PRELIMINARY OFFICIAL STATEMENT DATED MAY 5, 2017
BOOK-ENTRY ONLY Rating: S&P Underlying: “AA-” (Stable Outlook)
In the opinion of Bond Counsel, the interest on the Bonds (including any original issue discount) (a) is excludable from the gross income of the registered owners thereof for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. The opinion set forth in clause (a) above is subject to the condition that the Issuer comply with all requirements of the Internal
unlawful prior to registration or or to registration prior unlawful Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excluded from gross income for federal income tax purposes. Failure to comply with certain of such requirements could cause the interest on the bonds to be so included in gross income retroactive to the date of issuance of the Bonds. The Issuer has covenanted to comply with all such requirements. Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds. Under the laws of the Commonwealth of Pennsylvania, as enacted and construed on the date hereof, the Bonds are exempt from personal property taxes in Pennsylvania and the interest on the Bonds is exempt from Pennsylvania personal income tax. For a more complete discussion of tax exemption, see “TAX . Under no circumstances shall this Preliminary MATTERS” and “TAX EXEMPTION” herein.
$13,770,000* DONEGAL SCHOOL DISTRICT offer, solicitation or sale would be solicitation or offer, Lancaster County, Pennsylvania General Obligation Bonds (Limited Tax Obligations), Series of 2017
Dated: Date of Delivery Interest Payable: June 1 and December 1 Due: June 1, as shown on the inside cover First Interest Payment: December 1, 2017 Denomination: Integral multiples of $5,000 Form: Book-Entry Only
Legal Investment for Fiduciaries in Pennsylvania: The Bonds (hereinafter defined) are a legal investment for fiduciaries in the Commonwealth of Pennsylvania under the Probate, Estate and Fiduciaries Code, Act of June 30, 1972, No. 164, P.L. 508 as amended and supplemented.
Payable: The General Obligation Bonds, Series of 2017, in the aggregate amount of $13,770,000* (the “Bonds”), will be issued as fully registered bonds
ties in any jurisdiction which such and, when issued, will be registered in the name of Cede & Co., as nominee for the Depository Trust Company, New York, New York (“DTC”). SUBJECT TO COMPLETION AND AMENDMENT DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made only in book-entry form, and purchasers will not receive certificates representing their interests in the Bonds. So long as DTC, or its nominee, Cede & Co., is the registered owner of the Bonds, payments of the principal and interest on the Bonds will be made by the Paying Agent directly to Cede & Co. Disbursement of such payments to the DTC Participants is the responsibility of DTC, and disbursements of such payments to Beneficial Owners of the Bonds is the responsibility of the DTC Participants and the Indirect Participants. See “BOOK-ENTRY ONLY SYSTEM” herein.
Optional Redemption: The Bonds are subject to optional redemption prior to maturity as described more fully herein.
Purpose: Proceeds of the Bonds will be used to provide funds to: (1) advance refund a portion of the General Obligation Bonds, Series of 2011 of
e be any sale of these securi the School District; and (2) pay the costs of issuing the Bonds.
Security: The Bonds are payable from tax and other general revenues of the School District. The School District has covenanted that, subject to statutory restrictions and limitations, it will provide 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 punctually pay or cause to be paid from funds in the sinking fund established in the Resolution or from any Bonds, and for such budgeting, appropriation and payment the School District irrevocably has, subject to statutory restrictions and limitations, pledged its full faith, credit and taxing power, which taxing power includes the power to levy ad valorem taxes on all taxable property with the School District, within limitations provided by law (see “Security for the Bonds” and “Act 1 of Special Session 2006 (“Taxpayer Relief Act”) herein).
an offer to buy nor shall ther
THE INFORMATION CONTAINED HEREIN ARE The Bonds are offered for delivery when, as and if issued by the School District and received by the Underwriter and subject to the approving legal opinion of Kegel Kelin Almy & Lord LLP, Lancaster, Pennsylvania, Bond Counsel. It is expected that the Bonds in definitive form will be available for delivery, through the facilities of DTC, on or about ______, 2017.
The date of this Official Statement is ______.
