “2012 A Bonds Escrow Agent”), in that such proceeds of the Bonds, together with interest to be earned thereon (if any), will be held by the 2012 A Bonds Escrow Agent in an escrow account and irrevocably pledged for payment of the principal and redemption price of, and interest on, the Refunded 2012 A Bonds on May 15, 2019. Upon deposit of the necessary funds with the 2012 A Bonds Escrow Agent, the Refunded 2012 A Bonds will be deemed no longer outstanding. The portion of the proceeds of the Bonds that will be deposited pursuant to the 2012 A Bonds Escrow Agreement will be invested in United States Government Obligations and/or held in cash. The School District is undertaking the advance refunding of the Refunded 2012 A Bonds for debt service savings. See also “Escrow Verification” below in this Official Statement.

SOURCES AND USES OF FUNDS

2017 BONDS Sources of Funds: Par Amount of Bonds $ Plus Net Original Issue Premium (Discount) Total Sources

Uses of Funds: Refund the Refunded 2012 A Bonds $ Issuance Costs (1) Additional Proceeds Total Uses $

(1) Includes legal, printing, financial advisory, underwriter’s discount, verification agent, escrow agent, rating agency fee and other amounts incurred in connection with the issuance of the Bonds.

*Preliminary, subject to change.

Escrow Verification

The accuracy of the mathematical computations supporting the adequacy of the maturing principal amounts of, and interest earned on, the United States Treasury Obligations deposited pursuant to the escrow agreement to pay the principal of, and interest and premium, if any, when due on the Refunded 2012 A Bonds will be verified by Griffin Financial Group LLC, as a condition to the delivery of the Bonds. Griffin Financial Group LLC is a FINRA licensed investment bank affiliated with Stevens & Lee, P.C. and Financial S&Lutions LLC.

THE BONDS

Description

The Bonds shall bear interest from and including the Dated Date thereof at the rates set forth on the inside cover page hereof, payable semi-annually on May 15 and November 15 (each an “Interest Payment Date”) of each year, commencing May 15, 2018 (until maturity or prior redemption), and will mature on the dates and in the amounts set forth on the inside cover page of this Official Statement. The Bonds when issued will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Bonds. While the Bonds are in the Book-Entry-Only System, references to the “owner” or the “registered owner” as described herein are to Cede & Co., as registered owner for DTC. Each beneficial owner of a Bond may desire to make arrangements with a DTC Participant to receive notices or communications with respect to matters described herein. See “BOOK-ENTRY-ONLY SYSTEM” herein.

The Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. While all of the Bonds are held in book-entry only form, payments thereon shall be made to Cede & Co., as holder thereof. See “BOOK-ENTRY ONLY SYSTEM” herein. At all other times, the principal of the Bonds, and the premium, if any, payable upon redemption, are payable at the designated corporate trust office of the Paying Agent, and the interest thereon is payable by check mailed by the Paying Agent on each Interest Payment Date to the persons who were the registered owners of the Bonds on the registration books maintained by the Paying Agent, on the fifteenth day (whether or not a business day) immediately preceding such interest payment date (a “Regular Record Date”), irrespective of any transfer or exchange of any Bond subsequent to such Regular Record Date and prior to such Interest Payment Date, unless the School District defaults in the payment of interest due on such interest payment date. In the event of any such default, any defaulted interest will be payable to the persons in whose name the Bonds are registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Paying Agent to the registered owners of the Bonds not fewer than ten (10) business days preceding such special record date. Such notice shall be mailed to the persons in whose names the Bonds are registered at the close of business on the fifth (5) day preceding the date of mailing.

Transfer, Exchange and Registration

Subject to the provisions described below under “BOOK-ENTRY ONLY SYSTEM,” the Bonds may be transferred upon the registration books upon delivery of such Bonds to the Paying Agent, accompanied by a written instrument or instruments of transfer in form satisfactory to the Paying Agent. No transfer of any Bond will be effective until entered on the registration books.

The School District and the Paying Agent shall not be required to issue or to register the transfer of or exchange any Bonds then considered for redemption during a period beginning at the close of business on the fifteenth (15th) day next preceding any date of selection of Bonds to be redeemed and ending at the close of business on the day of mailing of the applicable notice of redemption, or to register the transfer of or exchange any portion of any Bond selected for redemption, until after the redemption date. Bonds may be exchanged for a like aggregate amount of Bonds of other authorized denominations, of the same maturity.

Bonds are transferable or exchangeable by the registered owners thereof upon surrender of Bonds to the Paying Agent, at its designated corporate trust office, accompanied by a written instrument or instruments in form, with instructions, and with guaranty of signature satisfactory to the Paying Agent, duly executed by the registered owner of such Bond or his attorney-in-fact or legal representative. The Paying Agent shall enter any transfer of

2 ownership of or exchange of Bonds in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered Bond or Bonds of authorized denominations of the same maturity for the aggregate principal amount that the registered owner is entitled to receive. The School District and the Paying Agent may deem and treat the registered owner of any Bond as the absolute owner thereof (whether or not a Bond shall be overdue) for the purpose of receiving payment of or on account of principal, premium, if any, and interest due and for all purposes, and the Paying Agent shall not be affected by any notice to the contrary.

SECURITY FOR THE BONDS

Pledge of the School District’s Full Faith, Credit and Taxing Power

The Bonds will be general obligations of the School District, payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, as hereinafter defined, or any other of its revenues or funds, the principal of each of the Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and all available taxing power, within the limits provided by law. (See “SCHOOL DISTRICT FINANCES” and “TAXING POWERS OF THE SCHOOL DISTRICT” herein). The Debt Act presently provides for enforcement of debt service payments as hereinafter described (see “Defaults and Remedies” herein), and the Pennsylvania Public School Code of 1949, as amended, presently provides for the withholding and application of Commonwealth subsidies in the event of failure to pay debt service (see “Commonwealth Enforcement of Debt Service Payments” below).

Commonwealth Enforcement of Debt Service Payments

Section 633 of the Pennsylvania Public School Code of 1949, as amended (the “Public School Code”), presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness at date of maturity or date of mandatory redemption or on any sinking fund deposit date, or any interest due on such indebtedness on any interest payment date or on any sinking fund deposit date, in accordance with the schedule under which the notes or bonds were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any Commonwealth appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, or sinking fund deposit due by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depository for such bond or note issue. These withholding provisions are not part of any contract with the holders of the Bonds, and may be amended or repealed by future legislation.

There can be no assurance, however, that any payments pursuant to this withholding provision will be made by the date on which such payments are due to the Bondholders. The effectiveness of Section 633 of the Public School Code may be limited by the application of other withholding provisions contained in the Public School Code, such as provisions for withholding and paying over of appropriations for payment of unpaid teachers’ salaries. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the enforcement of creditors’ rights generally.

Pennsylvania Budget Adoption

Over the past several years the Commonwealth of Pennsylvania has, from time to time, started its fiscal year without a fully adopted state budget. In the state’s 2015-16 fiscal year, a final budget was not enacted until 270 days following the beginning of the fiscal year on March 27, 2016 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on March 17, 2016.

For the 2016-17 fiscal year, the state budget became law, known as Act 16A of 2016, on July 12, 2016 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on July 1, 2016. On

July 13, 2016, the General Assembly adopted and Governor signed into law additional tax and revenue package, known as Act 85 of 2016, which was needed to balance the 2016-17 state budget.

For the current 2017-18 fiscal year, the state budget became law, known as Act 1A of 2017, on July 11, 2017 when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on June 30, 2017. As of the date of this Official Statement, the General Assembly has not adopted any further legislation that would provide the revenue that would be needed to fund the balance of the 2017-18 state budget. There can be no certainty of when, or if, the additional revenue legislation will be adopted by the General Assembly and when, or if, it will be signed or vetoed by the Governor.

During a state budget impasse, school districts in Pennsylvania cannot be certain that state subsidies and revenues owed them from the Commonwealth will become available. This includes many of the major state subsidies, and overall revenues, that a Pennsylvania school district receives including basic education funding, special education funding, PlanCon reimbursements, and certain block grants, among many others. Future budget impasses may affect the timeliness or amount of payments by the Commonwealth under the withholding provisions of Section 633 of the Public School Code, however recent legislation included in Act 85 of 2016 has attempted to address the timeliness of the withholding provisions of Section 633 of the Public School Code during any future budget impasses. See “Act 85 of 2016” hereinafter.

Act 85 of 2016

On July 13, 2016, the Governor of the Commonwealth signed into law Act No. 85 of 2016, (P.L. 664, No. 85) (“Act 85 of 2016”), an amendment to the Act of April 9, 1929 (P.L. 343, No. 176), known as the Fiscal Code (“Fiscal Code”). Act 85 of 2016 adds to the Fiscal Code Article XVII-E.4, entitled “School District Intercepts for the Payment of Debt Service During Budget Impasse”, which provides for intercept of subsidy payments by the Pennsylvania Department of Education (“PDE”) to a school district subject to an intercept statute or an intercept agreement in the event of a Commonwealth budget impasse in any fiscal year.

Act 85 of 2016 includes in the definition of “intercept statutes” Section 633 of the Public School Code. The School District's general obligation bonds, including the Bonds, are subject to Section 633 of the Public School Code.

Act 85 of 2016 provides that the amounts that may be necessary for PDE to comply with the provisions of the applicable intercept statute or intercept agreement “shall be appropriated” to PDE from the General Fund of the Commonwealth after PDE submits justification to the majority and minority chairs of the appropriations committees of the Pennsylvania Senate and House of Representatives allowing ten (10) calendar days for their review and comment, if, in any fiscal year:

(1) annual appropriations for payment of Commonwealth money to school districts have not been enacted by July 1 and continue not to be enacted when a payment is due;

(2) the conditions under which PDE is required to comply with an intercept statute or intercept agreement have occurred, thereby requiring PDE to withhold payments which would otherwise be due to school districts; and

(3) the Secretary of PDE, in consultation with the Secretary of the Budget, determines that there are no payments or allocations due to be paid to the applicable school districts from which PDE may withhold money as required by the applicable intercept statute or intercept agreement.

The necessary amounts shall be appropriated and paid to the paying agent on the day the scheduled payment for principal and interest is due on the expiration of the tenth (10th) day following submission of the justification described above to the majority and minority chairs of the appropriations committees, who may comment on the justification but cannot prevent the effectiveness of the appropriation.

The total of all intercept payments under Article XVII-E.4 for a school district may not exceed 50% of the total nonfederal general fund subsidy payments made to that school district in the prior fiscal year.

Act 85 of 2016 requires that each school district with bonds or notes subject to an intercept statute or intercept agreement must deliver to PDE, in such format as PDE may direct, a copy of the final Official Statement for the relevant bonds or notes or the loan documents relating to the obligations, within thirty (30) days of receipt of the proceeds of the obligations. The School District intends on submitting this information with respect to the Bonds to PDE within the prescribed timeframe following the issuance of the Bonds. Act 85 of 2016 provides that any obligation for which PDE does not receive the required documents shall not be subject to the applicable intercept statute or intercept agreement.

The provisions of Act 85 of 2016 are not part of any contract with the holders of the Bonds and may be amended or repealed by future legislation.

REDEMPTION OF THE BONDS

Optional Redemption

The Bonds stated to mature on or after May 15, 20__, shall be subject to redemption prior to maturity, at the option of the School District, as a whole, or from time to time, in part (and if in part, in any order of maturity as selected by the School District and within a maturity by lot), on ______15, 20__, or on any date thereafter in either case upon payment of a redemption price of 100% of the principal amount of such Bonds, together with accrued interest to the redemption date.

Mandatory Redemption

The Bonds stated to mature on May 15, 20__ are subject to mandatory redemption prior to maturity on May 15 of the years (at a price equal to the principal amount of the Bonds called for mandatory redemption, plus accrued interest to the date fixed for such mandatory redemption) and in the principal amounts as set forth in the following schedule, as drawn by lot by the Paying Agent:

Term Bonds Stated to Mature on May 15, 20__ Year Principal Amount

(1) At maturity.

Notice of Redemption

So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, however, the School District and the Paying Agent shall send redemption notices only to Cede & Co. See “BOOK-ENTRY ONLY SYSTEM” herein for further information regarding conveyance of notices to Beneficial Owners.

Notice of any redemption shall be given by depositing a copy of the redemption notice by first class mail not more than sixty (60) nor less than thirty (30) days prior to the date fixed for redemption addressed to each of the registered owners of Bonds to be redeemed, in whole or in part, at the addresses shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof, shall not affect the validity of any proceeding for redemption of other Bonds called for redemption as to which proper notice has been given.

On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and accrued interest being held by the Paying Agent, interest on the Bonds or portions thereof so called for redemption shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect to such Bonds, except to receive payment of the principal of and accrued interest on such Bonds to the date fixed for redemption. Any notice of redemption of Bonds may state that the redemption is conditioned upon the deposit of sufficient funds prior to the redemption date. If sufficient funds are not received, such notice of redemption shall be of no effect.

If any maturity of the Bonds that is subject to mandatory sinking fund redemption shall be called for optional redemption in part, the School District shall be entitled to designate whether the principal amount redeemed is to be credited against the principal amount of the Bonds of such maturity required to be called for mandatory sinking fund redemption or in such order of maturity as shall be directed in writing by the School District, in each case in multiples of $5,000 principal amount.

Manner of Redemption

So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, however, payment of the redemption price shall be made to Cede & Co. in accordance with the existing arrangements by and among the School District, the Paying Agent and DTC and, if less than all Bonds of any particular maturity are to he redeemed, the amount of the interest of each DTC Participant, Indirect Participant and Beneficial Owner in such Bonds to be redeemed shall be determined by the governing arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. See “BOOK-ENTRY ONLY SYSTEM” herein, for further information regarding redemption of Bonds registered in the name of Cede & Co.

If a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing that number of Bonds which is obtained by dividing the principal amount thereof by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall he made only upon surrender of such Bond in exchange for Bonds of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof.

If the redemption date for any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth of Pennsylvania are authorized by law or executive order to close, then the date for payment of the principal, premium, if any, and interest upon such redemption shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized to close, and payment on such date shall have the same force and effect as if made on the nominal date of redemption.

BOOK-ENTRY ONLY SYSTEM

The information in this section has been obtained from materials provided by DTC for such purpose. Neither the School District (referred to as the “Issuer” for this section only), the Financial Advisor (as hereinafter defined), nor PNC Capital Markets LLC (the “Underwriter”) guaranties the accuracy or completeness of such information, and such information is not to be construed as a representation of the School District, the Financial Advisor or the Underwriter.

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or in such other name as may be requested by an authorized representative of DTC. One fully- registered certificate for the Bonds of each maturity will be issued in principal amount equal to the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of

1934, as amended. 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 (the “Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTC is owned by the users of its subsidiaries. Access to the DTC system is also available to others, such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the “Indirect Participants”). DTC has Standard & Poor’s highest rating, “AAA.” 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 and www.dtc.org.

Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (the “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 Owners 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 the Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices of Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds (or all Bonds of a particular series or subseries and maturity) are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue (or maturity) to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, and interest and principal 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 it to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Issuer or Paying Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participants and not of DTC, the Paying Agent or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of the redemptions proceeds, principal, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue its services as a securities depository for the Bonds at any time by giving reasonable notice to the Issuer or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, the Bonds are required to be printed and delivered.

The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

So long as a nominee of DTC is the registered owner of the Bonds, references herein to the Bondholders or the holders or owners of the Bonds shall mean DTC and shall not mean the Beneficial Owners of the Bonds. The School District and the Paying Agent will recognize DTC or its nominee as the holder of all of the Bonds for all purposes, including the payment of the principal or redemption price of and interest on the Bonds, as well as the giving of notices and any consent or direction required or permitted to be given to or on behalf of the Bondholders under the Resolution. Neither the School District nor the Paying Agent will have any responsibility or obligation to Participants or Beneficial Owners with respect to payments or notices to Bondholders.

NEITHER THE SCHOOL DISTRICT NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY TO ANY BENEFICIAL OWNER BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER.

The School District and the Paying Agent cannot give any assurances that DTC or the Participants will distribute payments of the principal or redemption price of and interest on the Bonds paid to DTC or its nominee, as the registered owner of the Bonds, or any redemption or other notices, to the Beneficial Owners or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Official Statement.

BOND INSURANCE

[INSURANCE APPLIED FOR]

BOND INSURANCE RISK FACTORS

In the event of a default in the payment of principal or interest with respect to the Bonds when any such payment becomes due, any owner of the Bonds shall have a claim under the applicable Bond Insurance Policy (the “Policy”) for such payment. However, in the event of any acceleration of the due date of such principal by reason of

8 mandatory or optional redemption or resulting from any default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, any payments to be made pursuant to the Policy will be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. In addition, the Policy does not insure the payment of any redemption premium. To the extent that any payment of principal and interest by the School District in connection with a mandatory or optional prepayment of the Bonds is recovered by the School District from any owner of the Bonds as a voidable preference under applicable bankruptcy law, such payments are covered by the Policy. However, such payments will be made by the Bond Insurer at such times and in such amounts as such payments would have been due had there been no such prepayment by the School District, unless the Bond Insurer chooses to pay such amounts at an earlier date.

Under most circumstances, any default in the payment of principal and interest does not accelerate the obligations of the Bond Insurer without its consent. The Bond Insurer may direct, and must consent to, any remedies that the Paying Agent exercises following such a default and the Bond Insurer’s consent may be required in connection with amendments to the Resolution in those circumstances.

In the event that the Bond Insurer is unable to make any payments of principal and interest as such payments become due under the Policy, the Bonds will be payable solely from the moneys received by the Paying Agent pursuant to the Resolution. In the event that the Bond Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds.

The long-term ratings on the Bonds are dependent in part on the financial strength of the Bond Insurer and its claims paying ability. The Bond Insurer’s financial strength and claims paying ability are predicated upon a number of factors that could change over time. No assurance is given that the long-term ratings of the Bond Insurer and, therefore, the ratings on the Bonds insured will not be subject to downgrade, and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See description of RATINGS herein.

The obligations of the Bond Insurer under the Policy are general obligations of the Bond Insurer and, upon an event of default by the Bond Insurer, the remedies available to the Paying Agent may be limited by applicable bankruptcy law or other similar laws related to the insolvency of entities like the Bond Insurer.

Neither the School District, nor the Underwriter has made an independent investigation into the claims paying ability of the Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the School District to pay principal and interest on the Bonds and the claims paying ability of the Bond Insurer, particularly over the life of their investment. See “Bond Insurance” herein for further information provided by the Bond Insurer with respect to itself and the Policy, which includes further instructions for obtaining current financial information concerning the Bond Insurer.

THE SCHOOL DISTRICT

Introduction

The Oley Valley School District is located in northeastern Berks County, approximately twelve miles east of Reading, the County seat of Berks County and the County’s principal industrial and commercial center, and fifty miles west of Philadelphia. The School District covers approximately 64 square miles of rural and suburban communities, including the Townships of Alsace, Oley, Pike and Ruscombmanor.

Administration

The governing body of the School District is a board of nine school directors who are citizens of the School District. Each member is elected every two years, on a staggered basis, for a four-year term.

The Superintendent is responsible for the overall administration, supervision, and operation of the School District. The Superintendent is directly responsible to and is appointed by the Board of School Directors.

The Director of Business and Support Services, recommended by the Superintendent and appointed by the Board of School Directors, supervises and coordinates all business aspects of the School District. The Director of Business and Support Services is directly responsible to the Superintendent.

School Facilities

The School District presently operates one elementary school, one middle school and one senior high schools, all as described in the following table.

TABLE 1

OLEY VALLEY SCHOOL DISTRICT SCHOOL FACILITIES

Original Addition/ Rated Construction Renovation Pupil 2016-17 Building Date Date(s) Grades Capacity Enrollment

Elementary: 1993 - K-5 1,225 707

Secondary: Middle ...... 2003 - 6-8 559 402 Oley Valley High School .. 1960 1967 & 1974 9-12 1,075 573 ______Source: School District Officials.

Enrollment Trends

The following table presents recent trends in school enrollment and projections of enrollment over the next five years.

TABLE 2

OLEY VALLEY SCHOOL DISTRICT ENROLLMENT TRENDS

Actual Enrollments Projected Enrollments School School Year Elementary Secondary Total Year Elementary Secondary Total 2010-11 806 1,067 1,873 2017-18 683 961 1,644 2011-12 777 1,060 1,837 2018-19 658 927 1,585 2012-13 739 1,016 1,755 2019-20 621 909 1,530 2013-14 737 1,008 1,745 2014-15 702 1,003 1,705 2015-16 703 959 1,662 2016-17 707 975 1,682 ______Source: School District Officials.

SCHOOL DISTRICT FINANCES

Introduction

The School district budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and the Director of Business and Support Services and is submitted to the School Board for approval prior to the beginning of the fiscal year.

Financial Reporting

The School District uses a modified accrual basis of accounting for all governmental fund types and agency funds. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e. when they become both measurable and available). The School District uses an accrual basis of accounting for proprietary fund types. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as fund liabilities when due.

The School District’s financial statements are audited annually by a firm of independent certified public accountants, as required by Commonwealth law. Hutchinson, Gorman & Freeh, P.C., Certified Public Accountants, served as School District Auditors through 2001. Herbein & Company, Inc., Certified Public Accountants have served as School District Auditors since 2001.

Budgeting Process in School Districts under the Taxpayer Relief Act

In General. School districts budget and expend funds according to procedures mandated by PDE. An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and is submitted to the board of school directors for approval prior to the beginning of the fiscal year on July 1.

Procedures for Adoption of the Annual Budget. Under the Taxpayer Relief Act, Act No. 1 of the Special Session of 2006 of the Pennsylvania General Assembly (the “Taxpayer Relief Act”), all school districts of the first class A, second class, third class and fourth class (except as described below) must adopt a preliminary budget proposal (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the election immediately preceding the fiscal year. The preliminary budget proposal must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days’ public notice of its intent to adopt the final budget.

If the adopted preliminary budget includes an increase in the rate of any tax levy above the “Index” (defined below), the preliminary budget must be submitted to PDE no later than 85 days prior to the date of the election immediately preceding the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district’s Index (see “The Taxpayer Relief Act” herein) and within 10 days, but not later than 75 days prior to the upcoming election, inform the school district whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter approval for the tax increase at the upcoming election. or seek approval to utilize one of the referendum exceptions authorized under the Taxpayer Relief Act.

With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which PDE approval is required (see “The Taxpayer Relief Act” herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE is required by the Taxpayer Relief Act to rule on the school district’s request and inform the school district of its decision no later than 55 days prior to the upcoming election so that, if PDE denies the school district’s request, the school district may submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses.

To use any of the referendum exceptions for which court approval is required under the Taxpayer Relief Act, the school district must petition the court of common pleas no later than 75 days prior to the upcoming election, after giving one week’s public notice of the intent to file such petition. The court may schedule a hearing on the petition, and the school district must prove by clear and convincing evidence that it qualifies for the exception sought. The Taxpayer Relief Act requires that the court rule on the petition and inform the school district of its decision no later than 55 days prior to the upcoming election. Such Act provides that the court in approving the petition shall determine the dollar amount for which the exception is granted, the tax rate increase required to fund the exception and the appropriate duration of the tax increase. If the court denies the school district’s petition, such

Act permits the school district to submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses.

If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index.

Simplified Procedures in Certain Cases. The above budgetary procedures will not apply to a school district if the applicable board of school directors adopts a resolution no later than 110 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days’ public notice be given of the board’s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution.

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Summary and Discussion of Financial Results

Table 3 shows the General Fund Balance Sheet for the past four years. Tables 4 and 5 show revenues and expenditures and the resulting fund balances for the past four years.