*Preliminary, subject to change.
qualification under the securities laws of such jurisdiction. THIS PRELIMINARY OFFICIAL STATEMENT AND Official Statement constitute an offer to sell or a solicitation of constitute an offer to sell or a solicitation Official Statement
DONEGAL SCHOOL DISTRICT Lancaster County, Pennsylvania $13,770,000* General Obligation Bonds (Limited Tax Obligations), Series of 2017
Dated: Date of Delivery Interest Payable: June 1 and December 1 Due: June 1, as shown below First Interest Payment: December 1, 2017 Denomination: Integral multiples of $5,000 Form: Book-Entry Only
BOND MATURITY SCHEDULE
Year Principal Interest CUSIP (August 1) Amount Rate Price Numbers (1) 2018 2019 2020 2021 2022 2023 2024 2025
(1)The CUSIP (Committee on Uniform Securities Identification Procedures) numbers have been assigned by an organization not affiliated with the School District or the Underwriter, and such parties are not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of bondholders and no representation is made as to the correctness of such CUSIP numbers. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including, but not limited to, the refunding or defeasance of such issue or the use of secondary market financial products. Neither the School District nor the Underwriter has agreed to, and there is no duty or obligation to, update this Official Statement to reflect any change or correction in the CUSIP numbers set forth above.
*Preliminary, subject to change.
No dealer, broker, salesman or other person has been authorized by the School District or the Underwriters to give any information or to make any representation, other than that given or made in this Official Statement, and if given or made, any such other information or representation may not be relied upon as having been authorized by the School District or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement has been approved by the School District and, while the information set forth in this Official Statement has been furnished by the School District and other sources which are believed to be reliable, such information is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriters or, as to information obtained from other sources, by the School District. The information and expressions of opinion set forth in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale made under this Official Statement shall, under any circumstances, create any implication that the affairs of the School District have remained unchanged since the date of this Official Statement.
THE UNDERWRITER HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT PURSUANT TO ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
TABLE OF CONTENTS
Board of School Directors ...... iii Summary Statement ...... iv Introduction ...... 1 Purpose of the Issue ...... 1 Sources and Uses of Funds ...... 2 Description of the Bonds ...... 2 Book-Entry Only System ...... 3 Redemption Provisions ...... 5 Security for the Bonds ...... 6 Tax Exemption ...... 8 Continuing Disclosure Undertaking ...... 9 Miscellaneous ...... 10
Appendix A – Summaries of Financial Factors of the School District Appendix B – Description of the School District Appendix C – Audited Financial Statements of the School District, Fiscal Year Ending June 30, 2016 Appendix D – Form of Bond Counsel Opinion Appendix E – Form of Continuing Disclosure Certificate Appendix F – Bond Amortization Schedule
DONEGAL SCHOOL DISTRICT 1051 Koser Road Mount Joy, PA 17552
Board of School Directors
Oliver C. Overlander III ...... President Timothy G. Markovits ...... Vice President Michelle Kendig ...... Secretary (Non-Member) Stephanie Manuel Board Recording Secretary Stephen A Gault ...... …Treasurer Eric C. Beck ...... …Member Ronald N. Melleby ...... Member Patrick Mitchell ...... Member Benjamin T. Kling ...... Member Debra L. Sturgis ...... Member Steven R. Tregea ...... Member
Administrative Staff
Susan Ursprung Ed. D ...... Superintendent J Michael Lausch Ed. D ...... Assistant Superintendent Michelle Kendig ...... Director of Business Services Jennifer Studer ...... Assistant Director of Business Services
Bond Counsel Kegel Kelin Almy & Lord LLP Lancaster, Pennsylvania
Solicitor Kegel, Kelin, Almy and Lord Lancaster, Pennsylvania
Certified Public Accountants BBD, LLP Philadelphia, PA
Underwriter RBC Capital Markets, LLC Lancaster, Pennsylvania
Limited Scope Underwriter’s Counsel Eckert Seamans Cherin & Mellott, LLC Harrisburg, Pennsylvania
Paying Agent and Sinking Fund Depositary Fulton Bank, National Association Lancaster, Pennsylvania
iii
SUMMARY STATEMENT
This Summary Statement is subject in all respects to more complete information set forth in this Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without the entire Official Statement.
Issuer ...... Donegal School District, Lancaster County, Pennsylvania.