TABLE 3

OLEY VALLEY SCHOOL DISTRICT SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET (FISCAL YEARS ENDED JUNE 30TH)

2013 2014 2015 2016 Assets

Cash 4,933,479 5,944,156 6,917,874 6,697,102 Investments Taxes receivable 770,580 678,046 744,631 905,420 Due from Other Funds 206,421 794,444 733,277 282,833 Due from Other Governments 1,058,250 121,149 29 1,294,999 Other Current Assets 15,111 32,270 40,672 25,144 Other Receivable Disbursements Prepaid Expenditures 4,238 181,738 9,279 18,911

TOTAL ASSETS $6,988,079 $7,751,803 $8,445,762 $9,224,409

Liabilities

Due from Other Funds 120,153 0 625,543 1,076,078 Accounts Payable 349,515 463,924 304,973 637,019 Current Portion of Compensated Absences Accrued Salaries and Benefits 1,363,368 1,329,731 1,471,764 1,672,739 Payroll Deductions and Withholdings 515,513 698,512 780,979 849,216 Deferred Revenues 124,663 265,600 170,302 156,710 Other Current Liabilities 0 0 0 0

TOTAL LIABILITIES $2,473,212 $2,757,767 $3,353,561 $4,391,762

Fund Equity

Nonspendable Fund Balance 4,238 181,738 9,279 18,911 Committed Fund Balance 1,638,856 1,718,709 1,718,709 1,368,709 Assigned Fund Balance 37,259 269,569 424,276 435,284 Unassigned Fund Balance 2,269,375 2,302,004 2,390,310 2,498,000

TOTAL FUND EQUITY $3,949,728 $4,472,020 $4,542,574 $4,320,904

TOTAL LIABILITIES/FUND EQUITY $6,422,940 $7,229,78 $7,896,135 $8,712,666

* Source: Oley Valley School District’s Audited Financial Statements

TABLE 4

OLEY VALLEY SCHOOL DISTRICT SUMMARY OF CHANGES IN FUND BALANCE (FISCAL YEARS ENDED JUNE 30TH)

GENERAL FUND 2013 2014 2015 2016

Beginning Fund Balance 4,066,286 3,949,728 4,472,020 4,542,574 Revenue and Other Financing Sources 27,601,807 28,833,094 29,171,523 30,267,041 Expenditures and Other Financing Uses 27,527,969 28,264,802 28,556,711 30,071,689 Operating and Residual Equity Transfers (75,000) (46,000) (544,258) (417,022)

Ending Fund Balance $4,065,124 $4,472,020 $4,542,574 $4,320,904

* Source: Oley Valley School District’s Audited Financial Statements

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TABLE 5

OLEY VALLEY SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND (FISCAL YEARS ENDED JUNE 30TH)

2013 2014 2015 2016

Revenues and Other Financing Sources Revenues

Local Sources 19,170,331 19,817,370 20,168,847 20,765,556 State Sources 8,041,603 8,659,092 8,734,142 9,230,633 Federal Sources 480,579 356,632 268,534 270,852

TOTAL REVENUES $27,692,513 $28,833,094 $29,171,523 $30,267,041

Expenditures and Other Financing Uses Expenditures

Instruction 15,750,478 15,904,170 16,157,780 16,801,693 Support Services 8,322,711 8,703,670 8,719,910 9,531,110 Noninstructional Services 653,447 681,353 700,011 773,752 Debt Service 2,955,555 2,975,565 2,979,010 2,965,123 Refund of Prior Year Expenditures 10,718 44 0 0

Other Financing Uses

Operating Transfers Out 115,000 46,000 673,113 0

TOTAL EXPENDITURES $27,807,909 $28,310,802 $29,229,824 $30,071,678

Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (115,396) 522,292 70,554 195,352

FUND EQUITY - JULY 1 2,582,637 2,467,241 2,989,533 3,060,087

Residual Equity Transfers 0 0 0 0

FUND EQUITY - JUNE 30 $2,467,241 $2,989,533 $3,060,087 $3,255,439

* Source: Oley Valley School District’s Audited Financial Statements

The School District received $30,267,041 in revenue and other financing sources in 2015-16. In 2015-16, local sources accounted for 68.6% percent, Commonwealth sources contributed 30.5% percent and federal and other sources contributed 0.89% of total revenue.

TAXING POWERS OF THE SCHOOL DISTRICT

General

The School District is empowered to impose the following taxes under the School Code; subject, however, to the application of Act 1 of Special Session 2006:

a. An annual tax on all taxable real estate, not to exceed 2 mills on each dollar of assessed valuation, to be used for general school purposes.

b. An annual tax on all taxable real estate without limit to provide for the payment of:

(i) Salaries and increments of the teaching and supervisory staff. (ii) Rentals due any municipal authority, non-profit corporation or the State Public School Building Authority. (iii) Interest and Principal on any indebtedness incurred under the Act or any prior or subsequent act governing the incurrence of indebtedness of the School District, and (iv) The amortization of a bond issue which financed the construction of school facilities if issued prior to the first Monday of July, 1959.

c. An annual per capita tax on each resident over eighteen years of age of not more than $5.00.

The School District may also levy under The Local Tax Enabling Act, Act No. 511, approved December 31, 1965, as amended (the “Tax Enabling Act”), an additional per capita tax, wage taxes, and other taxes as provided for therein; provided, however, that the aggregate amount of taxes imposed under the Tax Enabling Act may not exceed 1.25% of the market valuation of the real estate in the School District as determined by the State Tax Equalization Board, and subject to certain other limitations.

These taxes are also subject to apportionment between overlapping municipalities and the School District where such municipalities exercise the right of such apportionment.

LEGISLATION AFFECTING LOCAL TAXING POWERS OF SCHOOL DISTRICTS - ACT 1 OF SPECIAL SESSION 2006 (TAXPAYER RELIEF ACT)

Pennsylvania Act No. 1 of the Special Session of 2006 (“Act 1”), which became effective June 27, 2006 provides, inter alia, that a school district may not, in fiscal year 2007-2008 or in any subsequent fiscal year, levy any tax for the support of the public schools which was not levied in the 2006-2007 fiscal year, raise the rate of any earned income and net profits tax if already imposed under the authority of the Local Tax Enabling Act (Act 511), or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions provided therein. On June 30, 2011, the General Assembly adopted legislation (Act 25 of 2011) amending Act 1 eliminating several exceptions previously permitted under Act 1 and providing for the rescission of certain prior approved referendum exceptions for disaster/emergency costs, implementation of a court order, school construction and non-academic school construction (effective after the last payment of principal and interest on debt incurred to finance same). (Act 1 together with Act 25 of 2011 will hereinafter be referred to as the “Taxpayer Relief Act”). The exceptions available under the Taxpayer Relief Act are summarized as follows:

a. to pay interest and principal on indebtedness incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004, or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 of 2004 (the School District did not so elect); to pay interest and principal on any indebtedness approved by the voters at referendum;

b. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances;

c. To make payments into the State Public School Employees’ Retirement System when the increase in the actual dollar amount of estimated payments between the current year and the upcoming year is greater than the Index.

A school district intending to utilize the foregoing exceptions is entitled to apply to the Pennsylvania Department of Education (“PDE”) for approval thereof, if and to the extent a tax increase greater than the Index is needed in any particular fiscal year. The Taxpayer Relief Act provides that PDE shall approve a school district’s request if a review of the data demonstrates that the school district qualifies for the exception sought and the sum of the dollar amounts of all exceptions for which the school district qualifies is not more than what is necessary to balance the budget after giving effect to the revenue to be raised by the allowable increase under the Index. There can be no assurance, however, that approval will be given by PDE to utilize a referendum exception in any future fiscal year or years.

Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by the court or PDE, as the case may be. If a school district’s petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum.

The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the Federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio.

THE FOREGOING SUMMARY OF THE TAXPAYER RELIEF ACT IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF THE PROVISIONS OF THE TAXPAYER RELIEF ACT NOR A LEGAL INTERPRETATION OF ANY PROVISION OF THE TAXPAYER RELIEF ACT, AND A PROSPECTIVE PURCHASER OF THE BONDS SHOULD REVIEW THE FULL TEXT OF THE TAXPAYER RELIEF ACT AS A PART OF ANY DECISION TO PURCHASE THE BONDS.

State Law Authorizing Replacement of the School District’s Occupation Tax with an Increase in the Local Earned Income Tax

Act 24 of 2001 of the Commonwealth, which became law on June 22, 2001, authorizes a Board of School Directors to schedule a public hearing and conduct a ballot referendum on replacing the school district’s occupation tax with an increase in the local earned income tax. Currently, school districts in Pennsylvania share a 1.0% tax on the annual amount of residents’ wages and other earned income (which excludes unearned or investment income), with the resident municipality. Under Act 24, this tax could be increased by the percentage necessary to generate revenue equal to what was collected during the preceding year on the occupation tax. The occupation tax is a flat amount for all employed individuals, or assessed by various trade, occupation and professional titles, regardless of income. The restructured tax is designed to be revenue neutral to school districts.

The School District has taken no action to implement Act 24.

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Act 48 of 2003

Pennsylvania Act No. 2003-48 (enacted December 23, 2003) prohibits a school district from increasing real property taxes for the school year 2005-2006 or any subsequent school year, unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below:

Estimated Ending Unreserved Undesignated Fund Balance Total Budgeted Expenditures as a Percentage of Total Budgeted Expenditures Less than or equal to $11,999,999 12.0% Between $12,000,000 and $12,999,999 11.5% Between $13,000,000 and $13,999,999 11.0% Between $14,000,000 and $14,999,999 10.5% Between $15,000,000 and $15,999,999 10.0% Between $16,000,000 and $16,999,999 9.5% Between $17,000,000 and $17,999,999 9.0% Between $18,000,000 and $18,999,999 8.5% Greater than or equal to $19,000,000 8.0%

“Estimated ending unreserved fund balance” is defined in Act 2003-48 as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district’s budget was adopted and held in the general fund accounts of the school district.

Tax Levy Trends

Table 6 shows the trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District, Berks County and the municipalities within the School District.

TABLE 6 OLEY VALLEY SCHOOL DISTRICT TAX RATES

Wage & Real Estate Year Real Estate Per Capita (1) Income (2) Transfer (2)

2006-07 22.50 $10.00 1.00% 1.00% 2007-08 23.42 $10.00 1.00% 1.00% 2008-09 23.82 $10.00 1.00% 1.00% 2009-10 23.82 $10.00 1.00% 1.00% 2010-11 23.82 $10.00 1.00% 1.00% 2011-12 24.155 $10.00 1.00% 1.00% 2012-13 24.558 $10.00 1.00% 1.00% 2013-14 24.9318 $10.00 1.00% 1.00% 2014-15 25.3930 $10.00 1.00% 1.00% 2015-16 25.8370 $10.00 1.00% 1.00% 2016-17 26.3283 $10.00 1.00% 1.00%

(1) $5.00 under School Code and $5.00 under ACT 511 (2) Subject to sharing with municipalities providing they levy the tax

Source: School District

TABLE 7

OLEY VALLEY SCHOOL DISTRICT REAL PROPERTY TAX RATES (Mills on Assessed Value)

2013 2014 2015 2016

School District (eff 7/1/xx) 24.9318 25.3930 25.3930 25.8374

Alsace Township 1.00 1.00 1.00 1.50 Oley Township 2.80 2.80 2.80 2.80 Pike Township 0.87 0.87 0.87 0.87 Ruscombmanor Township 0.09 0.09 0.09 0.09

Berks County 7.372 7.372 7.372 7.372

Source: Pennsylvania Department of Community and Economic Development

Real Property

The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection data.

TABLE 8 OLEY VALLEY SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA

Year Market Value Assessed Value Ratio

2006 758,827,300.00 676,787,600.00 89.19% 2007 778,630,400.00 690,396,400.00 88.67% 2008 873,193,200.00 703,291,000.00 80.54% 2009 880,153,000.00 708,675,500.00 80.52% 2010 938,214,775.00 709,321,500.00 75.60% 2011 948,594,767.00 716,489,200.00 75.53% 2012 970,207,781.00 718,692,900.00 74.08% 2013 971,123,886.00 719,084,100.00 74.05% 2014 971,486,594.00 721,158,500.00 74.23% 2015 976,429,343.00 723,736,900.00 74.12% 2016 989,355,560.00 728,311,000.00 73.61%

* Source: Pennsylvania State Tax Equalization Board

TABLE 9

OLEY VALLEY SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY

2014 2014 2015 2015 2016 2016 Market Value Assessed Value Market Value Assessed Value Market Value Assessed Value

Oley Valley School District $971,486,594 $721,158,500 $976,429,343 $723,736,900 $989,355,562 $728,311,000

Alsace Township 218,817,969 177,895,200 218,073,386 177,345,000 220,254,875 178,453,400 Oley Township 305,338,785 199,959,600 309,199,872 201,777,900 312,993,671 204,922,400 Pike Township 140,788,807 106,232,200 141,643,303 106,640,400 143,724,185 106,659,900 Ruscombmanor Township 306,541,033 237,071,500 307,512,872 237,973,600 312,382,829 238,275,300

* Source: Pennsylvania State Tax Equalization Board

TABLE 10

OLEY VALLEY SCHOOL DISTRICT ASSESSMENT BY LAND USE

2011 2012 2013 2014 2015 2016

Residential 545,162,000 546,580,700 547,406,200 549,363,100 551,920,400 557,762,300 Trailers 4,570,300 4,537,500 4,456,100 4,598,600 4,476,200 4,476,200 Lots 15,395,300 14,963,700 14,437,100 14,545,800 12,536,500 12,536,500 Industrial 7,445,500 7,445,500 7,445,500 7,445,500 7,733,200 7,733,200 Commercial 44,802,500 44,927,000 43,570,600 43,522,100 44,659,000 44,116,800 Agriculture 93,225,100 94,331,400 96,033,900 96,162,300 96,838,700 96,133,100 Land 5,888,500 5,907,100 5,734,700 5,521,100 5,572,900 5,572,900

TOTAL 716,489,200 718,692,900 719,084,100 721,158,500 723,736,900 728,311,000 * Source: Pennsylvania State Tax Equalization Board

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TABLE 11

OLEY VALLEY SCHOOL DISTRICT REAL PROPERTY TAX COLLECTION DATA

Current Year Total Collections Collection Current Year as Percent Total Current as Percent Adjusted Collections of Total Plus of Millage Delinquent Total Year Assessed Value Rate Tax Levy (1) (July - June) Flat Billing (2) Collections Flat Billing

2001-02 609,496,500 16.67 10,110,288. 9,643,691 95.38% 10,088,558 99.80% 2002-03 620,452,500 18.69 11,596,257 11,019,141 95.02% 11,420,585 98.49% 2003-04 637,920,100 19.68 12,554,268 11,848,958 94.38% 12,563,689 100.08% 2004-05 645,229,700 20.75 13,388,516 12,756,328 95.28% 13,409,633 100.16% 2005-06 660,273,300 21.50 14,195,876 13,517,569 95.22% 14,141,820 99.62% 2006-07 680,831,400 22.50 15,318,707 14,658,940 95.69% 15,293,627 99.84% 2007-08 690,396,400 23.42 16,169,084 15,529,347 96.04% 16,125,393 99.73% 2008-09 707,123,300 23.82 16,213,639 15,432,021 95.18% 16,076,434 99.15% 2009-10 710,620,700 23.82 16,297,050 15,497,002 95.09% 16,173,730 99.24% 2010-11 712,960,700 23.82 16,351,731 15,531,816 94.99% 16,169,623 98.89% 2011-12 716,489,200 24.15 16,669,282 15,832,471 94.98% 16,665,636 99.98% 2012-13 718,692,900 24.55 17,015,768 16,299,704 95.79% 16,872,130 99.16% 2013-14 719,084,100 24.93 17,299,899 16,618,696 96.06% 17,238,197 99.64% 2014-15 721,158,500 25.39 17,685,596 16,985,847 96.04% 17,522,833 99.08% 2015-16 723,736,900 25.84 18,071,857 17,516,372 96.93% 18,125,131 100.29%

(1) Tax Levy was reduced by Homestead Exclusion of $630,038.25 in 2008-09, $629,935.29 in 2009-10, $630,993.33 in 2010-11, $631,932 in 2011-12, $628,143 in 2012-13, $628,162 in 2013-14, $626,787 in 2015-16 and $627,333 in 2015-16 (2) Percentage is based on the amount of the Adjusted Tax Levy

Source: School District

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The ten largest real property taxpayers, together with 2015 assessed values, are shown in Table 12. The aggregate assessed value of these ten taxpayers totals approximately 2.05 percent of total assessed value.

TABLE 12 OLEY VALLEY SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS, 2017

2017 Name Assessed Value

Montgomery Acquisition Co LLC $3,890,400 Eastern Lime Corp 3,188,200 Kings Plaza Oley LP 3,023,100 Oley Meadows Apts LP 2,046,800 Oley Leaf Investors LLC 1,655,400 Pine Brook Farms LLC 1,375,800 Knarr Properties LLC 1,339,500 Individual Taxpayer 941,100 Individual Taxpayer 893,500 Individual Taxpayer 833,900

Subtotal $19,187,700

Other Taxes

Real Estate Transfer. The School District levies a tax of 1.00% of the value of real estate transfers which is shared with the municipality in which the property is located, if such municipality also levies such a tax.

Wage and Income Tax. A tax of 1.00% is levied on the earned income of residents which is shared with the municipality in which the resident resides if such municipality also levies such a tax.

Per Capita Taxes. A tax of $10.00 ($5.00 under Act 511 and $5.00 under the School Code) is levied on each resident over 18 years of age.

DEBT AND DEBT LIMITS

Debt Statement

Table 13, which follows, shows the estimated debt of the School District as of estimated date of issuance of the Bonds.

TABLE 13 OLEY VALLEY SCHOOL DISTRICT DEBT STATEMENT (As of the estimated date of issuance of the Bonds)*

NONELECTORAL DEBT GROSS OUTSTANDING Series 1993 Capital Appreciation (last maturity 2018) $129,346 Series A of 2012 (last maturity 2019) 535,000 Series B of 2012 (last maturity 2027) 15,740,000 Series of 2017 (last maturity 2028) 7,095,000

TOTAL NONELECTORAL DEBT $23,499,346

TOTAL LEASE RENTAL DEBT $0

TOTAL PRINCIPAL OF DIRECT DEBT $23,499,346

*Includes the Bonds offered through this Official Statement. Preliminary, subject to change.

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Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Bonds, the principal amount of direct debt of the School District will total $26,960,432. After adjustment for available funds and estimated Commonwealth Aid, the local effort of direct debt will total $.

TABLE 14 OLEY VALLEY SCHOOL DISTRICT BONDED INDEBTEDNESS AND DEBT RATIOS (As of the estimated date of issuance of the Bonds)*

Local Effort or Net of Available Funds Gross and Estimated DIRECT DEBT Outstanding State Aide(1)

Nonelectoral Debt ...... $23,499,346 $19,176,705 Lease Rental Debt ...... 0 0 TOTAL DIRECT DEBT ...... $23,499,346 $19,176,705 OVERLAPPING DEBT ...... Berks County, General Obligation(2) ...... $6,010,605 $6,010,605 Municipal Debt ...... 2,614,382 2,614,382 TOTAL OVERLAPPING DEBT ...... $8,624,987 $8,624,987

TOTAL DIRECT AND OVERLAPPING DEBT ...... $32,124,333 $27,801,692

DEBT RATIOS – TOTAL DIRECT DEBT Per Capita (2015) ...... $1,776.22 $1,449.49 Percent 2015-2016 Assessed Value ...... 3.23% 2.63% Percent 2015-2016 Market Value ...... 2.38% 1.94% ______*Preliminary, subject to change. Includes the Bonds offered through this Official Statement.

(1) Gives effect to current appropriations for payment of debt service and estimated future Commonwealth reimbursement on the Bonds based on current Aid Ratio. See “Commonwealth Aid to School Districts.” (2) Pro rata percent share of $188,071,043 principal amount outstanding.

Debt Limit and Remaining Borrowing Capacity

The statutory borrowing limit of the School District under the Debt Act is computed as a percentage of the School District’s “Borrowing Base”. The “Borrowing Base” is defined as the annual arithmetic average of “Total Revenues” (as defined by the Debt Act), for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows:

Revenues for 2013-2014 $28,833,094 Revenues for 2014-2015 29,171,523 Revenues for 2015-2016 30,267,041

Total Revenues, Past Three Years 88,271,658

Annual arithmetic average (Borrowing Base) 29,423,886

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Under the Debt Act as presently in effect, no school district shall incur any nonelectoral debt or lease rental debt, if the aggregate net principal amount of such new debt together with any other net nonelectoral debt and lease rental debt then outstanding, would cause the net nonelectoral debt plus net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentage to the School District’s Borrowing Base produces the following product:

Remaining Legal Net Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral Debt and Lease Rental Debt Limit: 225% of Borrowing Base $66,203,744 $23,499,346 $42,704,398 ______*Preliminary, subject to change. Includes the Bonds offered through this Official Statement, does not reflect credits against gross indebtedness that may be claimed for a portion of principal of debt estimated to be reimbursed by Commonwealth Aid.

The Swap - Outstanding Interest Rate Swap Agreement

The School District executed a floating-to-fixed interest rate swap relating to the School District’s General Obligation Bond, Series B of 2012 (the “2012 B Bond”) consisting of a $18,090,000 notional transaction with PNC Bank on April 11, 2012. The 2012 Swap is structured (i) with the School District receiving payments on a floating leg equal to 70% of the LIBOR rate with a reference maturity of one (1) month (“Floating Rate”) on the outstanding notional amount of the 2012 Swap to be paid monthly to the termination date of the 2012 Swap on the fifteenth day of each month beginning May 15, 2012 and (ii) the School District making payments on a fixed leg equal to 3.1975% per annum (“Fixed Rate”) on the outstanding notional amount of the 2012 Swap paid semi-annually to the termination date of the 2012 Swap on each May 15th and November 15th commencing May 15, 2012. Under its terms the 2012 Swap will be effective on May 1, 2012 and terminate on May 15, 2027. The current outstanding notional amount of the 2012 Swap is $15,740,000 which equals the outstanding principal amount of the 2012 B Bond. As of September 20, 2017 the mark-to-market value of the Swap was liability to the School District in the amount of $1,471,202.

The previously described Swap is a “Qualified Interest Rate Management Agreement” as defined under the Debt Act, and the School District has pledged its full faith, credit and taxing power for the payment of scheduled periodic payments under such agreement.

Future Financing

No future financing by the School District are anticipated.

LABOR RELATIONS

School District Employees

There are presently 233 employees of the School District, 130 employees are teachers, 11 administrators and 92 employees are support personnel (secretaries, maintenance staff, cafeteria staff and teacher aides).

The School District’s professional employees, other than administrators, are represented by the Oley Valley Education Association, an affiliate of the Pennsylvania State Education Association (PSEA) and the National Education Association, under a contract which will expire on June 30, 2019.

All administrators of the School District, except the Superintendent, the Director of Finance and Operations are represented as groups under Act 93 of 1984. These groups currently have 1-year compensation plan agreements, which expire on June 30, 2018.

SCHOOL DISTRICT PENSION PROGRAM

Pension Program

The School District contributes to the Public School Employees’ Retirement System of Pennsylvania (“PSERS”), a governmental cost-sharing, multiple-employer defined benefit pension plan. PSERS is administered by the PSERS Board of Trustees. All of the School District’s full-time and part-time salaried employees, or part- time employees who work 80 or more days in a school year or over 500 hours per year are required to participate in the program. The PSERS System provides retirement and disability benefits, legislatively mandated ad hoc cost of living adjustments, and health care insurance premium assistance to qualifying annuitants. The Public School Employees’ Retirement Code (Act No. 96 of October 2, 1975, as amended, 24 Pa. C.S. §§8101-8535) assigns the authority to establish and amend benefit provisions to the PSERS Board of Trustees. PSERS issues a publicly available financial report that includes financial statements and required supplementary information for the pension plan. The contribution policy is established in the Public School Employee Retirement Code and requires contributions by active members, employers, and the Commonwealth.

Beginning July 1, 1976, certain revisions were made to the pension program. The PSERS Board of Trustees, previously under PDE, became an independent agency. However, the program is still guaranteed by the Commonwealth. Currently, each party to the program contributes a fixed percentage of the employee’s salary. Contributions required of employers are based upon an actuarial valuation. Employees belonging to PSERS prior to July 22, 1983, contribute 5.25% of their salary, and employees who joined PSERS on or after July 22, 1983, contribute 6.25% of their salary. On February 17, 2002, Governor Mark Schweiker signed Act 9 which created a new membership class that sets the employee contribution rate at 7.50% of the employee’s salary for those employees hired on or after July 1, 2001. Act 9 also provides an option for those employees hired prior to July 1, 2001, to elect a contribution rate of 6.50% if they were hired before July 22, 1983, or 7.50% if they were hired on or after July 22, 1983.

For fiscal year ended June 30, 2017, the rate of employer’s contribution was 30.03% of covered payroll. The 30.03% rate is composed of a pension contribution rate of 29.20% for pension benefits and 0.83% for healthcare insurance premium assistance to the pension program, of which approximately 50% is received as a reimbursement from the Commonwealth for its share of the payment. The PSERS Board of Trustees met and set the contribution rate of 32.57% for the 2017-18 fiscal year, 34.18% for the 2018-19 fiscal year, and 35.53% for the 2019-20 fiscal year. (See, “Recent Events Regarding District Contributions,” below.) Based on assumptions (including an 8% investment return) and forecasts of PSERS Board of Trustees, absent legislative action, the employer contribution rate is forecasted to increase to 35.95% for the 2020-21 fiscal year, with a peak of 36.40% in 2021-22. Both the School District and the Commonwealth are responsible for paying a portion of the employer’s share. School entities are responsible for paying 100% of the employer share of the contributions to PSERS, and the Commonwealth reimburses the employer for one-half of this share. The School District contributions are made on a quarterly basis and employee contributions are deducted monthly from each paycheck and remitted monthly.

School District Year Contribution 2012-13 ...... $1,586,806 2013-14 ...... 2,135,355 2014-15 ...... 2,648,611 2015-16 ...... 3,267,270 2016-17 ...... 3,846,320 The School District is current in all payments. Source: School District Financial Statements.

Act 120 of 2010 was passed by the General Assembly on November 15, 2010 and signed by former Governor Rendell on November 23, 2010. The benefit reductions contained in this legislation will only impact individuals who become new members of PSERS on or after July 1, 2011. New members will have the option of selecting one of 2 new classes. The members selecting class T-E, will contribute a base rate of 7.5% with “shared risk” contribution levels between 7.5% and 9.5% and a pension multiplier of 2.0%. Members selecting class T-F

26 will contribute a base rate of 10.3% with shared risk contribution levels between 10.3% and 12.3% and a pension multiplier of 2.5%.

Current projections indicate that an increase will be required in the contribution rate for future years. For further discussions of these increases, please refer to the PSERS website listed below. PSERS net assets fell from $62.7 billion as of June 30, 2008, to $45.8 billion as of June 30, 2010, due to investment losses and benefit payments. While PSERS assets have decreased as the markets declined, PSERS continues to pay out nearly $5 billion annually to its members. Contributions from employers and members cover only a portion of the benefit costs. Investment earnings are the largest source of funding for the pension fund. Over the past 10 years, 14% of the funding came from the members, 9% came from the school employers and the Commonwealth, and over 77% came from investment earnings.

The PSERS financial statements in the Comprehensive Annual Financial Report (“CAFR”) are presented in conformity with accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board. The Fund’s complete report is available on the PSERS website on the Internet: www.psers.state.pa.us.

Source: PSERS – Financial Highlights.

Recent Events Regarding District Contributions

The Commonwealth’s General Fund Budget was signed by former Governor Rendell on July 6, 2010. Accompanying the General Fund Budget was a Fiscal Code (S.B. 1042), that contained many detailed provisions necessary for the implementation of the General Fund Budget. One of those provisions required the PSERS’ Board to re-certify the employer contribution rate for the 2010-2011 fiscal year to 5.64%, down from its previously certified rate of 8.22% in order to match PSERS’ employer contribution rate with the level of funding in the General Fund Budget. The re-certification was required to take place within 20 days of the effective date of the Fiscal Code Bill, which was also signed on July 6, 2010 by former Governor Rendell. The PSERS Board of Trustees met on July 23, 2010 and re-certified the employer contribution rate effective July 1, 2010 as required by law. In a separate resolution, the PSERS Board of Trustees expressed its serious concern that Fiscal Code (S.B. 1042) undermines the fiduciary responsibility of the PSERS Board of Trustees to maintain a properly funded pension as required by the Public School Employees Retirement Code and that the mandated recertification increases the underfunded liability of PSERS.

Since many school districts had budgeted for the employer contribution rate of 8.22% for the 2010-2011 fiscal year, PSERS urged districts to consider adding the additional funds budgeted this year into reserve accounts since the pension funding issue remains and a dramatic employer contribution rate increase is still forecasted.

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Other Post-Employment Benefits

The School District is obligated under collective bargaining agreements to provide health insurance coverage for both currently retired and future retired professional employees, and to provide retirement severance pay for existing employees. The School District became subject to the requirements of GASB Statements No. 43 and 45 commencing with the School District’s annual financial statements for the fiscal year ending June 30, 2011. The School District’s annual OPEB cost, percentage of annual OPEB cost contributed to the plan and the net OPEB obligation as of June 30 is as follows:

Percentage of Fiscal Year Annual OPEB Annual OPEB Net OPEB Ended Cost Cost Contributed Obligation

6/30/2016 $232,391 45.7% $918,538 6/30/2015 $241,738 46.5% $792,314 6/30/2014 $290,176 53.7% $662,949

LITIGATION

At the time of settlement, the President or Vice President and Solicitor of the School District, will deliver a certificate dated as of the date of delivery of and payment for the Bonds, certifying that there is no litigation pending which challenges the validity or enforceability of the Bonds; or in the event that such litigation is pending, a description of the nature of such litigation, together with an opinion of legal counsel approved by the School District to the effect that such litigation is without legal merit.

DEFAULTS AND REMEDIES

In the event of failure of the School District to pay or cause to be paid the interest on or principal of the Bonds, as the same becomes due and payable, the holders of the Bonds shall be entitled to certain remedies provided by the Debt Act. Among the remedies, if the failure to pay shall continue for 30 days, holders of the Bonds shall have the right to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas of the county in which the School District is located. The Debt Act provides any judgment shall have an appropriate priority upon the funds next coming into the treasury of the School District. The Debt Act also provides that upon a default of at least 30 days, holders of at least 25 percent of the Bonds may appoint a trustee to represent them. The Debt Act provides certain other remedies in the event of default, and further qualifies the remedies hereinbefore described.

TAX EXEMPTION

Federal Tax Laws

Numerous provisions of the Internal Revenue Code of 1986, as amended (the “Code”), affect the issuers of state and local government unit bonds, such as the School District, and impair or restrict the ability of the School District to finance projects on a tax exempt basis. Failure on the part of the School District to comply with any one or more of such provisions of the Code, or any regulations under the Code, could render interest on the 2017 Bonds includable in the gross income of the owners thereof for purposes of federal income tax retroactively to the date of issuance of the 2017 Bonds. Among these provisions are more restrictive rules relating to: (a) investment of funds treated as proceeds of the 2017 Bonds; (b) the advance refunding of tax-exempt bonds; and (c) the use of proceeds of the 2017 Bonds to benefit private activities. In addition, under the Code, the School District is required to file an information return with respect to the 2017 Bonds and, if applicable, to “rebate” to the federal government certain arbitrage profits on an ongoing basis throughout the term of the issue constituting the 2017 Bonds. Bond Counsel has not undertaken to determine (or to inform any person) whether any action taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2017 Bonds may affect the tax status of interest on the 2017 Bonds.

Other provisions of the Code affect the purchasers and holders of certain state and local government bonds such as the 2017 Bonds. Prospective purchasers of the 2017 Bonds should be aware that: (i) Section 265 of the Code denies a deduction for interest on (a) indebtedness incurred or continued to purchase or carry certain state or local government bonds, such as the 2017 Bonds, or, (b) in the case of a financial institution, that portion of a financial institution’s interest expense allocated to interest on certain state or local government bonds, such as the 2017 Bonds, unless the issuer of the state or local government bonds designates the bonds as “qualified tax-exempt obligations” for the purpose and effect contemplated by Section 265(b)(3)(B) of the Code (the School District has designated the 2017 Bonds as “qualified tax exempt obligations” under Section 265(b)(3)(B) of the Code, as such phrase is defined in the Code); (ii) certain corporations must take into account interest on certain state and local government bonds, such as the 2017 Bonds, in determining adjusted earnings for the purpose of computing the alternative minimum tax imposed on such corporations; (iii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(1) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest and amounts treated as such on certain state or local government bonds such as the 2017 Bonds; (iv) interest on certain state or local government bonds, such as the 2017 Bonds, earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code; (v) if a Subchapter S corporation has passive investment income (which passive investment income will include interest on state and local government bonds such as the 2017 Bonds) exceeding 25% of such Subchapter S corporation’s gross receipts and if such Subchapter S corporation has Subchapter ”C” earnings and profits, then interest income derived from state and local government bonds, such as the 2017 Bonds, may be subject to federal income tax under Section 1375 of the Code; and (vi) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income receipts or accruals of interest on certain state or local government bonds such as the 2017 Bonds.

Proposals to alter or eliminate the exclusion of interest on tax-exempt bonds from gross income for some or all taxpayers have been made in the past and may be made again in the future. Future legislation, if enacted into law, or clarification of the Code may cause interest on the 2017 Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the 2017 Bonds. PROSPECTIVE PURCHASERS OF THE 2017 BONDS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING ANY PROPOSED FEDERAL TAX LEGISLATION, AS TO WHICH BOND COUNSEL EXPRESSES NO OPINION.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the 2017 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service or the courts.

Bond Counsel’s engagement with respect to the 2017 Bonds ends with the issuance of the 2017 Bonds.

Tax Exemption

In the opinion of Bond Counsel, assuming continuing compliance by the School District with certain certifications and agreements relating to the use of 2017 Bond proceeds and covenants to comply with provisions of the Code and any applicable regulations thereunder, now or hereafter enacted, interest on the 2017 Bonds is not includable in the gross income of the holders of the 2017 Bonds under Section 103(a) of the Code and interest on the 2017 Bonds is not an item of tax preference for purposes of the federal individual and corporate alternative minimum taxes except as described above under the caption “Federal Tax Laws” above. The tax exemption described above does not extend to corporations required to include interest on the 2017 Bonds in the calculation of alternative minimum taxable income within the meaning provided in Section 56 of the Code. Other provisions of the Code will affect certain purchasers and holders of the 2017 Bonds. See “Federal Tax Laws” above.

The School District has designated and determined under and for purposes of Section 265(b)(3)(B) of the Code to qualify each of the 2017 Bonds as a “qualified tax-exempt obligation” as such phrase is defined in the Code.

In the opinion of Bond Counsel, under the laws of the Commonwealth, the 2017 Bonds and interest on the 2017 Bonds shall at all times be free from taxation for State and local purposes within the Commonwealth, but

29 this exemption shall not extend to gift, estate, succession or inheritance taxes or any other taxes not levied directly on the 2017 Bonds or the interest thereon. Under the laws of the Commonwealth, profits, gains or income derived from the sale, exchange or other disposition of the 2017 Bonds are subject to State and local taxation within the Commonwealth of Pennsylvania.

The School District will issue its certificate regarding the facts, estimates and circumstances in existence on the date of delivery of the 2017 Bonds and regarding the anticipated use of the proceeds of the 2017 Bonds. The School District will certify that, on the basis of the facts, estimates and circumstances in existence on the date of issuance of the 2017 Bonds, the School District does not reasonably expect to use the proceeds of the 2017 Bonds in a manner that would cause the 2017 Bonds to be or become “arbitrage bonds” or “private activity bonds” as those terms are defined in Section 148 and Section 141 of the Code.

THE ABOVE SUMMARY OF POSSIBLE TAX CONSEQUENCES IS NOT EXHAUSTIVE OR COMPLETE. ALL PURCHASERS OF THE 2017 BONDS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE POSSIBLE FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF OWNERSHIP OF THE 2017 BONDS. ANY STATEMENTS REGARDING TAX MATTERS HEREIN CANNOT BE RELIED UPON BY ANY PERSON TO AVOID TAX PENALTIES.

Regulations, Future Legislation

Under the provisions of the Code, the Treasury Department is authorized and empowered to promulgate regulations implementing the intent of Congress under the Code, which could affect the tax-exemption and/or tax consequences of holding tax-exempt obligations, such as the 2017 Bonds. In addition, legislation may be introduced and enacted in the future which could change the provisions of the Code relating to tax-exempt bonds of a state or local government unit, such as the School District, or the taxability of interest in general.

No representation is made or can be made by the School District, or any other party associated with the issuance of the 2017 Bonds as to whether or not any other legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the 2017 Bonds to federal income taxes or so as to otherwise affect the marketability or market value of the 2017 Bonds.

EACH PURCHASER OF THE 2017 BONDS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING ANY CHANGES IN THE STATUS OF PENDING OR PROPOSED FEDERAL TAX LEGISLATION.

CONTINUING DISCLOSURE UNDERTAKING

In accordance with the requirements of Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission (the “SEC”), the School District will execute and deliver a written continuing disclosure undertaking with respect to, and for the benefit of the holders of, the Bonds. The form of Continuing Disclosure Certificate (the "Certificate") is attached hereto as Appendix E.

Under the terms of the Certificate, the School District will undertake to file with the Municipal Securities Rulemaking Board ("MSRB") financial and other information concerning the School District (annual audited financial statements, annual budget summary, certain operating information and notice of certain events affecting the School District), all as set forth in Appendix E. The School District’s obligations with respect to continuing disclosure, as it relates to the Bonds, shall terminate upon the prior redemption or payment in full of all of the Bonds.

The MSRB has been designated by the SEC to be the central and sole repository for continuing disclosure information filed by issuers of municipal securities since July 1, 2009. Information and notices filed by municipal issuers (and other “obligated persons” with respect to municipal securities issues) are made available through the MSRB’s Electronic Municipal Market Access (EMMA) System, which may be accessed on the internet at http://www.emma.msrb.org.

The School District may modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary, as a result of a change in legal requirements or change in the nature of the School District; provided that any such modification will be done in a manner consistent with the Rule and will not, in the opinion of nationally recognized bond counsel, substantially impair the interest of the holders of the Bonds or violate the Rule, as amended.

The School District reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when such School District no longer remains an “obligated person” with respect to the Bonds within the meaning of the Rule. The School District acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the holders of the Bonds and shall be enforceable by the holders of such Bonds; provided that the Bondholders’ right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the School District’s obligations hereunder and any failure by the School District to comply with the provisions of this undertaking shall not be an event of default with respect to the Bonds. The School District failed to file, in a timely manner, its audited financial statements for fiscal years ending June 30, 2012 and June 30, 2016, certain operating data for fiscal years ending June 30, 2012 through, and including, June 30, 2016, and its 2013, 2014 and 2016 budgets with respect to fiscal years ending June 30, 2012, June 30, 2013 and June 30, 2015, respectively. The School District filed a “Notice of Failure to File Annual Financial Information”, which outlines its failures to timely file certain of its annual financial information to EMMA, as referenced above. This notice was not timely filed.

The School District has implemented procedures to facilitate the prompt filing of annual financial information and material events on an on-going basis in accordance with the Rule.

RATINGS

Standard & Poor’s Global Ratings (“S&P”) has assigned its municipal bond rating of “__” (_____ outlook) to this issue of Bonds with the understanding that upon delivery of the Bonds, a policy insuring the payment when due of the principal of and interest on the Bonds will be issued by ____ (“____”). Additionally, S&P has assigned a separate underlying rating of “A+” (stable outlook) to the School District. Any explanation of the significance of this rating may be obtained only from the rating agency furnishing the same. The School District provided to the rating agency certain information and materials respecting the Bonds and itself. Generally, the rating agency bases its rating on such information and materials and its own investigations, studies and assumptions. There is no assurance that a rating will be maintained for any given period of time or that it may not be lowered or withdrawn entirely by the rating agency, if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of the rating may have an adverse effect on the market price of the Bonds.

UNDERWRITING

The Bonds are being purchased by RBC Capital Markets, LLC from the School District, in accordance with the terms of the Purchase Contract (the “Purchase Contract”) between RBC Capital Markets, LLC and the Township. The purchase price for the Bonds, exclusive of accrued interest, is equal to (i) the par amount of the Bonds of $______, (ii) less the underwriters’ discount of $______, and (iii) plus/less net original issue premium/discount of $______. The obligation of RBC Capital Markets, LLC to purchase the Bonds is subject to the terms and conditions set forth in the Purchase Contract. The Purchase Contract provides that RBC Capital Markets, LLC will purchase all of the Bonds, if any of the Bonds are purchased, and requires the School District to indemnify RBC Capital Markets LLC against losses, claims, damages and liabilities arising out of any materially incorrect or incomplete statements or information contained in this Official Statement pertaining to the School District and the descriptions of all agreements to which the School District is a party.

The Underwriter has provided the following information for inclusion in this Official Statement: The Underwriter and their respective affiliates are full service financial institutions engaged in various activities, that may include securities trading, commercial and investment banking, municipal advisory, brokerage and asset management. In the ordinary course of business, the Underwriter and their respective affiliates may actively trade debt and if applicable equity securities (or related derivative securities) and provide financial instruments (which

31 may include bank loans, credit support or interest rate swaps). The Underwriter and its affiliates may engage in transactions for its own accounts involving the securities and instruments made the subject of this securities offering or other offering of the Issuer. The Underwriter and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the Issuer. The Underwriter does not make a market in credit default swaps with respect to municipal securities at this time but may do so in the future.

LEGAL OPINIONS

All legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approval of Stevens and Lee, P.C., of Reading, Pennsylvania, Bond Counsel to the School District whose approving legal opinion is printed on the Bonds. Certain legal matters will be passed upon for the School District by John M. Stott, Esquire, Brumbach, Mancuso & Fegley of Reading, Pennsylvania, School District Solicitor.

CERTAIN RELATIONSHIPS AMONG THE PARTIES

Financial S&Lutions LLC, an affiliated business of Stevens & Lee, P.C., Bond Counsel to the School District, is serving as financial advisor to the School District in connection with the preparation, authorization and issuance of the Bonds.

Griffin Financial Group LLC, verification agent in connection with the advance refunding of the 2012 A Bonds, is a FINRA licensed investment bank affiliated with Stevens & Lee, P.C. and Financial S&Lutions LLC.

FINANCIAL ADVISOR

The School District has retained Financial S&Lutions LLC, Reading, Pennsylvania as financial advisor (the “Financial Advisor”) in connection with the preparation, authorization and issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Official Statement. Financial S&Lutions LLC is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.

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MISCELLANEOUS

This Official Statement has been prepared under the direction of the School District by Financial S&Lutions LLC, Reading, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Official Statement had been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Bonds, the Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Official Statement is not to be construed as a contract with holders of the Bonds.

Use of the words “shall,” “will,” must.” or other words of similar import or meaning in summaries of documents or law in this Official Statement to describe future events or continuing obligations is not intended as a representation that such event will occur or such obligations will be fulfilled, but only that the document or law requires or contemplates such event to occur or such obligation to be fulfilled.

The School District has authorized the distribution of this Official Statement.

OLEY VALLEY SCHOOL DISTRICT (Berks County, Pennsylvania)

By: Stephen S. Burns President, Board of School Directors

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INFORMATION RELATING TO THE OLEY VALLEY SCHOOL DISTRICT [ THIS PAGE INTENTIONALLY LEFT BLANK ] Population

The primarily agricultural character of the School District is evolving. Over a 200-year period, a bilingual Pennsylvania German population group developed the general area as a self-sufficient farming community. Population growth, demand for housing and transportation are forces which have combined to make residential living a second major component of activity within the School District. Industrial growth has not been and is not a community objective. The School District anticipates the shift from agriculture to a blend of agriculture and residential activities to continue.

Table A-1 shows recent population trends for the Oley Valley School District (the “School District”), Berks County and the Commonwealth of Pennsylvania (the “Commonwealth”). The School District’s population in 2015 was 13,230. Table A-2 shows 2015 age composition in the School District and for the Commonwealth.

TABLE A-1 RECENT POPULATION TRENDS

Percentage Change Area 2010 2015 2010-2015 School District ...... 13,436 13,230 -1.53% Berks County ...... 411,442 413,965 0.61 Pennsylvania ...... 12,702,379 12,779,599 0.61 ______Source: U.S. Bureau of the Census, and the Pennsylvania State Data Center-2000 & U.S. Census Bureau, 2011-2015 American Community Survey

TABLE A-2 AGE COMPOSITION

0-17 18-64 65+ Years Years Years School District ...... 18.5% 64.5% 17.0% Pennsylvania ...... 21.3 62.4 16.3 ______Source: U.S. Census Bureau, 2006-2010 American Community

Employment

Industrial and Commercial Employers. The major industrial and commercial employers located within the County and their approximate employment are shown hereunder:

Approximate Name Product or Service Employment Reading Hospital and Medical Center Health Services 5,900 East Penn Manufacturing Co., Inc. Batteries 5,600 Berks County Government Government 2,676 Reading School District Public Education 2,291 Wal-Mart Stores Retail 2,037 Boscov’s Department Store, Inc. Retail 2,000 Carpenter Technology Corp. Specialty Steel 1,976 Pennsylvania Government (in Berks) Government 1,700 St. Joseph Medical Center Health Services 1,549 Sovereign Bank Corp Financial Services 1,504

Source: Reading Eagle Company, 2009 & the individual companies listed in the chart above

A-1 TABLE A-3 BERKS COUNTY, PA NONFARM JOBS

Employment.

As shown on the following table, the County’s residents are employed through the region in many categories of employment. As of June 2017, Berks County had a labor force of 179,700 people.

READING METROPOLITAN STATISTICAL AREA

(Berks County)

June 2017 NONFARM JOBS – NOT SEASONALLY ADJUSTED

Industry Employment Net Change From: Apr ESTABLISHMENT DATA Jun 2017 May 2017 2017 Jun 2016 May 2017 Jun 2016

TOTAL NONFARM 179,700 179,800 179,300 175,900 -100 3,800 TOTAL PRIVATE 159,400 157,900 157,200 155,700 1,500 3,700 GOODS-PRODUCING 38,600 38,400 38,200 38,800 200 -200 Mining, Logging, and Construction 8,200 8,000 7,800 8,200 200 0 Manufacturing 30,400 30,400 30,400 30,600 0 -200 Durable Goods 21,700 21,600 21,600 21,800 100 -100 Non-Durable Goods 8,700 8,800 8,800 8,800 -100 -100 SERVICE-PROVIDING 141,100 141,400 141,100 137,100 -300 4,000 PRIVATE SERVICE-PROVIDING 120,800 119,500 119,000 116,900 1,300 3,900 Trade, Transportation, and Utilities 34,200 34,100 33,900 33,700 100 500 Wholesale Trade 6,700 6,700 6,700 6,900 0 -200 Retail Trade 19,300 19,400 19,300 19,200 -100 100 Grocery stores 3,300 3,300 3,300 3,300 0 0 Transportation, Warehousing, and Utilities 8,200 8,000 7,900 7,600 200 600 Information 1,200 1,100 1,100 1,200 100 0 Financial Activities 6,000 6,000 6,000 6,100 0 -100 Credit Intermediation and Related Activities including 1,900 1,900 1,900 1,900 0 0 Mone Professional and Business Services 24,400 24,100 24,000 23,600 300 800 Education and Health Services 30,000 30,000 30,200 28,800 0 1,200 Health care and social assistance 27,000 26,900 26,800 26,200 100 800 Leisure and Hospitality 16,800 16,200 15,900 15,500 600 1,300 Other Services 8,200 8,000 7,900 8,000 200 200 Government 20,300 21,900 22,1000 20,200 -1,600 100 Federal Government 900 900 900 900 0 0 State Government 3,500 4,400 4,700 3,400 -900 100 Local Government 15,900 16,600 16,500 15,900 -700 0

***Data changes of 100 may be due to Data benchmarked to March 2016 rounding***

Source: PA Department of Labor and Industry

A-2 Table A-4 shows recent trends in employment and unemployment for Berks County, Commonwealth and the United States.

TABLE A-4 RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT (Unemployment Rates)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Berks County 4.4% 4.2% 6.6% 8.7% 9.2% 7.9% 7.7% 7.1% 5.5% 4.9% 5.0% Pennsylvania 4.6 4.2 6.4 8.0 8.7 7.9 7.8 7.4 5.8 5.3 5.4 U.S. 4.6 4.5 7.1 9.3 9.6 8.9 8.1 7.4 6.2 5.3 4.5

Source: Pennsylvania Dept. of Labor & Industry, Bureau of Research & Statistics. Not seasonally adjusted * Unemployment data for 2016 is for the month of December.

Income

The data in Table A-5 shows trends in per capita income for the School District, Berks County and the Commonwealth over the 2000-2010 period. Per capita income in the School District and in the County is lower than per capita income in the Commonwealth, but per capita income in the School District is somewhat higher than Berks County.

TABLE A-5 RECENT TRENDS IN PER CAPITA INCOME*

Percentage Change 2010 2015 2010-2015 School District ...... $30,604 $33,148 8.31% Berks County ...... 25,384 27,146 6.94 Pennsylvania ...... 26,374 29,291 11.06 ______*Income is defined by the Bureau of the Census as the sum of wage and salary income, non-farm self-employment income, net self-employment income, Social Security and Railroad retirement income, public assistance income, interest, dividends, pensions, etc. before deductions for personal income taxes, Social Security, etc. School District income is the population-weighted average for political subdivisions. Source: 2000 Census, Pennsylvania State Data Center & U.S. Census Bureau, 2011-2015 American Community

Utilization of Land Area

The area that includes the School District is predominantly agricultural and woodland. The School District has a rich agricultural heartland. The average production value per Berks County farm is considerably higher than for the Commonwealth as a whole.