Bonds ...... $13,770,000* aggregate principal amount of General Obligation Bonds, Series of 2017, dated the date of delivery, maturing in various principal amounts (as herein described) June 1, 2018 through June 1, 20325, inclusive, with interest payable June 1 and December 1, beginning December 1, 2017. See “DESCRIPTION OF THE BONDS” herein.
Redemption Provision ...... The Bonds maturing on or after ______are subject to redemption prior to maturity in whole or, from time to time, in part, in such order of maturity or portion of a maturity as Donegal School District, Lancaster County, Pennsylvania, (the “School District”) shall select and within a maturity by lot, at any time on or after ______. See “REDEMPTION PROVISIONS” herein.
Form ...... Book-Entry Only, fully registered Bonds, without coupons.
Application of Proceeds ...... Proceeds of the Bonds will be used to provide funds to: (1) advance refund a portion of the General Obligation Bonds, Series of 2011 of the School District; and (2) pay the costs of issuing the Bonds.
Security ...... The Bonds are general obligations of the Donegal School District. See “SECURITY FOR THE BONDS” and “TAXING POWERS OF THE SCHOOL DISTRICT” herein.
Rating ...... See “MISCELLANEOUS - Ratings” herein.
*Preliminary, subject to change.
iv
OFFICIAL STATEMENT
$13,770,000* DONEGAL SCHOOL DISTRICT Lancaster County, Pennsylvania General Obligation Bonds (Limited Tax Obligations), Series of 2017
INTRODUCTION
This Official Statement is furnished by the Donegal School District, Lancaster County, Pennsylvania (the "School District”) in connection with the offering of its General Obligation Bonds, Series of 2017 in the aggregate principal amount of $13,770,000* (the “Bonds”).
The Bonds are being issued pursuant to a Resolution of the Board of School Directors of the School District, adopted September 8, 2016, as amended and supplemented (the "Resolution"), and in accordance with the Act of the General Assembly of the Commonwealth of Pennsylvania known as the Local Government Unit Debt Act, as reenacted, amended and supplemented (the "Act").
The Bonds will be issued as fully registered bonds and when issued, will be registered in the name of and held by Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made only in book-entry form, and purchasers will not receive certificates representing their interests in the Bonds. So long as DTC, or its nominee, Cede & Co., is the registered owner of the Bonds, payments of the principal of and interest on the Bonds will be made by the Paying Agent directly to Cede & Co. Disbursement of such payments to the DTC Participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners of the Bonds is the responsibility of the DTC Participants and the Indirect Participants. See “DESCRIPTION OF THE BONDS” and “BOOK-ENTRY ONLY SYSTEM” herein. The Bonds are subject to optional redemption as more fully described herein.
The information which follows contains summaries of the Resolution, the School District's Budget and the School District's Financial Statements. Such summaries do not purport to be complete and reference is made to the Resolution, the School District's Budget and the School District's Financial Statements, copies of which are on file and available for examination at the offices of the School District.
PURPOSE OF THE ISSUE
Proceeds of the Bonds will be used to provide funds to: (1) advance refund a portion of the General Obligation Bonds, Series of 2011 of the School District; and (2) pay the costs of issuing the Bonds.
Refunding of the Refunded Bonds
Concurrently with the issuance and delivery of the Bonds, a portion of the proceeds of the Bonds will be irrevocably deposited under an escrow agreement between the School District and Fulton Bank National Association as escrow agent for the Refunded 2011 Bonds and invested for the advance refunding of the Refunded 2011 Bonds Funds held in escrow accounts authorized under said escrow agreements will be applied to the payment of principal and interest as such become due on the Refunded 2011 Bonds, and to the redemption of the Refunded 2011 Bonds at their stated maturity or upon optional redemption as described in said escrow agreements.
*Preliminary, subject to change.
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Verification of Certain Mathematical Computations
The accuracy of the mathematical computations: (a) as to the adequacy of the cash and investments held pursuant to the escrow agreement relating to the Refunded 2011 Bonds to pay the principal of and interest due on, and the redemption price of the Refunded 2011 Bonds; and (b) supporting the conclusion of Bond Counsel that the Refunded 2011 Bonds are not “arbitrage bonds” under the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, will be verified as to mathematical accuracy by Financial S&Lutions, Reading, Pennsylvania.
SOURCES AND USES OF FUNDS
Sources of Funds Par Amount of the Bonds. $ Net: Original Issue [Discount/Premium] Total Sources of Funds $
Uses of Funds Refunding Escrow Deposits $ Costs of Issuance (1) Total Uses of Funds $
(1) Includes bond discount, legal, printing, rating, bond insurance premium, Paying Agent fee, Escrow Agent Fee, CUSIP, Verification Agent Fee and miscellaneous.
DESCRIPTION OF THE BONDS
Payment of Principal and Interest
The Bonds are being issued in fully registered form, without coupons, in the aggregate principal amount of $13,770,000* and will be dated the date of delivery of the Bonds. The Bonds will bear interest payable on June 1 and December 1 (each an “Interest Payment Date”), commencing on December 1, 2017, as set forth on the cover page hereof and are issuable in denominations of $5,000 or any whole multiple thereof. The Bonds will bear interest at the rates and mature on the dates and in the amounts shown on the cover page hereof.
So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payments of principal of and interest on the Bonds, when due, are to be made to DTC and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the School District with respect to, and to the extent of, principal and interest so paid.
If the use of the Book-Entry Only System for the Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal and interest on the Bonds shall be made as described in the following paragraphs.
Principal of certificated Bonds will be paid to the registered owners thereof or assigns, when due, upon surrender of the Bonds thereof at the designated corporate trust office of the Paying Agent.
Subject to the provisions described herein, under “BOOK-ENTRY ONLY SYSTEM”, interest is payable to the registered owner of a Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date, (b) such Bond is registered and authenticated on a date after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond will bear interest from such next succeeding interest payment date, or (c) such Bond is registered and authenticated on or prior to the Record Date preceding December 1, 2017, in which event such Bond shall bear interest from the date of delivery of the Bonds, or (d) as shown by the records of the Paying Agent, interest on such Bond shall be in default, in which event such Bond shall bear
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interest from the date on which interest was last paid on such Bond. Interest shall be paid semiannually on June 1 and December 1 of each year, beginning December 1, 2017, until the principal sum is paid. Interest on each Bond is payable by check drawn on the Paying Agent, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the fifteenth (15th) day (whether or not a day on which the Paying Agent is open for business) next preceding each interest payment date, respectively (the "Record Date"), on the registration books maintained by the Paying Agent, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the Issuer shall be in default in payment of interest due on such interest payment date. In the event of any such default in payment of interest due on such interest payment date, such defaulted interest shall be payable to the person in whose name the Bond is 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 Bonds not less than ten (10) 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 special record date.
Transfer, Exchange and Registration of Bonds
Subject to the provisions described herein, under “BOOK-ENTRY ONLY SYSTEM”, 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 ownership 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 series, maturity and interest rate for the aggregate principal amount which 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 and interest and for all other purposes, and the School District and the Paying Agent shall not be affected by any notice to the contrary. Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity and interest rate.
BOOK-ENTRY ONLY SYSTEM
The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the “Issuer”) and the Underwriter do not guaranty the accuracy or completeness of such information and such information is not to be construed as a representation of the School District or the Underwriter.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (D TC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity and series of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through
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or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a S&P Global Ratings rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The Ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond 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 to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.]
Redemption notices shall be sent to DTC. If less than all of the Bonds within a series and maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such series and maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal, interest and redemption payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest and redemption payments on the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to Issuer or Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.
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Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
NEITHER THE ISSUER 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 THEREUNDER; (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 Issuer 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 Preliminary Official Statement.
REDEMPTION PROVISIONS
Optional Redemption
The Bonds stated to mature on and after ______, are subject to redemption prior to maturity at the option of the School District, in whole or in part, on ______, or any date thereafter, upon not less than thirty (30) nor more than sixty (60) days notice, to be given in the manner required by the Resolution, at 100% of principal, together with accrued interest to the redemption date.
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 and Beneficial Owners. If at a time of mailing of a notice of redemption the School District has not deposited with the Paying Agent (or, in the case of a refunding, with another bank or depositary acting as refunding escrow agent) money sufficient to redeem all Bonds called for redemption, the notice of redemption may state that is it is conditional, i.e., that it is subject to the deposit of sufficient redemption money with the Paying Agent not later than the opening of business on the redemption date, and such notice shall be of no effect unless such money is so deposited. Notice of any redemption shall be given by depositing a copy of the redemption notice in first class mail not less than thirty (30) days prior to the date fixed for redemption, addressed to each of the registered owners of any certificated Bonds to be redeemed, at the addresses shown on the registration books kept by the Paying Agent as of the date such Bonds are selected for redemption; 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 so 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 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 thereto, except to receive payment of the principal to be redeemed and accrued interest thereon to the date fixed for redemption.