Transportation

Through a network of existing and newly constructed roadways, School District residents have access to a number of diverse employment centers. The nearby ones are Boyertown, Pottstown and Reading; the regional ones are Allentown, King of Prussia and Lancaster. The four-lane highways in the general area are Route 422 running east-west between King of Prussia and Reading and Route 222 running north-south between Allentown and Lancaster. Route 73, Route 12 and Route 662 are the primary roads which traverse the School District.

A-3 Housing

Housing within the School District is comprised of predominantly owner-occupied single family houses located in residential and rural settings. Single-family housing is expected to continue to predominate, and future construction within the area is expected by School District officials to be primarily of single-family housing.

In 2010, the number of dwelling units in the School District was 5,331. The median home value in the School District is estimated to be in the $202,800 range.

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A-4 APPENDIX B

FORM OF OPINION OF BOND COUNSEL [ THIS PAGE INTENTIONALLY LEFT BLANK ] STEVENS & LEE LAWYERS & CONSULTANTS 111 North 6th Street P.O. Box 679 Reading, PA 19603-0679 (610) 478-2000 Fax (610) 376-5610 www.stevenslee.com

______, 2017

Re: Oley Valley School District, Berks County, Pennsylvania $______General Obligation Bonds, Series of 2017

TO: THE REGISTERED OWNERS OF THE ABOVE-CAPTIONED BONDS

We have served as Bond Counsel in connection with the issuance by the Oley Valley School District, Berks County, Pennsylvania (the “School District”), of its $______aggregate principal amount General Obligation Bonds, Series of 2017, dated as of and bearing interest from ______, 2017 (the “Bonds”). The Bonds are being issued, without the assent of the electors, in fully registered form, without coupons, in denominations of $5,000 each or multiples thereof, pursuant to the provisions of the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, as reenacted and amended (the “Act”). The Bonds are being issued pursuant to the provisions of a resolution adopted by the Board of School Directors of the School District on September 13, 2017 (the “Resolution”).

The Bonds are being issued to provide funds for (1) the advance refunding of a portion of the School District’s General Obligation Bonds, Series A of 2012 (the “Refunded 2012 Bonds”); and (2) paying the costs and expenses of issuance of the Bonds, as described more completely in the Resolution.

The School District has covenanted in the Resolution that it will make no use of the proceeds of the Bonds and it has neither done nor suffered and will neither do nor suffer any other action which, if such use or action had been reasonably expected on the date of issue of the Bonds, would cause the Bonds to be “arbitrage bonds” or “private activity bonds,” as those terms are defined in the Internal Revenue Code of 1986, as amended (the “Code”), and the applicable regulations thereunder. The School District has further covenanted that it will comply with the requirements of Section 148 and Section 141 of the Code and with the applicable regulations thereunder throughout the term of the Bonds. Further, the School District has designated the Bonds as “qualified tax-exempt obligations” within the meaning and for the purposes of Section 265(b)(3) of the Code.

In the Resolution, the School District has covenanted that (1) it will include in its budget in each fiscal year the amount required to pay debt service on the Bonds for such year, (2) it will appropriate from its general revenues in each such fiscal year the amount required to pay debt service on the Bonds for such year, and (3) it will duly and punctually pay or cause to be paid when due, from its sinking fund or any other of its revenues or funds, the principal of and interest

Philadelphia  Reading  Valley Forge  Allentown  Harrisburg  Lancaster  Scranton Wilkes-Barre  Princeton  Charleston  New York  Wilmington A PROFESSIONAL CORPORATION

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on every Bond at the dates and place and in the manner stated therein, according to the true intent and meaning thereof. For such budgeting, appropriation and payment, the School District has irrevocably pledged its full faith, credit and taxing power, subject to such limitations provided by law. In addition, the School District has established with Manufacturers and Traders Trust Company (the “Paying Agent”), as paying agent and sinking fund depositary, a sinking fund, and has covenanted to deposit into such sinking fund amounts sufficient to pay the principal of and interest on the Bonds as the same shall become due and payable.

In our capacity as Bond Counsel, we have reviewed: (a) a certified copy of each Resolution; (b) the sworn debt statement and borrowing base certificate of the School District filed with the Department of Community and Economic Development of the Commonwealth of Pennsylvania (the “Department”) in accordance with the provisions of the Act; (c) the proceedings of the School District and the various proofs of publication in connection with the advertisement of the Resolution, all of which were filed with the Department as required by the provisions of the Act; (d) the approval of the Department; (e) a specimen copy of one of the Bonds; (f) the Nonarbitrage Certificate of the School District executed and delivered pursuant to the provisions of the Code and the regulations applicable thereto; (g) the General Certificate signed by officials of the School District; (h) a completed and executed Form 8038-G to be filed with the Internal Revenue Service; (i) the opinion of Brumbach, Mancuso & Fegly, P.C., Solicitor to the School District; (j) the Certificate dated the date hereof of RBC Capital Markets, LLC (the “Purchaser”); (k) the Certificate dated the date hereof of Financial S&Lutions LLC, municipal advisor to the School District; (l) the Escrow Agreement dated the date hereof between the School District and the escrow agent named therein with regard to the advance refunding of the Refunded 2012 Bonds; (m) the Verification Report of Griffin Financial Group LLC, Reading, Pennsylvania, with regard to the advance refunding of the Refunded 2012 Bonds; and (n) the other documents, certificates and opinions executed and delivered at the closing held this day.

Based and in reliance upon our review of the foregoing, our attendance at the closing held this day and subject to the qualifications set forth herein, it is our opinion that, as of the date hereof, under existing law:

1. The School District is empowered under provisions of the Constitution and laws of the Commonwealth of Pennsylvania to issue the Bonds.

2. The Resolution was duly adopted by the Board of School Directors of the School District and continues to be in full force and effect as of the date hereof.

3. The Bonds have been duly authorized and executed and constitute valid and binding obligations of the School District, enforceable in accordance with their terms, except as the legality, validity, binding nature and enforceability thereof may be limited by

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(a) applicable bankruptcy, insolvency or other laws or equitable principles now or hereafter affecting the enforcement of creditors’ rights generally or (b) general principles of equity.

4. Interest on the Bonds is not includable in gross income for federal income tax purposes under Section 103(a) of the Code.

5. Under the laws of the Commonwealth of Pennsylvania, the Bonds and interest on the Bonds shall be free from taxation for State and local purposes within the Commonwealth of Pennsylvania, but this exemption shall not extend to gift, estate, succession or inheritance taxes or other taxes not levied directly on the Bonds or the interest thereon. Under the laws of the Commonwealth of Pennsylvania, profits, gains or income derived from the sale, exchange or other disposition of the Bonds, are subject to State and local taxation within the Commonwealth of Pennsylvania.

6. The Bonds are qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code, and, therefore, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Code), a deduction is allowed for 80% of that portion of such financial institution’s interest expense allocable to interest on the Bonds in accordance with Section 291(a)(3) of the Code.

7. Under the Code, interest on the Bonds held by persons other than corporations (as defined for federal tax purposes) does not constitute an item of tax preference under Section 57 of the Code and thus is not subject to alternative minimum tax for federal income tax purposes.

8. Under the Code, interest on the Bonds held by a corporation (as defined for federal tax purposes) does not constitute an item of tax preference under Section 57 of the Code; however, corporations subject to alternative minimum tax will be required to include, among other things, amounts treated as interest on the Bonds as an adjustment in computing alternative minimum taxable income in the manner provided in Section 56 of the Code.

______

In connection with providing the foregoing opinions, we call to your attention the following:

A. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other documents, agreements, instruments, reports and certificates furnished to us at or in connection with the issuance of the Bonds (including, without

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limitation, certificates and agreements by the School District as to the expected use of proceeds of the Bonds, and as to its continuing compliance with the Code to assure that the Bonds do not become “arbitrage bonds” or “private activity bonds,” as defined in Sections 148 and 141 of the Code and the Regulations thereunder, and its expectations with respect to the issuance of additional, tax-exempt obligations within this calendar year) without undertaking to verify the same by independent investigation. We have also relied upon the accuracy of the representations and warranties and the performance of the covenants and agreements of the School District set forth in the Resolution and the various certificates and other agreements delivered at or in connection with the closing held this day.

B. In providing the opinion set forth in paragraph 4 above, we have assumed continuing compliance by the School District with the requirements of the Code and applicable regulations thereunder which must be met subsequent to the issuance of the Bonds in order that the interest thereon be and remain excluded from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds.

C. In providing the opinion set forth in paragraph 6 above, we have assumed continuing compliance by the School District with the requirements of the Code and the applicable regulations thereunder that must be met subsequent to the issuance of the Bonds in order that the Bonds continue to constitute qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code. Failure to comply with such requirements could cause the Bonds to cease to constitute qualified tax-exempt obligations with the result that no deduction would be allowed for that portion of a financial institution’s interest expense allocable to interest on the Bonds retroactive to the date of issuance of the Bonds.

D. In providing the opinions set forth in paragraphs 7 and 8 above, we have assumed continuing compliance by the School District with the requirements of the Code and applicable regulations thereunder which must be met subsequent to the issuance of the Bonds in order that the interest thereon not constitute an item of tax preference under Section 57 of the Code. Failure to comply with such requirements could cause the interest on the Bonds to constitute an item of tax preference under Section 57 of the Code retroactive to the date of issuance of the Bonds.

E. Except as specifically set forth above, we express no opinion regarding other federal income tax consequences arising with respect to the Bonds, including, without limitation, the treatment for federal income tax purposes of gain or loss, if any, upon the sale, redemption, or other disposition of the Bonds prior to maturity of the Bonds

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subject to original issue discount or premium and the effect, if any, of certain other provisions of the Code which could result in collateral federal income tax consequences to certain investors as a result of adjustments in the computation of tax liability dependent on tax-exempt interest.

F. We have not been engaged to verify, nor have we independently verified, the accuracy, completeness or truthfulness of any statements, certifications, information or financial statements set forth in the Preliminary Official Statement ______, 2017 (the “Preliminary Official Statement”), or the Official Statement, dated ______, 2017 (the “Official Statement”), or otherwise used in connection with the offer and sale of the Bonds or set forth in or delivered by School District officials. We express no opinion with respect to whether the School District, in connection with the sale of the Bonds or the preparation of the Preliminary Official Statement or the Official Statement, has made any untrue statement of a material fact or omitted to state a material fact necessary in order to make any statements made not misleading.

G. We have not verified, and express no opinion as to the accuracy of, any “CUSIP” identification number which may be printed on any Bond. We have also assumed the genuineness of the signatures appearing upon all the certificates, documents and instruments executed and delivered at closing.

STEVENS & LEE, P.C.

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APPENDIX C

AUDITED FINANCIAL REPORT

(FOR FISCAL YEAR ENDED JUNE 30, 2016)

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OLEY VALLEY SCHOOL DISTRICT

FINANCIAL AND COMPLIANCE REPORT

Year Ended June 30, 2016

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TABLE OF CONTENTS

Pages

INDEPENDENT AUDITOR'S REPORT ...... 1 - 2

MANAGEMENT’S DISCUSSION AND ANALYSIS ...... 3 - 10

BASIC FINANCIAL STATEMENTS

Government-Wide Financial Statements Statement of Net Position ...... 11 Statement of Activities ...... 12

Fund Financial Statements Balance Sheet - Governmental Funds ...... 13 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position ...... 14 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds ...... 15 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities ...... 16 Statement of Net Position - Proprietary Fund ...... 17 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund ...... 18 Statement of Cash Flows - Proprietary Fund ...... 19 - 20 Statement of Net Position - Fiduciary Funds ...... 21 Statement of Changes in Net Position - Fiduciary Fund ...... 22 Notes to Basic Financial Statements ...... 23 - 60

REQUIRED SUPPLEMENTARY INFORMATION

Budgetary Comparison Schedule for the General Fund ...... 61 Schedule of the District’s Proportionate Share of the Net Pension Liability and Related Ratios - Pension Plan ...... 62 Schedule of District’s Contributions - Pension Plan ...... 63 Schedule of Funding Progress - Other Postemployment Benefits Plan ...... 64 Note to Required Supplementary Information ...... 65

SUPPLEMENTARY INFORMATION

Food Service Fund Schedule of Revenues and Expenses ...... 66

Single Audit Schedule of Expenditures of Federal Awards ...... 67 Notes to Schedule of Expenditures of Federal Awards ...... 68

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS ...... 69 ‐ 70

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE ...... 71 ‐ 72

SCHEDULE OF FINDINGS AND QUESTIONED COSTS...... 73 ‐ 76

STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS ...... 77

CORRECTIVE ACTION PLAN ...... 78 ‐ 80

Herbein + Company, Inc. 2763 Century Boulevard Reading, PA 19610 P: 610.378.1175 F: 610.378.0999 www.herbein.com

INDEPENDENT AUDITOR'S REPORT

To the Board of School Directors Oley Valley School District Oley, Pennsylvania

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Oley Valley School District, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Oley Valley School District’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Oley Valley School District, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Succeed With Confidence 1

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the budgetary comparison schedule for the general fund, and pension and other postemployment benefit information on pages 62 through 64, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Oley Valley School District’s basic financial statements. The schedule of revenues and expenses ‐ food service fund is presented for the purpose of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements.

The schedule of revenues and expenses ‐ food service fund and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of revenues and expenses ‐ food service fund and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated, December 14, 2016, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.

Reading, Pennsylvania December 14, 2016

Succeed With Confidence 2 OLEY VALLEY SCHOOL DISTRICT OLEY, BERKS COUNTY, PENNSYLVANIA 19547 “Enter to Learn…Leave to Serve”

Tracy S. Shank, Ed. D. 17 Jefferson Street Superintendent Oley, PA 19547 Telephone (610) 987-4100

December 14, 2016

Members of the Board of School Directors,

The following is a discussion and analysis of the Oley Valley School District’s annual financial performance during the fiscal year ended June 30, 2016. This financial report is designed to provide the District’s citizens, taxpayers, customers, investors and creditors with a general overview of the District’s finances and to demonstrate the District’s accountability for the money it receives.

Financial Statements

This annual audit consists of three parts: (1) management’s discussion and analysis, (2) basic financial statements, and (3) required supplementary information. The basic financial statements include two types of financial statements that present different views of the District. The first type of financial statements includes two district-wide financial statements that provide both short-term and long-term information about the District’s overall financial status. The remaining statements are the fund financial statements that focus on individual parts of the District. The governmental fund statements indicate how basic instructional services were financed in the short term, as well as future spending plans. Proprietary fund statements offer short-term and long-term financial information about food services. Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others, such as student activity funds and scholarship funds.

The financial statements also include notes which explain the information in the audit statements, as well as more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements.

The Oley Valley School District is an Equal Opportunity Employer and Educator who fully and actively supports equal access for all people regardless of Race, Color, Religion, Gender, Age, National Origin, Veteran Status, Disability, Genetic Information or Testing, Sexual Orientation and Gender Identity or Expression and prohibits Retaliation against individuals who bring forth any complaint, orally or in writing, to the employer or the government, or against any individuals who assist or practice in the investigation of any complaint, or otherwise oppose discrimination. Compliance issues/questions should be directed to the Office of the Superintendent. 3

Figure A-1 summarizes the major features of the District’s statements.

Figure A-1

Major Features of the District-wide and Fund Financial Statements

Fund Financial Statements District-wide Statements Governmental Funds Proprietary Funds Fiduciary Funds Scope Entire District Activities of the District Activities the District Instances in which (except fiduciary that are not proprietary operates similar to the District funds) or fiduciary, such as private businesses, administers resources general operating and such as food on behalf of someone capital projects. services. else, such as scholarship programs and student activities monies. Required • Statement of • Balance sheet • Statement of • Statement of financial net position • Statement of net position net position statements • Statement of revenues, • Statement of • Statement of activities expenditures, and revenues, changes in net changes in fund expenses, and position balances changes in net position • Statement of cash flows Accounting basis Accrual accounting Modified accrual Accrual accounting Accrual accounting and and economic accounting and current and economic and economic measurement resources focus financial focus resources focus resources focus focus Type of All assets and Generally, assets All assets and All assets and asset/liability liabilities, both expected to be used up liabilities, both liabilities, both information financial and and liabilities that come financial and capital, current and capital, current and due during the year or and current and noncurrent; funds do noncurrent, and soon thereafter; no noncurrent. not currently contain deferred inflows capital assets or capital assets, and outflows of noncurrent liabilities although they can. resources. included. Type of All revenues and Revenues for which cash All revenues and All additions and inflow/outflow expenses during is received during or expenses during the deductions during the information year, regardless of soon after the end of the year, regardless of year, regardless of when cash is year; expenditures when when cash is when cash is received received or paid. goods or services have received or paid. or paid. been received and the related liability is due and payable.

Overview of Financial Statements

The district-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities that indicate whether the District is better off or worse off as a result of this year’s activities. These statements include all the District’s assets, liabilities, and deferred inflows and outflows of resources, using the accrual basis of accounting. Revenue and expenses are taken into account regardless of when cash is received or paid.

The Statement of Net Position presents all the District’s assets and liabilities, deferred inflows and outflows of resources, with the difference reported as “net position.” Over time, increases and decreases in net position measure whether the District’s financial position is improving or deteriorating.

The Statement of Activities presents information showing how the District’s net position changed during the year. Changes in net position are reported as soon as the underlying events giving rise to the change occur, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in these statements for some events that will result in cash flows in future periods: uncollected taxes, retirement incentives, and unused vacation leave.

Both statements report activities divided into two categories:

• Governmental Activities - Most of the District’s basic services, such as regular and special education, maintenance, and operation of plant services, are reported under this category. Taxes, basic education funding, and other local, state and federal sources fund these programs.

• Business-type Activities - These are services for which the District charges a fee. The only business-type activity in the District is food service operations. The sources of funding for operations consist of charges for food purchases and federal and state subsidies.

Fund Financial Statements

The fund financial statements provide more detailed information about the major individual funds of the District. A fund is a fiscal and accounting entity with a self-balancing set of accounts used to keep track of specific sources of funding and spending for particular programs. The District’s funds are divided into three categories - (1) governmental, (2) proprietary, and (3) fiduciary.

• Governmental Funds - Most of the district’s basic instructional services are included in governmental funds that focus on how money flows into and out of these funds and the balances left at the year-end for future spending. The governmental fund financial statements provide a detailed short-term view of the general operations and the basic services provided, and provide some direction as to whether there will be more or fewer resources that can be spent in the future to finance the District’s programs. These funds are reported using the modified accrual accounting method, which measures cash, and all other financial assets that can readily be converted to cash. Governmental funds include the general fund and the capital projects fund. Because this information does not encompass the additional long-term focus of the District-wide statements, additional information behind the governmental funds statement explains the relationship (or differences) between them.

• Proprietary Fund (Enterprise) - Services for which the District charges a fee, are generally reported in the proprietary fund and utilize the accrual accounting method, which is the same method used by the private sector businesses.

• Fiduciary Funds - The District acts as a trustee or fiduciary for assets that belong to others, such as scholarship funds or student activity funds. The District is responsible for ensuring that the assets reported in these funds are used only for the intended purposes and by those to whom the assets belong. These assets cannot be used to finance the District’s operations.

Financial Analysis of the District

• The District’s net position for governmental activities as of July 1, 2015 was ($30,719,766) and end of year net position, June 30, 2016, was ($30,112, 368). The District’s net position for business type activities was ($797,672) and end of year net position was ($806,565). Thus the District’s total end of year combined net position was ($30,918,933).

The Following table reflects the condensed Statement of Net Position

Table 1 Condensed Statement of Net Position Fiscal years ended June 30, 2016 and 2015

Governmental Activities Business-type Total 2014-15 2015-16 2014-15 2015-16 2014-15 2015-16

Current and other assets $9,579,714 $9,857,525 $7,282 $55,303 $9,586,996 $9,912,828

Capital assets 31,895,518 31,024,624 37,220 30,436 31,932,738 31,055,060 Total Assets $41,475,232 $40,882,149 $44,502 $85,739 $41,519,734 $40,967,888

Deferred Outflows of Resources $2,566,855 $3,977,411 $54,804 $83,152 $2,621,659 $4,060,563

Current Liabilities $5,058,993 $5,698,259 $30,281 $55,575 $5,089,274 $5,753,834

Non-Current Liabilities 66,639,704 67,825,704 802,591 891,738 67,442,295 68,717,442

Total Liabilities $71,698,697 $73,523,963 $832,872 $947,313 $72,531,569 $74,471,276

Deferred Inflows of Resources $3,063,156 $1,447,965 $64,106 $28,143 $3,127,262 $1,476,108

Net Position: Net Investment in Capital Assets $8,035,265 $9,015,644 $37,220 $30,436 $8,072,485 $9,046,080 Restricted for Capital Projects 1,394,168 1,695,512 - - 1,394,168 1,695,512

Unrestricted (40,517,372) (40,823,524) (834,892) (837,001) (41,352,264) (41,660,525)

Total Net Position ($30,719,766) ($30,112,368) ($797,672) ($806,565) ($31,517,438) ($30,918,933)

• At the close of the fiscal year, the General Fund ending fund balance of $4,320,904. The ending fund balance consists of $18,911 of non-spendable fund balance for prepaid expenditures, $1,368,709 of committed fund balance for future PSERS rate increases, assigned fund balance of $435,284 of which $350,000 was utilized for balancing the 16/17 budget, $55,340 for student laptops, and $29,944 for athletic purchases, and $2,498,000 of unassigned fund balance. All commitments were authorized by the school board of directors’ motion to set aside resources for said expenses.

• The District also maintained a restricted fund balance of $1,695,512 comprised of surplus money transferred from the general fund for the acquisition or construction of capital facilities and qualifying capital assets as authorized by Municipal Code P.L. 145 of April 30, 1943.

• The District closely monitors and gives consideration to real estate and economic trends as it annually evaluates the financial position of the school district. These considerations are conservatively reflected in the annually approved general fund budget. A real estate tax increase of 0.461 mills was enacted for the 2015-16

budget year due to the decrease in revenues and the continued increase in retirement costs, special education tuition, and health care costs. It is anticipated that due to changes in the new state funding formula, the District will experience flat or a decrease in State Basic Education Funding due to the District’s decreasing student enrollment. Although the District claimed over $450,000 in extraordinary special education expenditures, the District did not receive any contingency funding for extraordinary special education costs.

• The District continues to regularly monitor the current year’s monthly financial statements and makes ongoing adjustments as instructional needs change throughout the fiscal year. The District has also implemented a budget model which forecasts budgetary expenses and revenues three – five fiscal years in advance to minimize the impact of balancing the annual budget on instructional programs, course offerings, class sizes, personnel, and the burden on local tax payers.

The following table reflects the condensed statement of activities for the years ended June 30, 2016 and 2015. Table 2 Changes in Net Position for the years ended June 30 2016 and 2015

Governmental Activities Business-type Total 2014-15 2015-16 2014-15 2015-16 2014-15 2015-16

Revenues Program Revenues Charges for Services $85,596 $74,769 $432,463 $ 412,026 $518,059 $486,795

Operating grants and contributions 4,335,375 4,735,812 286,936 318,613 4,622,311 5,054,425

Capital grants and contributions 593,963 596,554 - - 593,963 596,554 General Revenues

Property taxes and other taxes - -

levied for general purposes 20,362,018 20,923,746 - - 20,362,018 20,923,746

Grants, subsidies, non-restricted 3,834,196 3,929,430 - - 3,834,196 3,929,430

Other 155,970 51,801 47,687 163 203,657 51,964 Total Revenues $29,367,118 $30,312,112 $767,086 $730,802 $30,134,204 $31,042,914

Expenses Instruction $1 6,769,564 $ 16,987,847 $- $- $16,769,564 $16,987,847

Instructional student support 2,885,038 2,956,664 - - 2,885,038 2,956,664

Admin. & financial support services 2,321,737 2,493,741 - - 2,321,737 2,493,741

Operation & maint. of plant services 2,511,208 2,525,089 - - 2,511,208 2,525,089

Pupil transportation 1,563,114 1,583,400 - - 1,563,114 1,583,400

Other 3,214,982 3,157,973 767,086 739,695 3,982,068 3,897,668 Total Expenses $29,265,643 $29,704,714 $767,086 $739,695 $30,032,729 $30,444,409

Increase (Decr.) in Net Position $101,475 $607,398 $0 ($8,893) $101,475 $598,505

• For the year ending June 30, 2016, the General fund experienced total revenues of $30,267,041 and expenditures of $30,071,689, leading to an excess revenue of $195,532. The excess revenue was transferred to Capital Projects to provide funding for capital improvements including but not limited to: roof replacements, HVAC upgrades, equipment replacement, and other facility improvements.