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Manner of Redemption
So long as Cede & Co., nominee of DTC, is the registered owner of the Bonds, however, payment of the redemption price shall be made by Cede & Co. in accordance with the existing arrangements by and among the School District, the Paying Agent and DTC and, if less than all of the Bonds in a particular maturity are to be redeemed, the amount of the interest of each DTC Participant, Indirect Participant and Beneficial Owner on 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 the number of Bonds that is equal to the principal amount thereof divided by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a certificated Bond, payment of the redemption price shall be made only upon surrender of such Bond in exchange for certificated Bonds of authorized denominations in an 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 on a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of such 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 or required to close, and payment on such date shall have the same force and effect a
SECURITY FOR THE BONDS
General Obligations
The Bonds are general obligations of the School District and are payable from the general taxes and revenues of the School District. The taxing powers of the School District are described more fully herein. The School District has covenanted in the Resolution that it will provide in its budget for each fiscal year, and will appropriate 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, the principal of every Bond and the interest thereon on the dates, at the place and in the manner stated in the Bonds, and for such budgeting, appropriation and payment, the School District has irrevocably pledged its full faith, credit and taxing power.
Sinking Fund
In the Resolution, the School District has set forth that a “Sinking Fund - General Obligation Bonds, Series of 2017 (the “Sinking Fund”), to be maintained with the Paying Agent (the "Sinking Fund Depositary"), and segregated from all other funds of the School District. The School District shall deposit in the Sinking Fund, not later than the date when principal or interest is to become due on the Bonds, an amount sufficient to provide for the payment of interest and principal becoming due on the Bonds.
The Sinking Fund shall be held by the Sinking Fund Depository and separately invested by the Sinking Fund Depository in such securities or shall be deposited in such deposit accounts as are authorized by the Act, upon direction of the School District. Such deposits and securities shall be in the name of the School District but subject to withdrawal or collection only by the Sinking Fund Depositary, and such deposits and securities, together with the interest thereon, shall be a part of the Sinking Fund.
The Paying Agent is authorized and directed to pay from the Sinking Fund the principal of and interest on the Bonds when due and payable.
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Actions in the Event of Default
In the event the School District defaults in the payment of the principal of or the interest on any of the Bonds after same shall become due, whether at the stated maturity or upon call for prior redemption, and such default shall continue for thirty days, or if the School District fails to comply with any provision of the Bonds or the Resolution, the Act provides that the holders of 25% in aggregate principal amount of the Bonds then outstanding may, upon appropriate action, appoint a trustee to represent the Bondholders. The trustee may, and upon request of the holders of 25% in principal amount of the Bonds then outstanding, and upon being provided with indemnity satisfactory to it, shall take such action on behalf of the Bondholders as is more specifically set forth in the Act. Such representation by the trustee shall be exclusive.
State Enforcement of Lease Rental and Debt Service Payments
Section 633 of the Public School Code of 1949 (Act of February 10, 1949, P.L. 30, as amended by Act 150 of 1975) (the "School Code") presently provides that if any school district fails to pay or to provide for the payment of any indebtedness, at the date of maturity or mandatory redemption, or any interest due on such indebtedness, in accordance with the schedule under which the bonds or notes were issued, the Secretary of Education of the Commonwealth shall notify the board of school directors of its obligation and shall withhold from any Commonwealth appropriation due such school district an amount equal to the sum of such principal or interest due and shall pay such amount directly to the bank acting as sinking fund depositary for the bond issue.
The withholding provisions of Section 633 are not part of any contract with the registered owners of the Bonds and may be amended or repealed by future legislation. The effectiveness of Section 633 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. Under the law, the budget is enacted when the Governor signs the state budget or if the Governor fails to sign and does not veto it, the budget is automatically adopted 10 days after receipt by the Governor. In the state’s 2015 fiscal year, a final budget was not enacted until March 27, 2016, which was 270 days into that fiscal year, when the Governor failed to sign or veto the state budget that was adopted by the General Assembly on March 17, 2016.