• For the year ending June 30, 2016, the Capital Projects fund had $111,927 in additional revenue, and had expenditures totaling $595,778. These expenses were for a truck and tractor replacement, high school locker replacement, technology, high school HVAC control upgrades, and high school auditorium lighting and sound upgrades.

• For the year ending June 30, 2016, the District’s investments were rated by Standard & Poor’s with a rating of AAA. The Districts investments are maintained by the PA School District Liquid Asset Fund.

• For the year ending June 30, 2016, the District had $31,024,624 in governmental activities net investment in capital assets, after depreciation costs. Capital investments include land, school buildings, administrative offices, athletic facilities, furniture, technology infrastructure, and fixtures. The District had $30,436 in business type activities, capital assets, net.

• For the year ending June 30, 2016, the District had a total for Bonds and Loans payable of $27,567,813. GOB Series 1993 with an outstanding balance of $2,075,000 with payment due through 2019. GOB Series A of 2012 with a balance of $7,235,000 payable through May 2028 with interest rates from .45% to 3.63%. GOB Series B of 2012 with a balance of $16,285,000 payable through 2027 with a variable interest rate for 2016 of .87%. Embedded Hedge Contract Loan being paid through swap payments with a variable interest rate consistent with the GOB Series B of 2012; effective interest rate at year-end was 3.07% with a balance of $1,972,813.

• For the year ending June 30, 2016, the Proprietary Fund, Food Service, had a gross profit of $414,469 and a total operating expense of $398,526, for a positive year-end balance of $15,943. Applying GASB 68 and 71 for the year increased costs by $24,836 and resulted in an overall change in net position of ($8,893.)

• During the 2015-2016 fiscal year, the District utilized $45,977 of commodities from the U.S. Department of Agriculture.

• The District is experiencing a significant increase in special education costs due to out of district placements for severe autism, mental health, and behavioral issues. The District has implemented a program to provide mental health services to students in its District schools for the 2016-17 school year, and will be investigating the possibility of contracting services for a trauma-based classroom within the District to help minimize the rising costs of special education services.

• The Pennsylvania School Employees Retirement System (PSERS) continues to establish the percentage of payroll that school districts must pay into the retirement fund as the actuarial projections based on required investment returns are being met. As of December 2016, the following PSERS rates are projected to be:

2016-17 30.03% 2017-18 32.57% 2018-19 34.18% 2019-20 35.53% 2020-21 35.95% 2021-22 36.40%

• During the 2016-17 fiscal year the district administration and school board will continue to plan for needed renovations to the District’s school buildings. The District will be undergoing a facility study to evaluate and prioritize the needs of the facilities to develop a long range capital plan. Particular concern is the current administration building which is aged and in need of major repairs.

If you have any questions about this report, or need additional financial information, contact the Office of the Superintendent, Oley Valley School District, 17 Jefferson Street, Oley, PA 19547, 610-987-4100 Ext. 1210.

OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF NET POSITION

June 30, 2016

Business‐ Governmental Type Activities Activities Total ASSETS Cash and Investments $ 7,240,453 $ 314,650 $ 7,555,103 Taxes Receivable, Net 895,185 ‐ 895,185 Internal Balances 279,712 (279,712) ‐ Intergovernmental Receivables 1,294,999 8,609 1,303,608 Other Current Assets 128,265 ‐ 128,265 Inventories and Prepaid Expenses 18,911 11,756 30,667 Capital Assets Not Being Depreciated: Land 328,284 ‐ 328,284 Capital Assets, Net of Accumulated Depreciation: Building and Building Improvements 30,012,699 ‐ 30,012,699 Furniture, Fixtures, and Equipment 223,279 30,436 253,715 Vehicles 64,300 ‐ 64,300 Computer Equipment 396,062 ‐ 396,062

TOTAL ASSETS 40,882,149 85,739 40,967,888

DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources for Pension Expense 85,316 29,946 115,262 Pension Contributions Made Subsequent to the Measurement Date 3,139,405 53,206 3,192,611 Interest Rate Swap 752,690 ‐ 752,690

TOTAL DEFERRED OUTFLOWS OF RESOURCES 3,977,411 83,152 4,060,563

LIABILITIES Accounts Payable 660,936 33,789 694,725 Accrued Salaries and Benefits 1,672,739 2,515 1,675,254 Payroll Deductions and Withholdings 849,216 ‐ 849,216 Accrued Interest 104,087 ‐ 104,087 Unearned Revenues ‐ 15,296 15,296 Noncurrent Liabilities: Due Within One Year 2,411,281 3,975 2,415,256 Bonds Payable, Net 23,247,700 ‐ 23,247,700 Embedded Hedge Loan Payable 1,818,242 ‐ 1,818,242 Derivative Instrument Liability ‐ Interest Rate Swap 752,690 ‐ 752,690 Long‐Term Portion of Compensated Absences 310,272 ‐ 310,272 Net Pension Liability 40,778,262 891,738 41,670,000 Other Postemployment Benefits Obligation 918,538 ‐ 918,538

TOTAL LIABILITIES 73,523,963 947,313 74,471,276

DEFERRED INFLOWS OF RESOURCES Deferred Inflows of Resources for Pension Expense 1,447,965 28,143 1,476,108

NET POSITION Net Investment in Capital Assets 9,015,644 30,436 9,046,080 Restricted for Capital Projects 1,695,512 ‐ 1,695,512 Unrestricted (Deficit) (40,823,524) (837,001) (41,660,525)

TOTAL NET POSITION (DEFICIT) $ (30,112,368) $ (806,565) $ (30,918,933)

See accompanying notes. 11 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF ACTIVITIES

For the Year Ended June 30, 2016

Net (Expense) Revenue and Program Revenue Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: Instructional Services: Regular $ 11,253,098 $ ‐ $ 1,496,903 $ ‐ $ (9,756,195) $ ‐ $ (9,756,195) Special 4,804,956 ‐ 1,661,212 ‐ (3,143,744) ‐ (3,143,744) Vocational 900,294 56,634 49,050 5,556 (789,054) ‐ (789,054) Other Instructional Programs 25,963 ‐ ‐ ‐ (25,963) ‐ (25,963) Nonpublic School Program 3,536 ‐ 3,536 ‐ ‐ ‐ Total Instructional Services 16,987,847 56,634 3,210,701 5,556 (13,714,956) ‐ (13,714,956) Support Services: Pupil Personnel 1,154,097 ‐ 124,766 ‐ (1,029,331) ‐ (1,029,331) Instructional Staff 981,037 ‐ 55,032 ‐ (926,005) ‐ (926,005) Administration 2,083,333 ‐ 185,299 ‐ (1,898,034) ‐ (1,898,034) Pupil Health 506,757 ‐ 69,555 ‐ (437,202) ‐ (437,202) Business Services 410,408 ‐ 34,203 ‐ (376,205) ‐ (376,205) Operation of Plant and Maintenance Services 2,525,089 ‐ 115,489 ‐ (2,409,600) ‐ (2,409,600) Student Transportation Services 1,583,400 ‐ 851,603 ‐ (731,797) ‐ (731,797) Central Support Services 288,285 ‐ 29,592 ‐ (258,693) ‐ (258,693) Other Support Services 26,488 ‐ ‐ ‐ (26,488) ‐ (26,488) Total Support Services 9,558,894 ‐ 1,465,539 ‐ (8,093,355) ‐ (8,093,355) Noninstructional Services: Student Activities 767,005 18,135 59,572 ‐ (689,298) ‐ (689,298) Community Services 10,420 ‐ ‐ ‐ (10,420) ‐ (10,420) Interest on Long‐Term Debt 943,594 ‐ ‐ 590,998 (352,596) ‐ (352,596) Unallocated Depreciation Expense 1,436,954 ‐ ‐ ‐ (1,436,954) ‐ (1,436,954) Total Noninstructional Services 3,157,973 18,135 59,572 590,998 (2,489,268) ‐ (2,489,268)

Total Governmental Activities 29,704,714 74,769 4,735,812 596,554 (24,297,579) ‐ (24,297,579) Business‐Type Activities: Food Services 739,695 412,026 318,613 ‐ ‐ (9,056) (9,056)

Total Primary Government $ 30,444,409 $ 486,795 $ 5,054,425 $ 596,554 (24,297,579) (9,056) (24,306,635) General Revenues Taxes: Property Taxes 18,746,040 ‐ 18,746,040 Public Utility Realty, Earned Income, and Mercantile Taxes 2,177,706 ‐ 2,177,706 Grants, Subsidies, and Contributions Not Restricted for Specific Programs 3,929,430 ‐ 3,929,430 Investment Earnings 19,186 163 19,349 Miscellaneous Income 32,615 ‐ 32,615

Total General Revenues 24,904,977 163 24,905,140

Change in Net Position 607,398 (8,893) 598,505

Net Position (Deficit) ‐ Beginning of year (30,719,766) (797,672) (31,517,438)

Net Position (Deficit) ‐ End of year $ (30,112,368) $ (806,565) $ (30,918,933) See accompanying notes. 12 OLEY VALLEY SCHOOL DISTRICT

BALANCE SHEET GOVERNMENTAL FUNDS

June 30, 2016

Total Capital Governmental General Projects Funds ASSETS Cash and Investments $ 6,697,102 $ 543,351 $ 7,240,453 Interfund Receivables 282,833 1,076,078 1,358,911 Taxes Receivable 905,420 ‐ 905,420 Intergovernmental Receivables 1,294,999 ‐ 1,294,999 Other Receivables 25,144 100,000 125,144 Prepaid Expenditures 18,911 ‐ 18,911

TOTAL ASSETS $ 9,224,409 $ 1,719,429 $ 10,943,838

LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES

LIABILITIES Interfund Payables $ 1,076,078 $ ‐ $ 1,076,078 Accounts Payable 637,019 23,917 660,936 Accrued Salaries and Benefits 1,672,739 ‐ 1,672,739 Payroll Deductions and Withholdings 849,216 ‐ 849,216 Compensated Absences Payable 156,710 ‐ 156,710

TOTAL LIABILITIES 4,391,762 23,917 4,415,679

DEFERRED INFLOWS OF RESOURCES Unavailable Revenue ‐ Taxes 511,743 ‐ 511,743

FUND BALANCES Nonspendable Fund Balance 18,911 ‐ 18,911 Restricted Fund Balance ‐ 1,695,512 1,695,512 Committed Fund Balance: Retirement Rate Increases 1,368,709 ‐ 1,368,709 Assigned Fund Balance 435,284 ‐ 435,284 Unassigned Fund Balance 2,498,000 ‐ 2,498,000

TOTAL FUND BALANCES 4,320,904 1,695,512 6,016,416

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 9,224,409 $ 1,719,429 $ 10,943,838

See accompanying notes. 13 OLEY VALLEY SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE GOVERNMENT‐WIDE STATEMENT OF NET POSITION

June 30, 2016

Amounts reported for governmental activities in the statement of net position are different because:

TOTAL FUND BALANCES ‐ GOVERNMENTAL FUNDS $ 6,016,416

Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of the assets is $57,353,664 and the accumulated depreciation is $26,329,040. 31,024,624

Taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable revenue in the funds adjusted for allowance for doubtful accounts. 501,508

The net pension and other postemployment benefits obligations are not reflected on the fund financial statements (41,696,800)

Deferred outflows and inflows of resources for pensions are recorded and amortized in the statement of net position. 1,776,756

Long‐term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long‐term liabilities at year end consist of:

Bonds Payable $ (25,595,000) Accrued Interest on Bonds (104,087) Unamortized Bond Interest 138,372 Unamortized Bond Discount 108,928 Embedded Hedge Loan Payable (1,972,813) Long‐Term Portion of Compensated Absences (310,272) (27,734,872)

TOTAL NET POSITION (DEFICIT) ‐ GOVERNMENTAL ACTIVITIES $ (30,112,368)

See accompanying notes. 14 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES ‐ GOVERNMENTAL FUNDS

For the Year Ended June 30, 2016

Total Capital Governmental General Projects Funds REVENUES Local Sources $ 20,765,556 $ 111,927 $ 20,877,483 State Sources 9,230,633 ‐ 9,230,633 Federal Sources 270,852 ‐ 270,852

TOTAL REVENUES 30,267,041 111,927 30,378,968

EXPENDITURES Current: Instructional Services 16,801,693 ‐ 16,801,693 Support Services 9,531,110 238,002 9,769,112 Operation of Noninstructional Services 773,752 ‐ 773,752 Capital Outlay ‐ 357,776 357,776 Debt Service: Principal 2,230,168 ‐ 2,230,168 Interest 734,955 ‐ 734,955 Refund of Prior Year Revenues 11 ‐ 11

TOTAL EXPENDITURES 30,071,689 595,778 30,667,467

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 195,352 (483,851) (288,499)

OTHER FINANCING SOURCES (USES) Transfers In ‐ 417,022 417,022 Transfers Out (417,022) ‐ (417,022)

TOTAL OTHER FINANCING SOURCES (USES) (417,022) 417,022 ‐

NET CHANGE IN FUND BALANCES (221,670) (66,829) (288,499)

FUND BALANCES ‐ BEGINNING OF YEAR 4,542,574 1,762,341 6,304,915

FUND BALANCES ‐ END OF YEAR $ 4,320,904 $ 1,695,512 $ 6,016,416

See accompanying notes. 15 OLEY VALLEY SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE GOVERNMENT‐WIDE STATEMENT OF ACTIVITIES

For the Year Ended June 30, 2016

Amounts reported for governmental activities in the statement of activities are different because:

NET CHANGE IN FUND BALANCES ‐ GOVERNMENTAL FUNDS $ (288,499)

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense.

Capital Outlays $ 566,060 Less: Depreciation Expense (1,436,954) (870,894)

Because some taxes will not becollected for several monthsafter the District's year end, they are not considered as "available" revenues in the governmental funds. (37,126)

Issuance of long‐term debt provides current financial resources to governmental funds, while the repayment of the principal of long‐ term debt consumes the current financial resources of governmental funds.

Repayment of Bond Principal 2,080,000 Repayment of Embedded Hedge Loan Principal 150,168 Amortization of Bond Discount (9,173) 2,220,995

Interest expense incurred on long‐term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. (199,466)

In the statement of activities, certain operating expenses ‐ compensated absences (vacations and sick days) are measured by the amounts earned during the year. 10,064

The change in net pension liability and other postemployment benefits obligation and related deferred outflows and inflows of resources are reflected as an adjustment to expense on the statement of activities, but not included in the fund statements. (227,676)

CHANGE IN NET POSITION (DEFICIT) OF GOVERNMENTAL ACTIVITIES $ 607,398

See accompanying notes. 16 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF NET POSITION PROPRIETARY FUND

June 30, 2016

Enterprise Fund Food Service ASSETS

CURRENT ASSETS Cash and Investments $ 314,650 Intergovernmental Receivables 8,609 Inventories 11,756

TOTAL CURRENT ASSETS 335,015

NONCURRENT ASSETS Machinery and Equipment, Net 30,436

TOTAL ASSETS 365,451

DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources for Pension 29,946 Pension Contributions Made Subsequent to the Measurement Date 53,206

TOTAL DEFERRED OUTFLOWS OF RESOURCES 83,152

LIABILITIES

CURRENT LIABILITIES Interfund Payables 279,712 Accounts Payable 33,789 Accrued Salaries and Benefits 2,515 Unearned Revenues 15,296 Compensated Absences Payable 3,975

TOTAL CURRENT LIABILITIES 335,287

NONCURRENT LIABILITY Net Pension Liability 891,738

TOTAL LIABILITIES 1,227,025

DEFERRED INFLOWS OF RESOURCES Deferred Pension Expense 28,143

NET POSITION (DEFICIT) Net Investment in Capital Assets 30,436 Unrestricted (Deficit) (837,001)

TOTAL NET POSITION (DEFICIT) $ (806,565)

See accompanying notes. 17 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUND

For the Year Ended June 30, 2016

Enterprise Fund Food Service

OPERATING REVENUES Food Service Revenue $ 412,026

OPERATING EXPENSES Salaries 219,513 Employee Benefits 129,992 Other Purchased Services 47,089 Supplies 316,333 Depreciation 6,784 Other Expenses 19,984

TOTAL OPERATING EXPENSES 739,695

OPERATING LOSS (327,669)

NONOPERATING REVENUES Local Sources ‐ Earnings on Investments 163 State Sources 53,058 Federal Sources 265,555

TOTAL NONOPERATING REVENUES 318,776

CHANGE IN NET POSITION (8,893)

NET POSITION (DEFICIT) ‐ BEGINNING OF YEAR (797,672)

NET POSITION (DEFICIT) ‐ END OF YEAR $ (806,565)

See accompanying notes. 18 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF CASH FLOWS PROPRIETARY FUND

For the Year Ended June 30, 2016

Enterprise Fund Food Service CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Users $ 410,426 Payments to Employees for Services (325,163) Payments to Suppliers for Goods and Services (52,063)

NET CASH PROVIDED BY OPERATING ACTIVITIES 33,200

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Sources 50,734 Federal Sources 216,625

NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 267,359

CASH FLOWS FROM INVESTING ACTIVITIES Earnings on Investments 163

NET INCREASE IN CASH AND CASH EQUIVALENTS 300,722

CASH AND CASH EQUIVALENTS ‐ BEGINNING OF YEAR 13,928

CASH AND CASH EQUIVALENTS ‐ END OF YEAR $ 314,650

See accompanying notes. 19 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF CASH FLOWS ‐ CONTINUED PROPRIETARY FUND

For the Year Ended June 30, 2016

Enterprise Fund Food Service Reconciliation of Operating Loss to Net Cash Provided by Operating Activities:

Operating Loss $ (327,669)

Adjustments to Reconcile Operating Loss to Net Cash Used for Operating Activities: Depreciation 6,784 Donated Commodities Used 45,977

Changes in Assets, Deferred Outflows of Resources, Liabilities, and Deferred Inflows of Resources: Intergovernmental Receivable 25 Inventories 3,630 Deferred Outflows of Resources for Pension (29,946) Pension Contributions Subsequent to the Measurement Date 1,598 Interfund Payables 254,323 Accounts Payable 27,413 Accrued Salaries and Benefits 168 Unearned Revenues (1,625) Compensated Absences Payable (662) Net Pension Liability 89,147 Deferred Inflows of Resources for Pension (35,963)

Total Adjustments 360,869

NET CASH PROVIDED BY OPERATING ACTIVITIES $ 33,200

NONCASH NONCAPITAL FINANCING ACTIVITIES During the year, the District used $45,977 of commodities from the U.S. Department of Agriculture.

See accompanying notes. 20 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF NET POSITION FIDUCIARY FUNDS

June 30, 2016

Agency Private Purpose Fund Trust Fund (Student (Scholarships) Activities)

ASSETS

CURRENT ASSETS Cash and Investments $ 65,546 $ 53,653 Other Receivables ‐ 3,748

TOTAL ASSETS 65,546 $ 57,401

LIABILITIES

CURRENT LIABILITIES Interfund Payables ‐ 3,121 Accounts Payable ‐ 6,909 Other Current Liabilities ‐ 47,371

TOTAL LIABILITIES ‐ $ 57,401

NET POSITION HELD IN TRUST FOR SCHOLARSHIPS $ 65,546

See accompanying notes. 21 OLEY VALLEY SCHOOL DISTRICT

STATEMENT OF CHANGES IN NET POSITION FIDUCIARY FUNDS

For the Year Ended June 30, 2016

Private Purpose Trust Fund (Scholarships)

ADDITIONS Earnings on Investments $ 4

CHANGE IN NET POSITION 4

NET POSITION ‐ BEGINNING OF YEAR 65,542

NET POSITION ‐ END OF YEAR $ 65,546

See accompanying notes. 22 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

The Oley Valley School District (“School District” or the “District”) is located in Berks County, Pennsylvania. The District tax base consists of four townships: Alsace, Oley, Pike, and Ruscombmanor.

The Oley Valley School District is governed by a board of nine school directors who are residents of the School District and who are elected every two years, on a staggered basis, for a four-year term.

The board of school directors has the power and duty to establish, equip, furnish, and maintain a sufficient number of elementary, secondary, and other schools necessary to educate every person, residing in such district, between the ages of six and 21 years, who may attend.

In order to establish, enlarge, equip, furnish, operate, and maintain any school herein provided, or to pay any school indebtedness which the School District is required to pay, or to pay an indebtedness that may at any time hereafter be created by the School District, the board of school directors are vested with all the necessary authority and power annually to levy and collect the necessary taxes required and granted by the legislature, in addition to the annual state appropriation, and are vested with all necessary power and authority to comply with and carry out any or all of the provisions of the Public School Code of 1949.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Reporting Entity

As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the District (the primary government) and its component units.

The District used guidance contained in generally accepted accounting principles to evaluate the possible inclusion of related entities (authorities, boards, etc.) within its reporting entity. The criteria used by the District for inclusion are financial accountability and the nature and significance of the relationships. In determining financial accountability in a given case, the District reviews the applicability of the following criteria. The District is financially accountable for:

• Organizations that make up the legal District entity.

• Legally separate organizations if District officials appoint a voting majority of the organization’s governing body and the District is able to impose its will on the organization, or if there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the District as defined below.

• Impose its will - If the District can significantly influence the programs, projects, or activities of, or the level of services performed or provided by the organization.

23 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

A. Reporting Entity - continued

Financial benefit or burden - exists if the District (1) is entitled to the organization's resources; (2) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide support to, the organization; or (3) is obligated in some manner for the debt of the organization.

• Organizations that are fiscally dependent on the District. Fiscal dependency is established if the organization is unable to adopt its budget, levy taxes, set rates or charges, or issued bonded debt without approval by the District.

Based on the foregoing criteria, the District has determined it has no component units.

Governments commonly enter into special arrangements with each other to provide or obtain needed services. A common type of such an arrangement is a joint venture. In addition to joint ventures, governments also enter into contracts to plan for and address certain activities for their mutual benefits, i.e., a jointly governed organization. The District has one of each of these relationships:

Joint Venture: The District is a participating member of the Berks Career & Technology Center. See Note 10 for details of involvement and financial information of the joint venture.

Jointly Governed Organizations: The District is a participating member of the Berks County Intermediate Unit (BCIU). The BCIU is run by a joint committee consisting of members from each participating district. No participating district appoints a majority of the joint committee. The board of directors of each participating district must approve BCIU’s annual operating budget.

The BCIU is a self-sustaining organization that provides services for fees to participating districts. As such, the District has no ongoing financial interest or responsibility in the BCIU. The BCIU contracts with participating districts to supply special education services, computer services, and to act as a conduit for certain federal programs.

24 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

B. Basis of Presentation - Government-Wide Financial Statements

Government-wide financial statements (i.e., the statement of net position and the statement of activities) display information about the reporting entity, except for its fiduciary activities. All fiduciary activities are reported only in the fund financial statements. The government-wide statements include separate columns for the governmental and business-type activities of the primary government, as well as any discretely presented component units. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business- type activities which rely, to a significant extent, on fees and charges for support. Likewise, the primary government is reported separately from the legally separate component units for which the primary government is financially accountable.

The statement of activities demonstrates the degree to which the direct expenses of a given function to the District are offset by the program revenues related to that function. Direct expenses are those that are directly related to and clearly identified with a function. Program revenues include 1) charges to customers or others who purchase, use, or directly benefit from services or goods provided by a given function, or 2) grants and contributions that are restricted to meet the operational or capital requirements of a function. Taxes and other items properly not included in program revenues are reported as general revenues.

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are the transfers between governmental funds and business- type and fiduciary funds. Elimination of these transfers would distort the direct costs and program revenues reported for the various functions concerned.

C. Basis of Presentation - Fund Financial Statements

The fund financial statements provide information about the government’s funds, including its fiduciary funds. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.

The District Reports the Following Major Governmental Funds:

General Fund: This fund is established to account for resources devoted to financing the general services that the District performs. Intergovernmental revenues and other sources of revenue used to finance the fundamental operations of the District are included in this fund. The fund is charged with all costs of operating the District for which a separate fund has not been established.

25 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

C. Basis of Presentation - Fund Financial Statements - continued

Capital Projects Fund: This fund is established to account for financial resources to be used for the acquisition or construction of major capital equipment and facilities (other than those financed by proprietary funds).

The District has the Following Major Enterprise Fund:

Food Service Fund: This fund accounts for all revenues, food purchases, and costs and expenses for the food service program. The food service fund is the District’s only major enterprise fund where the intent of the governing body is that the costs of providing food services are covered by user charges and subsidies received.

Additionally, the District Reports the Following Fund Type:

Fiduciary Funds: The District’s fiduciary funds are trust funds and agency funds. Trust funds are used to account for assets held by the District under a trust agreement for individuals, private organizations, or other governments and are, therefore, not available to support the District’s own programs. The District’s only trust fund is a private-purpose trust fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The District’s student activity fund is an agency fund.

During the course of operations, the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as interfund receivables and payables. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column.

Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column.

26 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

D. Measurement Focus and Basis of Accounting

The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements.

The government-wide financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Property taxes and interest associated with the current fiscal period is considered to be susceptible to accrual and so has been recognized as revenue of the current fiscal period. Expenditure- driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met. If time eligibility requirements are not met, deferred inflows of resources would be recorded. All other revenue items are considered to be measurable and available only when cash is received by the government.

For the year ended June 30, 2016, the District recognized revenue related to rental subsidies due from the Commonwealth of Pennsylvania. The District believes that the authorization of borrowing to fund the rental subsidy through PA Act 25 of 2016 and the subsequent bond resolution in July 2016 by the Commonwealth Financing Authority meets the available criteria under generally accepted accounting principles for governmental fund revenue recognition.

Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources.

The proprietary fund is reported using the economic resources measurement focus and the accrual basis of accounting. The trust fund is reported using the accrual basis of accounting. The agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities.

27 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

E. Budgetary Process

An operating budget is adopted prior to the beginning of each year for the General Fund on the modified accrual basis of accounting. The General Fund is the only fund for which a budget is legally required.

In accordance with Act 1 of 2006, the board shall annually, but not later than 110 days before the primary election, decide the budget option to be used for the following fiscal year. The board shall approve either the Accelerated Budget Process Option or the Board Resolution Option.

Accelerated Budget Process Option Under this option, a preliminary budget must be adopted 90 days prior to the primary election. Also under this option, the preliminary budget must be available for public inspection at least 20 days prior to the budget adoption. The board shall give public notice of its intent to adopt the preliminary budget at least 10 days prior to the adoption.

If the primary budget exceeds the increase authorized by the Index, an application for an exception may be filed with the Pennsylvania Department of Education and made available for public inspection. The board may opt to forego applying for an exception by submitting a referendum question seeking voter approval for a tax increase, in accordance with Act 1.

The final budget shall include any necessary changes from the adopted preliminary budget. Any reduction required as the result of the failure of referendum shall be clearly stated. The final budget shall be made available for public inspection at least 20 days prior to final adoption. The board shall annually adopt the final budget by a majority vote of all members of the board prior to June 30.

Board Resolution Option Under the Board Resolution Option, the board shall adopt a resolution that it will not raise the rate of any tax for the following fiscal year by more than the Index. Such resolution shall be adopted no later than 110 days prior to the primary election. At least 30 days prior to adoption of the final budget the board shall prepare a proposed budget. The proposed budget shall be available for public inspection at least 20 days prior to adoption of the budget. The board shall give public notice of its intent to adopt at least 10 days prior to adoption of the proposed budget. The board shall annually adopt the final budget by a majority vote of all members of the board by June 30.

Legal budgetary control is maintained at the sub-function/major object level. The PA School Code allows the school board to make budgetary transfers between major function and major object codes only within the last nine months of the fiscal year, unless there is a two-thirds majority of the board approving the transfer. Appropriations lapse at the end of the fiscal period. Budgetary information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments.

28 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

E. Budgetary Process - continued

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts in the PDE 2028 when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all 2015/16 budget transfers.

F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance

1. Cash and Investments For purposes of the statement of cash flows, the proprietary fund type considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Investments are valued at fair value in accordance with Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application, except for investments in external investment pools, which are valued at amortized costs if required criteria are met as outlined in Governmental Accounting Standards Board Statement No. 79, Certain External Investment Pools and Pool Participants.

The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

2. Receivables/Payables Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the year are referred to as “interfund receivables/payables.” Any residual balances outstanding between the governmental and business-type activities are reported in the government-wide financial statements as “internal balances.”

3. Inventories and Prepaid Items On government-wide financial statements, inventories are presented at the lower of cost or market on a first-in, first-out basis and are expensed when used.

Inventories of the governmental funds, consisting principally of textbooks and instructional supplies, are not valued since it is the policy of the District to charge these items to expense upon acquisition.

29 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued

3. Inventories and Prepaid Items - continued Inventories of the Enterprise Fund consisting of food and paper supplies are carried at cost, using the first-in, first-out method. Federal donated commodities are valued at their fair market value as determined by the U.S. Department of Agriculture at the date of donation. The inventories on hand at June 30, 2016, consist of the following:

Purchased food and supplies $ 7,936 Donated commodities 3,820

$ 11,756

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid expenses in the government-wide financial statements and prepaid expenditures in the fund financial statements. The cost of prepaid items is recorded as expenses/expenditures when consumed rather than when purchased.

4. Capital Assets, Depreciation, and Amortization The District’s property, plant, and equipment, with useful lives of more than one year, are stated at historical cost and comprehensively reported in the government-wide financial statements. Proprietary capital assets are also reported in their respective financial statements. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. In the case of donations, the government values these capital assets at the estimated fair value of the item at the date of its donation.

The District generally capitalizes assets with cost of $4,000 or more as purchase and construction outlays occur. Management has elected to include certain homogeneous asset categories with individual assets less than $4,000 as composite groups for financial reporting purposes. Assets purchased or constructed with long-term debt may be capitalized regardless of the threshold established. The costs of normal maintenance and repairs that do not add to the asset value or materially extend useful lives are not capitalized. Capital assets, including those of component units, are depreciated using the straight-line method. When capital assets are disposed, the cost and applicable accumulated depreciation are removed from the respective accounts, and the resulting gain or loss is recorded in operations.

30 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued

4. Capital Assets, Depreciation, and Amortization - continued Estimated useful lives, in years, for depreciable assets are as follows:

Assets Years

Buildings 10 - 96 Building improvements 25 - 64 Furniture, fixtures and equipment 10 -15 Vehicles 10 Computer equipment 5

Interest costs incurred during the construction phase of capital assets are capitalized when incurred by proprietary funds and similar component units on debt where proceeds were used to finance the construction of assets.

5. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has three items that qualify for reporting in this category, which are an interest rate swap, a deferred pension contribution, and deferred outflows of resources for pension which are reported in the government- wide statement of net position. The interest rate swap results from the swap being deemed a hedge instrument. The fair value of the swap is reported as a deferred outflow of resources on the government-wide statement of net position. A deferred pension contribution results from contributions made to the pension plan subsequent to the measurement date and prior to the District’s year end. The contributions will be recognized as a reduction in net pension liability in the following year. Deferred outflows of resources for pension relates to the District’s net pension liability and pension expense and arises from changes in assumptions, actual versus expected results, changes in benefits, variances in expected versus actual investment earnings, changes in the employer’s proportion, differences between employer contributions and the proportionate share of total contributions reported by the pension plan, or changes in the internal allocation of the net pension liability between governmental and business- type activities. These amounts are deferred and amortized over either a closed five-year period or the average remaining service life of all employees depending on what gave rise to the deferred outflow.

31 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued

5. Deferred Outflows/Inflows of Resources- continued In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The government has two types of items that qualify for reporting in this category. The first item, deferred inflows of resources for pension, relates to the District’s net pension liability and pension expense and arises from changes in assumptions, actual versus expected results, changes in benefits, variances in expected versus actual investment earnings, changes in the employer’s proportion, or differences between employer contributions and the proportionate share of total contributions reported by the pension plan. These amounts are deferred and amortized over either a closed five-year period or the average remaining service life of all employees depending on what gave rise to the deferred inflow. The second item, unavailable revenue, arises only under a modified accrual basis of accounting and is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from one source - property taxes. The amounts are deferred and recognized as an inflow of resources in the period that the amounts become available.

6. Unearned Revenues Revenues that are received but not earned are reported as unearned revenues in the government-wide, governmental funds, and enterprise funds financial statements. Unearned revenues arise when resources are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has legal claim to the resources, the liability for unearned revenue is removed from the respective financial statements and revenue is recognized.

7. Net Position Net position represents the difference between assets and deferred outflows of resources less liabilities and deferred inflows of resources. Net investment in the capital assets component of net position is comprised of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. In addition, any deferred outflows of resources and/or deferred inflows of resources related to such capital assets or liabilities associated with the capital assets should also be added to or deducted from the overall net investment in capital assets. The restricted component of net position is used when there are limitations imposed on their use either through the enabling legislation adopted by a higher governmental authority or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The remaining component of net position is unrestricted.

32 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued

7. Net Position - continued The District applies restricted resources first when an expense is incurred for purposes for which both the restricted and unrestricted components of net position are available.

8. Fund Balance Policies and Flow Assumptions Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The government itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance).

The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority. The board of school directors is the highest level of decision-making authority for the government that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation.

Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as committed. The finance committee of the board of school directors may assign fund balance. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment.

The District’s unassigned fund balance of the General Fund should not be less than four percent of the following year’s budgeted expenditures.

Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when components of unrestricted fund balance can be used for the same purpose, it is the District’s policy to use committed fund balance first, followed by assigned fund balance, and lastly unassigned fund balance.

33 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued

G. Revenues and Expenditures/Expenses

1. Program Revenues Amounts reported as program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions (including special assessments) that are restricted to meeting the operations or capital requirements of a particular function or segment. All taxes and other internally dedicated resources are reported as general revenues rather than as program revenues.

2. Compensated Absences Sick Day Termination Benefit Under the District’s administrative regulations, professional and eligible support personnel accumulate unused sick days from year to year based on their classification. These accumulated sick days are nonvesting during the employee’s tenure. Upon retirement, these employees are eligible for remuneration for unused sick days as follows:

a. Professional employees - $30 per day for every unused sick day.

b. Full-time clerical and custodial - $25 per day up to 150 days.

c. Full-time cafeteria workers, aides, bus drivers and nine-month clerical - $25 per day up to 100 days. Full-time ten-month clerical - $25 per day up to 125 days.

d. Administrators - $32 per day for every unused sick day.

e. Supervisors - $30 per day for every unused sick day.

The District maintains records of each employee’s accumulated sick days and the District has valued the accumulated sick days that are vested with employees who are eligible to retire.

Vacation Leave Vacation is earned by all eligible administrators, supervisors, support staff/aides, clerical, and custodial employees. The amount of vacation earned varies based on employment classification and years of service. In the event of termination, an employee is reimbursed for any unused accumulated vacation. Vacation is generally required to be used within one year of being earned.

34 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

G. Revenues and Expenditures/Expenses - continued

2. Compensated Absences - continued Retirement Benefits Professional employees with at least 25 years of service who retire are eligible for a retirement incentive payment of $4,000. In accordance with generally accepted accounting principles, the expense is recorded when the employees accept the offer.

3. Proprietary Funds Operating and Nonoperating Revenues and Expenses Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the food service fund are charges to customers for meals and services provided. Operating expenses for proprietary funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

H. Other Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

NOTE 2 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY

A. Compliance with Finance Related Legal and Contractual provisions

The District has no material violations of finance related legal and contractual provisions.

B. Deficit Fund Balance or Net Position of Individual Funds

Deficit Fund Balance - Proprietary Fund For the year ended June 30, 2016, the implementation of GASB No. 68, Accounting and Financial Reporting for Pensions, and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, created a deficiency in net position at year end of $806,565. The District will fund this deficiency in future years through contributions to the Pennsylvania Public School Employees’ Retirement Plan (PSERS) at a rate required by PSERS.

35 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 2 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY - CONTINUED

C. Excess of Expenditures Over Appropriations in Individual Funds

No individual fund, which had a legally adopted budget, had an excess of expenditures over appropriations.

D. Budgetary Compliance

The District’s only legally adopted budget is for the General Fund. All budgetary transfers were made within the last nine months of the fiscal year. The District cancels all purchase orders open at year end; therefore, it does not have any outstanding encumbrances at June 30, 2016. In addition, the District includes a portion of the prior year’s fund balance represented by unappropriated liquid assets remaining in the fund as budgeted revenue in the succeeding year. The results of operations on a GAAP basis do not recognize the fund balance allocation as revenue as it represents prior period’s excess of revenues over expenditures.

NOTE 3 - CASH AND INVESTMENTS

The deposit and investment policy of the District adheres to state statutes. There were no deposits or investment transactions during the year that were in violation of either the state statutes or the policy of the District.

The breakdown of total cash and investments at June 30, 2016, was as follows:

Petty Cash $ 164 Cash 3,291,311 Certificates of Deposit 59,853 Pooled Cash and Investments 4,322,974

$ 7,674,302

Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the government’s deposits may not be returned to it. The District does have a policy for custodial credit risk on deposits. At June 30, 2016, the carrying amount of the District’s deposits was $3,291,311 and the bank balance was $3,408,181. Of the bank balance, $255,690 was covered by federal depository insurance, and $3,152,491 was exposed to custodial credit risk, but covered by collateralization requirements in accordance with Act 72.

36 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 3 - CASH AND INVESTMENTS - CONTINUED

Investments Under Section 440.1 of the Public School Code of 1949, as amended, the District is permitted to invest funds in the following types of investments:

Obligations of (a) the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth, or (c) any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision.

Deposits in savings accounts, time deposits, or share accounts of institutions insured by the Federal Deposit Insurance Corporation to the extent that such accounts are so insured, and for any amounts above the insured maximum, provided that approved collateral as provided by law, therefore, shall be pledged by the depository.

Pennsylvania Act 10 of 2016 became effective May 25, 2016, and expanded the permitted investment types to include commercial paper, bankers’ acceptances, negotiable certificates of deposit, and insured bank deposit reciprocals as long as certain safeguards related to credit quality and maturity are met.

As of June 30, 2016, the District had the following pooled cash and investments:

Maturities Fair Value Carrying Value

PA School District Liquid Asset Fund: Full Flex Pool < 1 year $ 2,500,000 $ 2,500,000 MAX Account Balance 1,822,974 1,822,974

Total Pooled Cash and Investments $ 4,322,974

A portion of the District’s deposits are in the Pennsylvania School District Liquid Asset Fund (PSDLAF). Although not registered with the Securities and Exchange Commission and not subject to regulatory oversight, the funds act like money market mutual funds in that their objective is to maintain a stable net asset value of $1 per share, are rated by a nationally recognized statistical rating organization, and are subject to an independent annual audit.

37 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 3 - CASH AND INVESTMENTS - CONTINUED

The District’s cash equivalent investments in PSDLAF cannot be classified by risk category because they are not evidenced by securities that exist in physical or book entry form. The fair value of the District’s position in the external investment pool is the same as the value of the pool shares. All investments in external investment pools that are not registered with the Securities and Exchange Commission are subject to oversight by the Commonwealth of Pennsylvania.

As of June 30, 2016, the entire PSDLAF book balance of $4,322,974 is considered to be a cash equivalent for presentation on the government-wide and fund financial statements.

Interest Rate Risk The District does have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.

Credit Risk The District has an investment policy that limits its investment choices to certain credit ratings. As of June 30, 2016, the District’s investments were rated as:

Standard Investments & Poor's PA School District Liquid Asset Fund AAA

Concentration of Credit Risk The District does have a policy that limits the amount they may invest in any one issue. All of the District’s investments are issued or guaranteed by the U.S. Government and investments in mutual pools and excluded from this risk.

Custodial Credit Risk For an investment, custodial credit is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The District has no investment subject to custodial credit risk.

38 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 4 - TAXES RECEIVABLE AND UNAVAILABLE REVENUE

The District has four independently elected tax collectors who are responsible for the collection of taxes. Assessed values are established by the County Board of Assessment. All taxable real property was assessed at $727,449,400. In accordance with Act 1 of 2006, the District received $627,333 in property tax reduction funds for the 2015/2016 fiscal year. The District’s tax rate for the year ended June 30, 2016, was 25.837 mills ($25.837 per $1,000 of assessed valuation) as levied by the board of school directors. The schedule for real estate taxes levied for each fiscal year is as follows:

July 1 Levy date July 1 - August 31 2% discount period September 1 - October 31 Face payment period November 1 - January 14 10% penalty period January 15 Lien date

The District, in accordance with generally accepted accounting principles, recognized the delinquent and unpaid taxes receivable reduced by an allowance for uncollectible taxes as determined by administration. A portion of the net amount estimated to be collectible which was measurable and available within 60 days was recognized as revenue and the balance reported as unavailable under deferred inflows of resources in the fund financial statements.

The balances at June 30, 2016, were as follows:

Allowance Net Gross for Estimated Tax Taxes Uncollectible to be Revenue Unavailable Receivable Taxes Collectible Recognized Revenue

Real Estate $ 775,359 $ 10,235 $ 765,124 $ 263,616 $ 511,743 Real Estate Transfer 21,996 - 21,996 21,996 - Earned Income 108,065 - 108,065 108,065 -

$ 905,420 $ 10,235 $ 895,185 $ 393,677 $ 511,743

39 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 5 - INTERGOVERNMENTAL RECEIVABLES

The following schedule represents intergovernmental receivables at June 30, 2016:

General Proprietary Fund Fund

Local Sources Berks County Intermediate Unit $ 13,196 $ - Other Local Education Agencies 27,760 2,114 Total Local Sources 40,956 2,114

State Sources Commonwealth of PA - Social Security 54,661 - Commonwealth of PA - Retirement 573,340 - Commonwealth of PA - Rental Subsidy 590,998 - Commonwealth of PA - Ready to Learn Block Grant 13,801 - Commonwealth of PA - Transportation 19,390 - Commonwealth of PA - Breakfast and Lunch 461 Total State Sources 1,252,190 461

Federal Sources Federal Subsidies - Access 1,853 - Federal Subsidies - School Breakfast or Lunch Program - 6,034 Total Federal Sources 1,853 6,034

Total Intergovernmental Receivables $ 1,294,999 $ 8,609

40 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 6 - CHANGES IN CAPITAL ASSETS

Capital asset activity for the year ended June 30, 2016, was as follows:

Governmental Activities Beginning (Reclass) Ending Balance Increase Decrease Balance Capital assets not being depreciated: Land $ 328,284 $ - $ - $ 328,284 Construction in progress 29,719 - (29,719) - Total assets not being depreciated: 358,003 - (29,719) 328,284

Capital assets being depreciated: Buildings 43,134,145 - - 43,134,145 Building improvements 8,015,801 393,995 - 8,409,796 Fixtures and equipment 2,358,388 29,946 - 2,388,334 Vehicles 95,729 49,933 - 145,662 Computer equipment 2,825,538 121,905 - 2,947,443 Total assets being depreciated: 56,429,601 595,779 - 57,025,380

Less accumulated depreciation for: Buildings 17,763,793 966,685 - 18,730,478 Building improvements 2,514,489 286,275 - 2,800,764 Furniture, fixtures and equipment 2,126,853 38,202 - 2,165,055 Vehicles 70,622 10,740 - 81,362 Computer equipment 2,416,329 135,052 - 2,551,381 Total accumulated depreciation: 24,892,086 1,436,954 - 26,329,040

TOTAL CAPITAL ASSETS BEING DEPRECIATED, NET 31,537,515 (841,175) - 30,696,340

GOVERNMENTAL ACTIVITIES, CAPITAL ASSETS, NET $ 31,895,518 $ (841,175) $ (29,719) $ 31,024,624

Business-Type Activities

Capital assets being depreciated: Equipment $ 96,064 $ - $ - $ 96,064 Less accumulated depreciation for: Equipment 58,844 6,784 - 65,628

BUSINESS-TYPE ACTIVITIES CAPITAL ASSETS, NET $ 37,220 $ (6,784) $ - $ 30,436

Depreciation expense of $1,436,954 in governmental activities was unallocated for the year ended June 30, 2016.

41 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 7 - LONG-TERM LIABILITIES

General Obligation Bonds and Loans at June 30, 2016, were as follows:

General Obligation Bonds - Series of 1993: In May 1993, the District issued the General Obligation Bonds - Series of 1993 of $17,480,035, consisting of $13,025,000 of Current Interest Bonds and $14,450,000 of Capital Appreciation Bonds with an original principal amount of $4,455,035. On February 18, 1998, the District refunded and defeased the Current Interest Bonds. Only the Capital Appreciation Bonds are outstanding at June 30, 2016, with payment due through 2019. $ 2,075,000

General Obligation Bonds - Series A of 2012 In May 2012, the District issued the General Obligation Bonds - Series A of 2012 in the aggregate principal amount of $8,535,000. The purpose of this issue was to provide funds to currently refund a portion of the General Obligation Bonds - Series A of 2002, to currently refund all of the General Obligation Bonds - Series AA of 2002, to pay a portion of the costs of terminating an interest rate management agreement relating to the 2002A Bonds, and to pay costs associated with the bond issuance. The bonds mature from May 2012 through May 2028 with interest rates from 0.45% to 3.63%. 7,235,000

General Obligation Bonds - Series B of 2012 In May 2012, the District issued the General Obligation Bonds - Series B of 2012 in the aggregate principal amount of $18,090,000. The purpose of this issue was to provide funds to currently refund a portion of the General Obligation Bonds - Series A of 2002, to pay a portion of the costs of terminating an interest rate management agreement relating to the 2002A Bonds, and to pay costs associated with the bond issuance. The bonds mature from May 2012 through May 2027 with a variable interest rate. The interest rate at June 30, 2016, was 0.87%. This bond is part of a hedging derivative off-market swap agreement and contains a put-option at the five-year anniversary of the credit facility and at each five-year point thereafter to the extent not previously exercised. In the event a put option is exercised by the bank and the school is unable to refinance the existing principal balance, all outstanding principal will amortize equally over a thirty-six month period commencing on the put date at an interest rate of Bank Base Rate plus 2.5% or 7%. 16,285,000

Total Bonds Payable 25,595,000

42 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 7 - LONG-TERM LIABILITIES - CONTINUED

Embedded Hedge Loan Payable In May 2012, the District issued the General Obligation Bonds - Series A and B of 2012, which refunded the General Obligation Bonds - Series A and AA of 2002 and partially terminated the interest rate swap associated with the General Obligation Bonds - Series A 2002. To complete the swap termination, the District entered into a new interest rate swap hedge contract relating to the General Obligation Bonds - Series B of 2012 which included an embedded hedge loan. A total of $2,560,730 was advanced on the District’s behalf, consisting of $2,515,730 to complete the termination of the swap relating to the GOB Series A of 2002 and $45,000 in swap issuance costs. This embedded hedge contract loan is being repaid through the swap payments with variable interest rates consistent with the repayment of the General Obligation Bonds - Series B of 2012. The effective interest rate at June 30, 2016, was 3.07%. 1,972,813

Total Loan Payable 1,972,813

Total Bonds and Loan Payable $ 27,567,813

The future annual payments required to amortize all outstanding bonds and loans payable for the years ending June 30 are as follows:

General General General Obligation Obligation Obligation Total Bonds - Bonds - Bonds - General Year Ended Series of Series A Series B Loan Long-Term Total June 30 1993 of 2012 of 2012 Payable Debt Interest

2017 $ 1,495,000 $ 60,000 $ 545,000 $ 154,571 $ 2,254,571 $ 720,791 2018 580,000 80,000 1,260,000 159,103 2,079,103 692,946 2019 - 455,000 1,385,000 163,768 2,003,768 636,842 2020 - 470,000 1,430,000 168,570 2,068,570 567,699 2021 - 485,000 1,475,000 173,512 2,133,512 495,145 2022 - 2026 - 2,735,000 8,200,000 946,925 11,881,925 1,255,587 2027 - 2028 - 2,950,000 1,990,000 206,364 5,146,364 69,753 Subtotal 2,075,000 7,235,000 16,285,000 1,972,813 27,567,813 4,438,763 Less: Unamortized Interest (138,372) - - - (138,372) -

TOTAL $ 1,936,628 $ 7,235,000 $ 16,285,000 $ 1,972,813 $ 27,429,441 $ 4,438,763

43 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 7 - LONG-TERM LIABILITIES - CONTINUED

Long-term liability balance and activity, except for the net pension liability and other postemployment benefit obligation, for the year ended June 30, 2016, was as follows:

Due Beginning Ending Within Balance Additions Reductions Balance One Year Governmental Activities General Obligation Debt: Bonds Payable $ 27,675,000 $ - $ 2,080,000 $ 25,595,000 2,100,000$ Discounts (118,101) - (9,173) (108,928) - Unamortized Bond Interest (327,931) - (189,559) (138,372) - Total Bonds Payable 27,228,968 - 1,881,268 25,347,700 2,100,000 Other Liabilities: Loan Payable 2,122,981 - 150,168 1,972,813 154,571 Compensated Absences 490,638 51,678 75,334 466,982 156,710

Total Governmental Long-Term Liabilities $ 29,842,587 $ 51,678 $ 2,106,770 $ 27,787,495 2,411,281$

Business-Type Activities Compensated Absences $ 4,637 $ 1,250 $ 1,912 $ 3,975 $ 3,975

Payment for bonds and loan payable are made by the general fund. The compensated absences liabilities will be liquidated by the general and the proprietary funds. Total interest paid during the year ended June 30, 2016, was $734,955.