During a state budget impasse, school districts in the Commonwealth 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. 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” below.
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 XVl-E.4, entitled "School District Intercepts for the Payment of Debt Service During Budget Impasse", which provides for intercept of subsidy payments by PDE from 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" Sections 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 as 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
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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 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 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 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.
TAX EXEMPTION
In the opinion of Kegel Kelin Almy & Lord LLP, Lancaster, Pennsylvania, Bond Counsel, interest on the Bonds (a) is excludible from the gross income of the registered owners thereof for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining "adjusted current earnings” of corporations (as defined for federal income tax purposes) for the purpose of computing the alternative minimum tax imposed on such corporations. The opinion set forth in clause (a) above is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended, (the "Code") and any regulations thereunder, now or hereafter enacted, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excludible from gross income for federal income tax purposes. Failure to comply with certain of such requirements could cause the interest on the Bonds to be included in the gross income of the registered owners thereof retroactive to the date of issuance of the Bonds. The Issuer has covenanted to comply with all such requirements. Except for the discussion of original issue discount below, Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds.
Bond Counsel is of the opinion, based on existing law, that the original issue discount in the selling price of the Bonds, if any, to the extent properly allocable to each holder of such Bonds, is excluded from gross income for federal income tax purposes with respect to such holder. The original issue discount is the excess of the stated redemption price at maturity of such Bonds over the initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of such Bonds were sold. Original issue discount on tax-exempt bonds accrues on a compound basis. The amount of original issue discount that accrues to holders of such Bonds who acquire the Bonds in this offering during any accrual period generally equals (i) the issue price of such Bonds plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such Bonds (determined on the basis of compounding at the close of each accrual
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period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such Bonds during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excluded from gross income for federal income tax purposes, and will increase the holder’s tax basis in such Bonds. Any gain realized by a holder from a sale, exchange, payment or redemption of a Bond would be treated as gain from the sale or exchange of such Bond.
Prospective purchasers of the Bonds should be aware that (i) Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of a holder's interest expense allocated to interest on the Bonds, except with respect to certain financial institutions (within the meaning of Section 265 (b)(5) of the Code), (ii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, for taxable years beginning after December 31, 1986, Section 832 (b)(5)(B)(i) reduces the deduction for loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) for taxable years beginning after December 31, 1986, interest on the 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, (iv) passive investment income including interest on the Bonds, may be subject to federal income taxation under Section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income and (v) 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 the Bonds.
In the opinion of Bond Counsel, under the existing statutes, regulations and decisions, the interest on the Bonds is exempt from taxation for state and local purposes within the Commonwealth of Pennsylvania. Such exemption, however, does not extend to profits, gains or income derived from the sale, exchange or other disposition of the Bonds, nor to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the interest on the Bonds. Under the laws of the Commonwealth profits, gains, or income derived from the sale, exchange, or other disposition of certain government obligations, including the Bonds, may be subject to state and local taxation within the Commonwealth of Pennsylvania. Pennsylvania Act 68 of 1993 enacted a statutory provision allowing taxation of such profits, gains or income; although the statute is unclear as to its applicability to obligations of political subdivisions, the Pennsylvania Department of Revenue interprets the statute as applicable to obligations of political subdivisions.
The Bonds have not been designated as "qualified tax-exempt obligations" for purposes of Section 265 of the Code (relating to expenses and interest relating to tax-exempt income of certain financial institutions).
The issuer of the Bonds will issue its certificate to the effect that on the basis of the facts, estimates and circumstances in existence on the date of delivery of the Bonds, it is not expected that proceeds of the Bonds will be used in a manner that would cause the Bonds to be "arbitrage bonds" under Section 103 (b)(2) and Section 148 of the Internal Revenue Code of 1986, as amended, or as contemplated by the United States Treasury regulations relating to "arbitrage bonds".
CONTINUING DISCLOSURE UNDERTAKING
In accordance with the requirements of Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission (“SEC”), and the Resolution authorizing issuance of the Bonds, the School District will execute and deliver a written continuing disclosure undertaking with respect to the Bonds. See the form of the Continuing Disclosure Certificate (the “Certificate”) at Appendix E to this Official Statement.