44 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS

Employee Defined Benefit Pension Plan

Summary of Significant Accounting Policies

For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public School Employees’ Retirement System (PSERS), and additions to/deductions from PSERS’s fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

General Information about the Pension Plan

Plan Description

PSERS is a governmental cost-sharing multi-employer defined benefit pension plan that provides retirement benefits to public school employees of the Commonwealth of Pennsylvania under Title 24 Part IV of the Pennsylvania General Assembly. The members eligible to participate in the System include all full-time public school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERS issues a publicly available financial report that can be obtained at www.psers.state.pa.us.

Benefits Provided

PSERS provides retirement, disability, and death benefits. Members are eligible for monthly retirement benefits upon reaching (a) age 62 with at least one year of credited service; (b) age 60 with 30 or more years of credited service; or (c) 35 or more years of service regardless of age. Act 120 of 2010 (Act 120) preserves the benefits of existing members and introduced benefit reductions for individuals who become new members on or after July 1, 2011. Act 120 created two new membership classes, Membership Class T-E (Class T-E) and Membership Class T-F (Class T-F). To qualify for normal retirement, Class T-E and Class T-F members must work until age 65 with a minimum of three years of service or attain a total combination of age and service that is equal to or greater than 92 with a minimum of 35 years of service. Benefits are generally equal to 2.0 percent or 2.5 percent, depending upon membership class, of the member’s final average salary (as defined in the Code) multiplied by the number of years of credited service. For members whose membership started prior to July 1, 2011, after completion of five years of service, a member’s right to the defined benefits is vested and early retirement benefits may be elected. For Class T-E and Class T-F members, the right to benefits is vested after 10 years of service.

45 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED

Participants are eligible for disability retirement benefits after completion of five years of credited service. Such benefits are generally equal to 2.0 percent or 2.5 percent, depending upon membership class, of the member’s final average salary (as defined in the Code) multiplied by the number of years of credited service, but not less than one-third of such salary nor greater than the benefit the member would have had at normal retirement age. Members over normal retirement age may apply for disability benefits.

Death benefits are payable upon the death of an active member who has reached age 62 with at least one year of credited service (age 65 with at least three years of credited service for Class T-E and Class T-F members) or who has at least five years of credited service (10 years for Class T-E and Class T-F members). Such benefits are actuarially equivalent to the benefit that would have been effective if the member had retired on the day before death.

Contributions

The contribution policy is set by the state statute and requires contributions by active members, employers, and the Commonwealth of Pennsylvania.

Member Contributions:

Active members who joined the System prior to July 22, 1983, contribute at 5.25 percent (Membership Class T-C) or at 6.50 percent (Membership Class T-D) of the member’s qualifying compensation.

Members who joined the System on or after July 22, 1983, and who were active or inactive as of July 1, 2001, contribute at 6.25 percent (Membership Class T-C) or at 7.50 percent (Membership Class T-D) of the member’s qualifying compensation.

Members who joined the System after June 30, 2001, and before July 1, 2011, contribute at 7.50 percent (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, 2002.

Members who joined the System after June 30, 2011, automatically contribute at the Membership Class T-E rate of 7.5 percent (base rate) of the member’s qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.3 percent (base rate) of the member’s qualifying compensation. Membership Class T-E and Class T-F are affected by a “shared risk” provision in Act 120 of 2010 that in future fiscal years could cause the Membership Class T-E contribution rate to fluctuate between 7.5 percent and 9.5 percent and Membership Class T-F contribution rate to fluctuate between 10.3 percent and 12.3 percent.

46 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED

Employer Contributions:

The District’s contractually required contribution rate for fiscal year ended June 30, 2016, was 25.00 percent of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The rate was certified by the PSERS board of trustees. Contributions to the pension plan from the District were $3,192,611 for the year ended June 30, 2016.

The District is also required to contribute a percentage of covered payroll to PSERS for healthcare insurance premium assistance. For the year ended June 30, 2016, the contribution rate was 0.84 percent of covered payroll and the District contributed $107,272.

Under the current legislation, the Commonwealth of Pennsylvania reimburses the District for approximately one-half of the employer contributions made, including both contributions related to pension and to healthcare. This arrangement does not meet the criteria of a special funding situation in accordance with GASB standards. Therefore, the net pension liabilities and related pension expense represent 100 percent of the District’s share of those amounts. The total reimbursement recognized by the District for the year ended June 30, 2016, was $1,633,836.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

At June 30, 2016, the District reported a liability of $41,670,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System’s total pension liability as of June 30, 2014, to June 30, 2015. The District’s proportion of the net pension liability was calculated utilizing the employer’s one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2015, the District’s proportion was 0.0962 percent, which was a decrease of 0.0027 percent from its proportion measured as of June 30, 2014.

47 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED

For the year ended June 30, 2016, the District recognized pension expense of $3,318,899. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Deferred Outflows Inflows of of Resources Resources

Net difference between projected and actual investment earnings $ - $ 84,000 Difference between expected and actual experience - 172,000 Changes in proportions - plan level - 1,192,000 Changes in proportions - internal 28,108 28,108 Difference between employer contributions and proportionate share of total contributions 87,154 - Contributions made subsequent to the measurement date 3,192,611 -

$ 3,307,873 $ 1,476,108

The $3,192,611 reported as deferred outflows of resources resulting from District pension contributions made subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows for the years ending June 30:

2017 $ 527,101 2018 527,101 2019 527,107 2020 (220,463)

$ 1,360,846

48 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED

Actuarial Assumptions

The total pension liability as of June 30, 2015, was determined by rolling forward the System’s total pension liability as of the June 30, 2014 actuarial valuation to June 30, 2015, using the following actuarial assumptions, applied to all periods included in the measurement:

• Actuarial cost method - Entry Age Normal - level percent of pay • Investment return - 7.50 percent, includes inflation at 3.00 percent • Salary increases - Effective average of 5.50 percent, which reflects an allowance for inflation of 3.00 percent, real wage growth of 1.00 percent, and merit or seniority increases of 1.50 percent • Mortality rates were based on the RP-2000 Combined Healthy Annuitant Tables (male and female) with age set back three years for both males and females. For disabled annuitants the RP-2000 Combined Disabled Tables (male and female) with age set back seven years for males and three years for females.

The actuarial assumptions used in the June 30, 2014 valuation were based on the experience study that was performed for the five-year period ended June 30, 2010. The recommended assumption changes based on this experience study were adopted by the PSERS Board of Trustees at its March 11, 2011 board meeting, and were effective beginning with the June 30, 2011 actuarial valuation.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

49 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED

The pension plan’s policy in regard to the allocation of invested plan assets is established and may be amended by the PSERS board. Plan assets are managed with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the pension.

Long-Term Target Expected Real Asset Class Allocation Rate of Return

Public markets global equity 22.5% 4.8% Private markets (equity) 15.0% 6.6% Private real estate 12.0% 4.5% Global fixed income 7.5% 2.4% U.S. long treasuries 3.0% 1.4% TIPS 12.0% 1.1% High yield bonds 6.0% 3.3% Cash 3.0% 0.7% Absolute return 10.0% 4.9% Risk parity 10.0% 3.7% MLPs/Infrastructure 5.0% 5.2% Commodities 8.0% 3.1% Financing (LIBOR) -14.0% 1.1%

100%

The above was the PSERS board’s adopted asset allocation policy and best estimates of geometric real rates of return for each major asset class as of June 30, 2015.

Discount Rate

The discount rate used to measure the total pension liability was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

50 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED

Sensitivity of the District’s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the net pension liability, calculated using the discount rate of 7.50 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.50%) or one percentage point higher (8.50%) than the current rate:

1% Decrease Discount Rate 1% Increase 6.50% 7.50% 8.50%

District's proportionate share of the net pension liability $ 51,361,000 $ 41,670,000 $ 33,523,000

Pension Plan Fiduciary Net Position

Detailed information about PSERS’ fiduciary net position is available in PSERS Comprehensive Annual Financial Report which can be found on the System’s website at www.psers.state.pa.us.

Payables to the Pension Plan

At June 30, 2016, the District had an accrued balance due to PSERS of $1,193,274. This amount represents the District’s contractually obligated contributions for wages earned in April 2016 through June 2016. The balance will be paid in September 2016.

403(b) Tax Shelter Plan

The District has established a 403(b) tax shelter plan permitting the establishment of accounts for school employees to voluntarily set aside monies to supplement their retirement income. All school employees are eligible to participate. The District does not contribute to the Plan.

51 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 9 - INTERFUND RECEIVABLES/PAYABLES AND TRANSFERS

The following is a summary of interfund receivables and payables at June 30, 2016:

Interfund Interfund Receivables Payables General Fund $ 282,833 $ 1,076,078 Capital Projects Fund 1,076,078 - Enterprise Fund - Food Service - 279,712 Student Activities - 3,121 $ 1,358,911 $ 1,358,911

Interfund receivables and payables exist as a result of the time lag between dates when goods and services were provided and payments between funds are made. All balances will be repaid within one year.

Interfund transfers are summarized as follows at June 30, 2016:

Transfers In Transfers Out General Fund $ - $ 417,022 Capital Projects Fund 417,022 - $ 417,022 $ 417,022

Transfers were made to move funds to the capital projects fund for future capital needs.

NOTE 10 - JOINT VENTURE

The District is a participating member of the Berks Career & Technology Center. The Berks Career & Technology Center is controlled and governed by a joint board, which is composed of representative school board members of the participating schools. Direct oversight of Berks Career & Technology Center’s operations is the responsibility of the joint board. The board of directors of each participating district must approve the Center’s annual operating budget. The District’s share of annual operating and capital costs for Berks Career & Technology Center fluctuates based on the percentage of enrollment. The District’s share for the 2015/16 year was $620,208.

52 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 10 - JOINT VENTURE - CONTINUED

During the year ended June 30, 1998, Berks Career Vocational Technical School Authority issued $34,850,000 of General Obligation Bonds and lent the proceeds to Berks Career & Technology Center. The proceeds are being used to renovate and build an addition to Berks Career & Technology Center’s facilities. Each member district adopted a resolution approving the project and the project’s maximum cost. Under the amended Articles of Agreement, each member district is required to pay from current revenues its annual share of the sublease rental based on the District’s share of taxable real estate to the total market valuation of the taxable real estate of all participating school districts. The District’s share for the 2015/16 year was $104,125.

Summary financial information as of June 30, 2015, (most recent available) was as follows:

Berks Career & Technology Center - Governmental Activities

Total Assets and Deferred Outflows of Resources $ 30,855,321 Total Liabilities 31,910,451

Total Net Position $ (1,055,130)

Separate financial statements of the Berks Career & Technology Center have been prepared and are available.

NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS

Plan Description The Oley Valley School District administers a single-employer defined benefit healthcare plan (the Retiree Health Plan). The Plan provides healthcare insurance for eligible retirees and their spouses through the District’s health insurance plan, which covers both active and retired members until the member reaches Medicare age. Benefit provisions are established through negotiation with the District and the unions representing the District’s employees. The Retiree Health Plan does not issue a publicly available financial report.

Funding Policy Contribution requirements also are negotiated between the District and union representatives. The required contribution is based on pay as you go financing. The District currently provides medical and prescription drug coverage to the superintendent and spouse at 100 percent of premium the first year of retirement and then 50 percent of premium until the earlier of Medicare or member’s death. The same provision is in place for the assistant superintendent but the District only pays 50 percent of premium until the earlier of Medicare or member’s death.

53 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS - CONTINUED

Funding Policy - continued Under Act 110/43, any employee who is eligible (age 60 with 30 years of service, age 62 with one year of service, or 35 years of service regardless of age) is allowed to continue coverage for themselves and their dependents until the member reaches Medicare age. The retiree is responsible for payment equal to the premium determined for the purposes of COBRA. For the fiscal year ended June 30, 2016, the District contributed $106,167 to the plan related to retirees.

Annual OPEB Cost and Net OPEB Obligation The District’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District’s net OPEB obligation:

Annual required contribution $ 289,635 Interest on net OPEB obligation 35,654 Adjustment to annual required contribution (92,898) Annual OPEB Cost 232,391 Contributions made (estimated) (106,167) Estimated increase in net OPEB obligation 126,224 Net OPEB obligation - beginning of year 792,314

Net OPEB obligation - end of year $ 918,538

The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation as of June 30 is as follows:

Percentage of Annual OPEB Fiscal Year Annual Cost Net OPEB Ended OPEB Cost Contributed Obligation

6/30/2016$ 232,391 45.7% $ 918,538 6/30/2015 241,738 46.5% 792,314 6/30/2014 290,176 53.7% 662,949

54 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS - CONTINUED

Funded Status and Funding Progress As of November 1, 2013, the most recent actuarial valuation date, the Plan was unfunded. The actuarial accrued liability for benefits was $1,615,896, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $1,615,896. The covered payroll (annual payroll of active employees covered by the Plan) was $11,081,618, and the ratio of the UAAL to the covered payroll was 14.58 percent.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents information about actuarial value of plan assets and actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the November 1, 2013 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.5 percent investment rate of return (net of administrative expenses) and an annual healthcare cost trend rate of 7.0 percent initially, decreasing 0.5 percent per year to a rate of 5.5 percent in 2016. Rates will gradually decrease from 5.3 percent in 2017 to 4.2 percent in 2089 and later based on the Society of Actuaries Long-Run Medical Cost Trend Model. The unfunded actuarial accrued liability is being amortized at the end of the year based on level dollar, eleven year open amortization period.

NOTE 12 - RISK MANAGEMENT

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Significant losses are covered by commercial insurance for all major programs. The District’s worker’s compensation policy is a retrospectively rated policy; the final total premium is based on the actual payroll for the policy year and is determined by the insurance carrier. For insured programs, there were no significant reductions in insurance coverages for the 2015/16 year. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years.

55 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 13 - CONTINGENT LIABILITIES AND COMMITMENTS

Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the District expects such amounts, if any, to be immaterial.

NOTE 14 - DERIVATIVE INSTRUMENT

Introduction The District follows accounting guidance for recognizing, measuring and disclosing derivative instruments. All derivatives are to be reported on the statement of net position at fair value, and depending on whether a derivative is deemed a hedge or an investment instrument, the changes in fair value are either reported on the statement of net position as a deferral, or in the statement of activities as investment revenue or loss.

The District has one off-market interest rate swap agreement in effect at June 30, 2016, for its $18,090,000 General Obligation Bonds - Series B of 2012. The District engaged an independent party to perform the valuation on the swap. Under accounting guidance, the District’s swap is deemed a hedge instrument; therefore, the change in fair value is reported in the statement of net position as a deferral. At June 30, 2016, the fair value of the hedge was $(752,690).

Terms and Fair Value

The terms as of June 30, 2016, were as follows:

Oley Valley School District Credit Rating by Governmental Moody's/ Issuer Issuer Initial Effective Date/ Present Activities Counter Party S&P/Fitch Pays Receives Notional Maturity Date Value

Hedging Derivatives Off-Market Swap 05/01/2012 Series B of 2012 PNC Bank A2/A/A+ 3.1975 70% of USD-Libor $ 18,090,000 05/15/2027$ (752,690)

56 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 14 - DERIVATIVE INSTRUMENT - CONTINUED

Terms and Fair Value - continued

This fair value takes into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that may have been received. The fair value was estimated on a mid market basis and does not include bid/offered spread that would be reflected in an actual price quotation. The valuation shown is not actual market prices at which an offer would be made for unwinding any transactions, but rather calculated mathematical approximations of market values derived from proprietary models as of a given date. As the off-market interest rate swap is considered to be an effective hedge type derivative instrument per accounting standards, it is reported as a derivative liability.

Through the use of derivative instruments, the District is exposed to a variety of risks, including credit risk, interest rate risk, termination risk, and basis risk.

Risks

Credit Risk. As of June 30, 2016, the District was exposed to credit risk on its outstanding swap. The District is exposed to credit risk in the amount of the derivative’s fair value. This amount may increase if interest rates increase in the future. However, if interest rates decline and the fair value of the swap is negative, the District would no longer be exposed to credit risk. The current credit ratings of PNC Bank are A2, A, and A+ by Moody’s, Standard & Poor’s, and Fitch, respectively. The District will be exposed to interest rate risk only if the counterparty to the swap defaults or if the swap is terminated. The swap agreement contains a collateral agreement with the counterparty. The swap requires collateralization of the fair value of the swap should the counterparty’s credit rating fall below the applicable thresholds.

Basis Risk. Basis risk is the risk that the interest rate paid by the District on underlying variable rate bonds to bondholders temporarily differs from the variable swap rate received from the applicable counterparty. The District bears basis risk on its swap. The swap has basis risk since the District will receive a percentage of LIBOR to offset the actual fixed bond rate the District pays on its bonds if the option is exercised. The District is exposed to basis risk should the floating rate that it receives on a swap be less than the actual fixed rate the District pays on the bonds. Depending on the magnitude and duration of any basis risk shortfall, the expected cost of the basis risk may vary and could be significant.

Tax Risk. Tax risk is a specific type of basis risk. Tax risk is a permanent mismatch between the interest rate paid on the District’s underlying variable-rate bonds and the rate received on the swap caused by a reduction or elimination in the benefits of the tax exemption for municipal bonds, e.g., a tax cut that results in an increase in the ratio of tax-exempt to taxable yields.

57 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 14 - DERIVATIVE INSTRUMENT - CONTINUED

Terms and Fair Value - continued

Termination Risk. The District or the counterparty may terminate the swap if the other party fails to perform under the term of the respective contracts. If at the time of termination the swap has a negative fair value, the District would be liable to the counterparty for a payment equal to the swap’s fair value which could be significant.

Rollover Risk. The risk that the District is obligated to terminate or amend the Swap if it decides to refinance its General Obligation Note Series B of 2012.

NOTE 15 - LEASE COMMITMENT

The District has several operating-type lease agreements with two companies to lease computers and office equipment. Future annual minimum lease payments under the noncancelable operating leases are as follows for the years ending June 30:

2017 $ 208,633 2018 208,633 2019 17,300

$ 434,566

Expenses under these operating leases were $208,633 for the year ended June 30, 2016.

58 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 16 - FUND BALANCE

Details of the District’s governmental fund balance reporting and policy can be found in Note 1, Summary of Significant Accounting Policies. Fund balance classifications for the year ended June 30, 2016, were as follows:

General Fund The general fund has nonspendable funds of $18,911 for prepaid expenditures, committed funds of $1,368,709 for retirement rate increases, assigned fund balance of $435,284 consisting of $350,000 for balancing the 2016/17 budget, $55,340 for deposits for student laptops, and $29,944 for athletic purchases, and unassigned fund balance of $2,498,000. All commitments were authorized by the school board of directors’ motion to set aside resources.

Capital Projects The capital projects fund has restricted funds of $1,695,512 comprised of surplus moneys transferred from the general fund for the acquisition or construction of capital facilities and qualifying capital assets as authorized by Municipal Code P.L.145 Act of April 30, 1943.

NOTE 17 - NEW ACCOUNTING PRONOUNCEMENTS

The Government Accounting Standards Board (GASB) has issued the following standards which have not yet been implemented:

• Statement No. 74, Financial Reporting for Postemployment Benefits Other Than Pension Plans - The objective of this statement is to improve the usefulness of information about other postemployment benefits other than pensions included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This statement is effective for the year ending June 30, 2017.

• Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions - This statement replaces the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The scope of this statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. This statement is effective for the year ending June 30, 2018.

59 OLEY VALLEY SCHOOL DISTRICT

NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2016

NOTE 17 - NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

• Statement No. 77, Tax Abatement Disclosures - The requirements enhance the disclosure of information about the nature and magnitude of tax abatements and will make these transactions more transparent to financial statement users. As a result, users will be better equipped to understand (1) how tax abatements affect a government's future ability to raise resources and meet its financial obligations, and (2) the impact those abatements have on a government's financial position and economic condition. This statement is effective for the year ending June 30, 2017.

• Statement No. 82, Pension Issues - an amendment of GASB Statements No. 67, No. 68, and No. 73 - This statement addresses certain issues that have been raised with respect to GASB Statements No. 67, No. 68, and No. 73 related to (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions of the treatment of deviations from the guidance in Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. This statement is effective for the year ending June 30, 2017.

The District has not yet completed the analyses necessary to determine the financial statement impact of these new pronouncements.

REQUIRED SUPPLEMENTARY INFORMATION

OLEY VALLEY SCHOOL DISTRICT

BUDGETARY COMPARISON SCHEDULE FOR THE GENERAL FUND

For the Year Ended June 30, 2016

BUDGET ACTUAL VARIANCE Original Final (GAAP) Basis Final to Actual

REVENUES Local Sources $ 20,423,346 $ 20,423,346 $ 20,765,556 $ 342,210 State Sources 9,224,849 9,224,849 9,230,633 5,784 Federal Sources 267,651 267,651 270,852 3,201

TOTAL REVENUES 29,915,846 29,915,846 30,267,041 351,195

EXPENDITURES INSTRUCTION Regular Programs ‐ Elementary/Secondary 11,373,767 11,343,263 11,112,230 231,033 Special Programs ‐ Elementary/Secondary 4,853,376 4,853,376 4,762,121 91,255 Vocational Education Programs 890,778 893,278 898,129 (4,851) Other Instructional Programs ‐ Elementary/Secondary 33,186 33,186 25,677 7,509 Nonpublic School Programs ‐ ‐ 3,536 (3,536)

TOTAL INSTRUCTION 17,151,107 17,123,103 16,801,693 321,410

SUPPORT SERVICES Pupil Personnel 1,063,195 1,062,353 1,148,359 (86,006) Instructional Support 870,875 870,301 974,829 (104,528) Administration 2,053,767 2,054,704 2,084,092 (29,388) Pupil Health 547,130 546,085 503,334 42,751 Business 485,792 485,794 410,703 75,091 Operation and Maintenance of Plant Services 2,437,313 2,419,313 2,508,901 (89,588) Student Transportation Services 1,533,999 1,533,999 1,582,914 (48,915) Support Services ‐ Central 354,620 355,433 291,490 63,943 Other Support Services 27,181 27,181 26,488 693

TOTAL SUPPORT SERVICES 9,373,872 9,355,163 9,531,110 (175,947)

OPERATION OF NONINSTRUCTIONAL SERVICES Student Activities 742,768 789,481 763,332 26,149 Community Services 11,500 11,500 10,420 1,080 TOTAL OPERATION OF NONINSTRUCTIONAL SERVICES 754,268 800,981 773,752 27,229

DEBT SERVICE 2,977,840 2,977,840 2,965,123 12,717

REFUND OF PRIOR YEAR REVENUES ‐ ‐ 11 (11)

TOTAL EXPENDITURES 30,257,087 30,257,087 30,071,689 185,398

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (341,241) (341,241) 195,352 536,593

OTHER FINANCING SOURCES (USES) Transfers Out ‐ ‐ (417,022) (417,022)

REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES $ (341,241) $ (341,241) (221,670) $ 119,571

FUND BALANCE ‐ BEGINNING OF YEAR 4,542,574

FUND BALANCE ‐ END OF YEAR $ 4,320,904

See note to required supplementary information. 61 OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY ‐ PENSION PLAN

June 30, 2016

2016 2015 2014

District's proportion of the net pension liability 0.0962% 0.0989% 0.1000%

District's proportionate share of the net pension liability $ 41,670,000 $ 39,146,000 $ 40,936,000

District's covered employee payroll $ 12,375,291 $ 12,623,906 $ 12,838,234

District's proportionate share of the net pension liability as a percentage of its covered‐employee payroll 336.72% 310.09% 318.86%

Plan fiduciary net position as a percentage of the total pension liability 54.36% 57.24% 54.50%

The District's covered employee payroll noted above is as of the measurement date of the net pension liability (June 30, 2015, 2014, and 2013).

Note: This schedule is to present the requirement to show information for 10 years. However, until a full 10‐year trend is compiled, information for only those years for which information is available is shown.

See note to required supplementary information. 62 OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF DISTRICT'S CONTRIBUTIONS ‐ PENSION PLAN

LAST 10 FISCAL YEARS

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

Contractually required contribution $ 3,192,611 $ 2,561,315 $ 2,012,174 $ 1,473,222 $ 1,074,122 $ 666,010 $ 512,664 $ 509,498 $ 787,716 $ 611,704

Contributions in relation to the contractually required contribution 3,192,611 2,561,315 2,012,174 1,473,222 1,074,122 666,010 512,664 509,498 787,716 611,704

Contribution deficiency (excess) $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐

District's covered‐employee payroll $ 12,735,986 $ 12,375,291 $ 12,623,906 $ 12,838,234

Contributions as a percentage of covered‐employee payroll 25.07% 20.70% 15.94% 11.48%

See note to required supplementary information. 63 OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF FUNDING PROGRESS ‐ OTHER POSTEMPLOYMENT BENEFITS PLAN

Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) ‐ AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b ‐ a) (a / b) (c) ((b ‐ a) / c)

Eligible Employees 11/1/2013 $ ‐ $ 1,615,896 $ 1,615,896 0.00%$ 11,081,618 14.58% Eligible Employees 11/1/2011 ‐ 1,719,831 1,719,831 0.00% 12,079,924 14.24% Eligible Employees 11/1/2009 ‐ 1,308,218 1,308,218 0.00% 11,898,957 10.99%

See note to required supplementary information. 64 OLEY VALLEY SCHOOL DISTRICT

NOTE TO REQUIRED SUPPLEMENTARY INFORMATION

June 30, 2016

BUDGETARY DATA

The budget for the general fund is adopted on the modified accrual basis of accounting which is consistent with generally accepted accounting principles.

SUPPLEMENTARY INFORMATION

OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF REVENUES AND EXPENSES ‐ FOOD SERVICE FUND

For the Year Ended June 30, 2016

REVENUES Children's Payments $ 259,973 Adult's Payments/A la Carte 134,150 Federal Subsidies 219,578 State Subsidies 53,058 Commodities Received 45,977 Earnings on Investments 163 Special Events 16,717 Miscellaneous 1,186

TOTAL REVENUES 730,802

COST OF GOODS SOLD Inventory ‐ Beginning of Year 15,386 Purchases ‐ Commodities 49,797 Purchases ‐ Food and Milk 262,906 Less: Inventory ‐ End of Year (11,756)

TOTAL COST OF GOODS SOLD 316,333

GROSS PROFIT 414,469

OPERATING EXPENSES Salaries 219,513 Employee Benefits 105,156 Repairs and Maintenance 14,104 Depreciation 6,784 Other Purchased Services 47,089 Dues and Fees 5,685 Miscellaneous Expense 195

TOTAL OPERATING EXPENSES 398,526

CHANGE IN NET POSITION (Prior to GASB 68) 15,943 Additional pension cost as a result of GASB 68 (24,836) CHANGE IN NET POSITION (8,893)

NET POSITION (DEFICIT) ‐ BEGINNING OF YEAR (797,672)

NET POSITION (DEFICIT) ‐ ENDING $ (806,565)

66 OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

For the Year Ended June 30, 2016

Accrued Accrued Federal Pass‐Through Program or Grant Period Receipts (Unearned) (Unearned) Federal Grantor/Pass‐Through Source CFDA Grantor's Award Beginning/ For the Revenue at Revenue Revenue at Grantor/Program Title Code Number Number Amount Ending Dates Year July 1, 2015 Recognized Expenditures June 30, 2016

U.S. DEPARTMENT OF EDUCATION

Passed through the State Department of Education: Title I Grants to Local Educational Agencies I 84.010 013‐150311 $ 181,518 08/17/15‐09/30/16 $ 181,518 $ ‐ $ 181,518 $ 181,518 $ ‐

Supporting Effective Instruction State Grant I 84.367 020‐150311 46,446 08/17/15‐09/30/16 46,446 ‐ 46,446 46,446 ‐

Passed through the Berks County Intermediate Unit: Special Education Cluster (IDEA) Special Education ‐ Grants to States I 84.027 N/A 255,788 07/1/15‐06/30/16 242,592 ‐ 255,788 255,788 13,196 Special Education ‐ Grants to States I 84.027 N/A 1,228 07/1/15‐06/30/16 1,228 ‐ 1,228 1,228 ‐ Special Education ‐ Preschool Grants I 84.173 N/A 282,942 07/1/14‐06/30/15 179,602 179,602 ‐ ‐ ‐ Total Special Education Cluster (IDEA) 423,422 179,602 257,016 257,016 13,196

TOTAL U. S. DEPARTMENT OF EDUCATION 651,386 179,602 484,980 484,980 13,196

U.S. DEPARTMENT OF HUMAN SERVICES

Passed through the Pennsylvania Department of Human Services: Medical Assistance Program I 93.778 N/A 2,888 07/01/15‐06/30/16 1,035 ‐ 2,888 2,888 1,853 Medical Assistance Program I 93.778 N/A 5,883 07/01/14‐06/30/15 2,234 2,234 ‐ ‐ ‐

TOTAL U.S. DEPTARTMENT OF HUMAN SERVICES 3,269 2,234 2,888 2,888 1,853

U.S. DEPARTMENT OF AGRICULTURE Child Nutrition Cluster Passed through the State Department of Education: National School Lunch Program I 10.555 N/A N/A 2015‐2016 193,423 ‐ 198,831 198,831 5,408 National School Lunch Program I 10.555 N/A N/A 2014‐2015 2,812 2,812 ‐ ‐ ‐ School Breakfast Program I 10.553 N/A N/A 2015‐2016 20,121 ‐ 20,747 20,747 626 School Breakfast Program I 10.553 N/A N/A 2014‐2015 269 269 ‐ ‐ ‐

Passed through the State Department of Agriculture: National School Lunch Program I 10.555 N/A N/A 2015‐2016 49,797 ‐ 45,977 45,977 (3,820)

TOTAL CHILD NUTRITION CLUSTER AND U. S. DEPARTMENT OF AGRICULTURE 266,422 3,081 265,555 265,555 2,214

TOTAL FEDERAL AWARDS $ 921,077 $ 184,917 $ 753,423 $ 753,423 $ 17,263

NOTE: No funds were passed through to subrecipients in the year ended June 30, 2016.

See notes to schedule of expenditures of federal awards. 67 OLEY VALLEY SCHOOL DISTRICT

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

For the Year Ended June 30, 2016

NOTE 1 - BASIS OF ACCOUNTING

The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the Oley Valley School District under programs of the federal government for the year ended June 30, 2016. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Oley Valley School District, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Oley Valley School District.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to the reimbursement. Negative amounts shown on the Schedule represent adjustment or credits made in the normal course of business amounts reported as expenditures in prior years.

NOTE 3 - DE MINIMUS RATE FOR INDIRECT COSTS

The District did not elect to use the De Minimus rate for indirect costs.

NOTE 4 - FOOD COMMODITIES

Nonmonetary assistance is reported in the Schedule at the fair market value of the commodities received and disbursed. At June 30, 2016, the District has $3,820 of food commodity inventory.

Herbein + Company, Inc. 2763 Century Boulevard Reading, PA 19610 P: 610.378.1175 F: 610.378.0999 www.herbein.com

To the Board of School Directors Oley Valley School District Oley, Pennsylvania

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of Oley Valley School District, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Oley Valley School District’s basic financial statements and have issued our report thereon dated December 14, 2016.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered Oley Valley School District’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Oley Valley School District’s internal control. Accordingly, we do not express an opinion on the effectiveness of Oley Valley School District’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did identify certain deficiencies in internal control, described in the accompany schedule of findings and questioned costs that we consider to be material weaknesses: 2016-001 through 2016-002.

Succeed With Confidence 69

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Oley Valley School District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Oley Valley School District’s Response to Findings

The Oley Valley School District’s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The Oley Valley School District’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Reading, Pennsylvania December 14, 2016

Succeed With Confidence 70

Herbein + Company, Inc. 2763 Century Boulevard Reading, PA 19610 P: 610.378.1175 F: 610.378.0999 www.herbein.com

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH

MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE

To the Board of School Directors Oley Valley School District Oley, Pennsylvania

Report on Compliance for Each Major Federal Program

We have audited Oley Valley School District’s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Oley Valley School District’s major federal programs for the year ended June 30, 2016. Oley Valley School District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for each of Oley Valley School District’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Oley Valley School District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Oley Valley School District’s compliance.

Opinion on Each Major Federal Program

In our opinion, Oley Valley School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2016.

Succeed With Confidence 71

Other Matters

The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item 2016‐003. Our opinion on each major federal program is not modified with respect to this matter.

Oley Valley School District’s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Oley Valley School District’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.

Report on Internal Control over Compliance

Management of Oley Valley School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Oley Valley School District’s internal control over compliance withe th types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Oley Valley School District’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified a deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item 2016‐003 that we consider to be a material weakness.

Oley Valley School District’s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Oley Valley School District’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Reading, Pennsylvania December 14, 2016

Succeed With Confidence 72

OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

For the Year Ended June 30, 2016

Section I - Summary of Auditor's Results

Financial Statements

Type of Auditor's Report Issued: Unmodified Internal Control Over Financial Reporting: Material weakness(es) identified? X yes no Significant deficiency(ies) identified not considered to be material weaknesses? yes X none reported

Noncompliance material to financial statements noted? yes X no

Federal Awards

Internal Control Over Major Programs: Material weakness(es) identified? X yes no Significant deficiency(ies) identified not considered to be material weaknesses? yes X none reported

Type of Auditor's Report Issued on Compliance for Major Programs: Unmodified

Any audit findings disclosed that are required to be reported in accordance with 2 CFR, Section 200.516(a)? X yes no

Identification of Major Program(s):

CFDA Number(s) Name of Federal Program or Cluster

Special Education Cluster (IDEA) 84.027 Special Education - Grants to States 84.173 Special Education - Preschool Grants 84.010 Title I: Grants to Local Education Agencies

Dollar Threshold used to distinguish between Type A and Type B Programs: $750,000

Auditee qualified as low-risk auditee? X Yes no

OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

For the Year Ended June 30, 2016

Section II - Financial Statement Findings

2016-001 PREPARATION OF BANK RECONCILIATIONS - MATERIAL WEAKNESS

Criteria Cash is a material account for the District with a large amount of activity. During our testing we noted that reconciliations for bank accounts were not being performed timely. Performing timely and accurate bank reconciliations is a key control in properly reporting activity and detecting misappropriation of assets.

Condition The District did not complete the bank reconciliations for their cash accounts timely throughout the year. Many of the 2015/16 school year reconciliations were not completed until October 2016.

Cause There was significant turnover in the business manager position in the 2015/16 year. A disregard of the standard operating procedures for reconciling bank accounts and lack of oversight allowed this to occur.

Effect Without accurate bank reconciliations, the District cannot be sure that all activity is being captured properly within the general ledger. A lack of timely and accurate reconciliations also increases the risk for misappropriation of assets to go undetected.

Recommendation We recommend the District revisit standard operating procedures for reconciling bank accounts. The procedures should assign responsibility for the reconciliation, establish feasible deadlines, and include procedures for the proper review of the reconciliation by a member of management.

Management Response See corrective action plan included in this report package.

OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

For the Year Ended June 30, 2016

Section II - Financial Statement Findings - continued

2016-002 ADJUSTING ENTRIES RELATED TO CASH RECEIPTS AND CASH DISBURSEMENTS - MATERIAL WEAKNESS

Criteria Several cash transactions occur through automatic withdrawals or payments from the District’s operating bank account. In order to properly reflect this activity, journal entries must be posted to the District’s general ledger software.

Condition During the 2015-2016 year, entries were not posted to reflect certain activity running through the bank statement, such as debt payments, electronic wires, and other automatic recurring transactions.

Cause The District did not perform bank reconciliations accurately or timely in order to be sure all activity was accounted for. As a result, several transactions were not recorded on the general ledger during the year.

Effect Significant adjustments were posted at year end in order to account for cash activity during the year and to bring numerous accounts into compliance with reporting under U.S. generally accepted accounting standards. As a result of reconciliations and other monitoring activities not being performed, the financial statements were materially misstated throughout the year.

Recommendation The business office should review its policies and procedures for key transaction classes to ensure that the appropriate individual is assigned the proper task and has the tools necessary to complete that task effectively and efficiently. We also recommend that bank reconciliations are performed timely, which is an important control to making sure all cash activity is recorded accurately.

Management Response See corrective action plan included in this report package.

OLEY VALLEY SCHOOL DISTRICT

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

For the Year Ended June 30, 2016

Section III - Federal Award Findings and Questioned Costs

2016-003 PREPARATION OF THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (SEFA) - MATERIAL WEAKNESS

Federal Program Special Education Cluster (IDEA) - 84.027, 84.173 Title I - Grants to Local Education Agencies - 84.010

Criteria Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires the auditee to prepare a complete and accurate SEFA.

Condition The District does not prepare a SEFA containing all required information.

Cause The District provided information relating to the federal programs including agreements and other supporting documentation. However, a complete SEFA was not updated from the prior year.

Effect The District was not in compliance with the requirements of the Uniform Guidance. The SEFA was subsequently updated through further inquiry and documentation of awards received.

Questioned Costs None

Context The District does not have a standard procedure in place for preparation of the SEFA.

Repeat Finding No.

Recommendation In order to be aware of all compliance requirements from the Compliance Supplement and prepare a complete and accurate SEFA, management should have awareness of all federal related grants applied for and received. We recommend the District designate an individual to be responsible for assembling the SEFA. The SEFA should be reviewed by management for accuracy and completeness after preparation.

Management Response See corrective action plan included in this report package.

OLEY VALLEY SCHOOL DISTRICT

STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

For the Year Ended June 30, 2016

Section II - Financial Statement Findings

There were no financial statements findings reported.

Section III - Federal Award Findings and Questioned Costs

There were no federal award findings or questioned costs reported.

77 78 79 80

APPENDIX D

SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

[ THIS PAGE INTENTIONALLY LEFT BLANK ] $______AGGREGATE PRINCIPAL AMOUNT OLEY VALLEY SCHOOL DISTRICT BERKS COUNTY, PENNSYLVANIA GENERAL OBLIGATION BONDS, SERIES OF 2017

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Oley Valley School District, Berks County, Pennsylvania (the “School District”), in connection with the issuance of its $______aggregate principal amount General Obligation Bonds, Series of 2017, (the “Bonds”). The Bonds are being issued pursuant to a Resolution of the School District, dated September 13, 2017 (the “Resolution”). The School District covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the School District for the benefit of the Bondholders and in order to assist the Participating Underwriter in complying with the Rule (hereinafter defined).

SECTION 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the School District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Bondholders” or “Holders” shall mean the registered owners of the Bonds and, if registered in the name of Cede & Co., through The Depository Trust Company, New York, New York (“DTC”), any Beneficial Owners (as such term is used by DTC to define holders other than nominees) of the Bonds, unless the Rule, or an authoritative interpretation thereof by the Securities and Exchange Commission (the “Commission”) or its staff, does not require this Disclosure Certificate to be for the benefit of such Beneficial Owners.

“Commission” shall mean the Securities and Exchange Commission.

“Dissemination Agent” shall mean any person or entity designated from time to time in writing by the School District and which has filed with the School District a written acceptance of such designation and of the duties of the Dissemination Agent under this Disclosure Certificate.

“EMMA” shall mean the Electronic Municipal Market Access system as described in 1934 Act Release No. 59062 and maintained by the MSRB for purposes of the Rule as further described in Section 13 hereof.

“Filing” shall mean, as applicable, any Annual Report or Listed Event filing or any other notice or report made public under this Disclosure Certificate made with each NRMSIR or the MSRB and the SID, if any, together with a completed copy of a cover sheet in

such form acceptable to each NRMSIR, the MSRB or SID, if applicable, describing the event by checking the box in said form when filing pursuant to the pertinent sections of this Disclosure Certificate.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

“MSRB” shall mean the Municipal Securities Rulemaking Board, or any successor thereto for purposes of the Rule. Currently, MSRB’s address, phone number and fax number for purposes of the Rule are:

MSRB c/o CDINet 1900 Duke Street Suite 600 Alexandria, VA 22314 Phone: (703) 797-6000 Fax: (703) 683-1930

“NRMSIR” shall mean any Nationally Recognized Municipal Securities Information Repository recognized for purposes of the Rule and the MSRB, as reflected on the website of the Securities and Exchange Commission at www.sec.gov. As of the date of this Disclosure Certificate, the sole NRMSIR shall be the MSRB, through the operation of EMMA, as provided in Section 13 hereof.

“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Repository” shall mean each NRMSIR and the SID, if any.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SID” shall mean any public or private state information depositary or entity designated by the Commonwealth of Pennsylvania as a state information depositary for the purpose of the Rule, if any. As of the date of this Disclosure Certificate, no SID has been designated.

SECTION 3. Provision of Annual Reports.

(a) The School District shall not later than 180 days after the end of each fiscal year of the School District, commencing with the fiscal year ending June 30, 2017, provide directly or through the Dissemination Agent to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. In connection therewith, not later than fifteen (15) Business Days prior to said date, the School District shall provide the Annual Report to the Dissemination Agent (if one has been designated by the School District under this Disclosure Certificate). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other

information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the School District may be submitted separately from the remainder of the Annual Report when such audited financial statements are available. If the audited financial statements are not submitted as part of the Annual Filing to each Repository pursuant to this Section 3(a), the School District shall provide to each Repository such audited financial statements when they are available to the School District.

(b) If the School District is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the School District shall send or cause the Dissemination Agent to send a notice to each NRMSIR and the SID in substantially the form attached as Exhibit A.

(i) determine each year prior to the date for providing the Annual Report the name and address of each NRMSIR and the SID, if any; and

(ii) if a Dissemination Agent has been designated hereunder, file a report with the School District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

(iii) The School District shall promptly file a notice of any change in its fiscal year and the new annual filing date with each NRMSIR and the SID.

(d) If the Dissemination Agent does not receive the Annual Report from the School District by the fifteenth Business Day specified in Section 3(a) above, the Dissemination Agent shall provide a written reminder notice to the School District with respect to the School District’s obligations under Section 3(a) above no later than five (5) Business Days after such fifteenth Business Day.

SECTION 4. Content of Annual Reports. The School District’s Annual Report shall contain or incorporate by reference the following:

(a) a copy of the School District’s annual financial statements prepared in accordance with the guidelines adopted by the Government Accounting Standards Board and the American Institute of Certified Public Accountants’ Audit Guide, Audits of State and Local Government; and

(b) a summary of the budget for the current fiscal year;

(d) the taxes and millage rates imposed for the most recent fiscal year;

(e) the real property tax collection results for the most recent fiscal year, including (1) the real estate levy imposed (expressed both as a millage rate and an aggregate dollar amount), (2) the dollar amount of real estate taxes collected that represented current collections (expressed both as a percentage of such fiscal year's levy and as an aggregate dollar amount), (3) the amount of real estate taxes collected that represented taxes levied in prior years (expressed as an aggregate dollar amount), and (4) the total amount of real estate taxes collected (expressed both as a percentage of the current year’s levy and as an aggregate dollar amount); and

(f) a list of the ten (10) largest real estate taxpayers and, for each, the total assessed value of real estate for the most recent fiscal year.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the School District or related public entities, which have been submitted to each of the Repositories or the Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The School District shall clearly identify each such other document so incorporated by reference. The School District reserves the right to modify from time to time specific types of information provided hereunder or the format of the presentation of such information, to the extent necessary or appropriate; provided, however, that any such modification will be done in a manner consistent with the Rule.

SECTION 5. Reporting of Significant Events.

(a) The occurrence of any of the following events with respect to a particular series of the Bonds constitutes a “Listed Event” only with respect to such series of the Bonds. This Section 5 shall govern the giving of notices of the occurrence of any of the following events:

(i) Principal and interest payment delinquencies;

(ii) Nonpayment related defaults, if material;

(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;

(v) Substitution of credit or liquidity providers, or their failure to perform;

(vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax- exempt status of the Bonds, or other material events affecting the tax status of the Bonds;

(vii) Modifications to rights of securities holders, if material;

(viii) Bond calls, if material, and tender offers for the Bonds;

(ix) Defeasances;

(x) Release, substitution, or sale of property securing repayment of the securities, if material;

(xi) Rating changes;

(xii) Bankruptcy, insolvency, receivership or similar events of the School District;

(xiii) The consummation of a merger, consolidation, or acquisition involving the School District or the sale of all or substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material;

(xiv) Appointment of a successor or additional trustee or paying agent or the change of name of a trustee or paying agent, if material; and

(xv) Failure to provide annual financial information as required.

(b) Whenever the School District obtains knowledge of the occurrence of a Listed Event, the School District shall as soon as possible (with respect to those Listed Events where a determination of materiality by the School District is applicable) determine if such event would constitute material information for Holders of Bonds under applicable federal securities laws.

(c) If (i) a Determination of materiality by the School District is not relevant to the obligation to give notice of a Listed Event or (ii) the School District determines (with respect to those Listed Events where a determination of materiality by the School District is applicable) that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the School District shall promptly file in a timely manner, not in excess of ten (10) business days after the occurrence of the Listed Event, or cause the Dissemination Agent to so file (if a Dissemination Agent has been designated hereunder) a notice of such occurrence with each NRMSIR and the SID, if any, with a copy to the Paying Agent.

(d) For purposes of the Listed Events in Section 5(a)(xii), the School District and the Dissemination Agent acknowledge the following interpretive note which the Commission has set forth in the Rule: “Note: for the purposes of the event identified in subparagraph (b)(5)(i)(C)(12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the

supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person;”

SECTION 6. Termination of Reporting Obligation. The School District’s obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds.

In the event that any person or entity subsequent to the execution hereof becomes an “obligated person,” as such term is defined in the Rule, with respect to the Bonds, the School District covenants to use its best effort to cause such obligated person to enter into a written undertaking to comply with the provisions of the Rule or to cause this Disclosure Certificate to be amended and to cause such obligated person to join in the execution of such amendment.

SECTION 7. Dissemination Agent. The School District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The School District shall cause the Dissemination Agent appointed hereunder and any successors to execute and deliver an acknowledgment of acceptance of the designation and duties of Dissemination Agent under this Disclosure Statement.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the School District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule, as well as any change in circumstances.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the School District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the School District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the School District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the School District to comply with any provision of this Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the School District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Bonds

or the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the School District to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent, if other than the School District. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the School District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the School District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

SECTION 12. Undertaking with Respect to Certain Procedures and Policies. The School District agrees to begin the process of establishing internal policies and procedures for the purpose of continuing disclosure compliance. Without intending to preclude the adoption of other necessary or useful policies and procedures, a single School District official will be designated with ultimate responsibility for continuing disclosure compliance and will oversee the process of informing and training appropriate deputies and other School District employees with respect to the School District’s continuing disclosure undertakings.

SECTION 13. EMMA. Filings shall be made to the continuing disclosure service portal provided through EMMA as provided at http://www.emma.msrb.org, or any similar system that is acceptable to the Commission.

SECTION 14. Alternative Filing. Notwithstanding the other provisions of this Disclosure Certificate, any filing under this Disclosure Certificate, and any additional supplements hereto, may be made with such depositories and using such electronic filing systems as may be approved by the Untied States Securities and Exchange Commission (in lieu of the procedures currently in this Disclosure Certificate).

SECTION 15. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the School District, the Paying Agent, the Dissemination Agent (if any), the Participating Underwriter and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity.

OLEY VALLEY SCHOOL DISTRICT Berks County, Pennsylvania

(SEAL) By: President

Attest: Secretary

Date: ______, 2017

EXHIBIT A1

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Oley Valley School District Berks County, Pennsylvania

Name of Bond Issue: Oley Valley School District Berks County, Pennsylvania $______aggregate principal amount General Obligation Bonds, Series of 2017 (the “Bonds”)

Date of Issuance: ______, 2017

NOTICE IS HEREBY GIVEN that the Oley Valley School District, Berks County, Pennsylvania (the “School District”), has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate, dated ______, 2017, executed by the School District. The School District anticipates that the Annual Report will be filed by ______.

Dated: ______

OLEY VALLEY SCHOOL DISTRICT, BERKS COUNTY, PENNSYLVANIA, [OR DISSEMINATION AGENT ON BEHALF OF THE OLEY VALLEY SCHOOL DISTRICT, BERKS COUNTY, PENNSYLVANIA] cc: Paying Agent

1 The substantive content of this notice shall be provided in any applicable notice filing. Appropriate modifications may be made to accommodate the electronic submission format requirements of the EMMA system or other successor electronic filing system.

A-1

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