Under the terms of the Certificate, the School District will undertake to file with the MSRB financial and other information concerning the School District (including its annual audited financial statements, annual budgets, certain other financial and operating information, and notice of certain events affecting the School District). The School District’s obligations with respect to continuing disclosure 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
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Electronic Municipal Market Access (EMMA) System, which may be accessed on the internet at http://www.emma.msrb.org.
The School District failed to file, in a timely manner, certain of its financial and operational information for fiscal years ending June 30, 2012 through and including June 30, 2014 and June 30, 2016, and its budget for fiscal year ending June 30, 2017. The School District has filed separate notices with EMMA setting forth its failure to timely file this information. These notices were not timely filed.
Further, the School District is an obligated party for purposes of the Rule as it relates to the State Public School Building Authority (Commonwealth of Pennsylvania), General Obligations Bonds Series A of 2010 and Series C of 2011 (the "SPBSA Undertakings"). As it relates to its SPSBA Undertakings, the School District failed to file in a timely manner its audit for fiscal year ending June 30, 2012 and certain of its financial and operational information for fiscal years ending June 30, 2012 through and including June 30, 2014 and June 30, 2016. The School District has filed separate notices with EMMA setting forth the School District’s failure to timely file this information. These notices were not timely filed.
Additionally, the School District failed to file in a timely manner notices of bond insurer rating changes of (i) Assured Guaranty Municipal Corp. by S&P Global Ratings (“S&P”); and (ii) Enhanced ratings by Moody’s Investor Service (“Moody’s). The rating changes by S&P and Moody’s were widely disseminated at the time of their action and part of public information readily available from other sources. This notice has since been filed.
MISCELLANEOUS
Underwriting
RBC Capital Markets, LLC(the “Underwriter”) has agreed, subject to certain conditions, to purchase the Bonds from the School District at an aggregate price of $______, which includes an underwriting discount of $______and a net original issue discount of $______. The Underwriter's obligations are subject to certain conditions precedent; however, the Underwriter will be obligated to purchase all such Bonds if any such Bonds are purchased. The Bonds may be offered and sold to certain dealers (including dealers depositing such Bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriter.
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 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.
No Litigation
As of the date of this Official Statement, there is no litigation, of any nature, pending or threatened against the School District to restrain or enjoin the issuance, sale, execution or delivery of the Bonds.
Legal Opinion
The issuance and delivery of these Bonds is subject to the unqualified approving legal opinion of Kegel Kelin Almy & Lord LLP, Lancaster, Pennsylvania,, Bond Counsel for the School District, and to the delivery at settlement of a certificate that there is no litigation pending affecting the validity of the issue.
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Rating
S&P Global Ratings. has assigned the School District an underlying rating of “AA-” (Stable Outlook).
The above rating is not recommendations to buy, sell or hold the Bonds, and such rating may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds.
Other
All references to the provisions of the Act, the Bonds and the Resolution set forth in this Official Statement are made subject to all the detailed provisions thereof, to which reference is hereby made for further information, and this Official Statement does not purport to set forth complete statements of any or all such provisions.
All information, estimates and assumptions herein have been obtained from officials of the School District, other governmental bodies, trade and statistical services, and other sources which we believe to be reliable; but no representations whatsoever are made that such estimates or assumptions are correct or will be realized. So far as any statements herein involve matters of opinion, whether or not expressly so stated, they are intended as such and not representations of fact.
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 of 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.
DONEGAL SCHOOL DISTRICT Lancaster County, Pennsylvania
BY: President, Board of School Directors
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APPENDIX A
Summaries of Financial Factors of The School District
FINANCIAL REVIEW
The following Exhibit is a summary only and is not intended to be a complete report. For more complete information, the individual financial statements and the 2016-17 Budget of the School District should be reviewed at the Business Office, Donegal School District, Mount Joy, Pennsylvania.
Accounting Method
The School District keeps its books and prepares its financial reports according to a modified accrual basis. Major accrual items are payroll taxes and pension fund contributions payable, loans receivable from other funds, and revenues receivable from other governmental units. Effective with the 2002-2003 financial reporting we are required to comply with GASB 34 and implement statements on a full accrual basis. Its financial statements are audited annually by a firm of independent certified public accountants, as required by State law. The firm of BBD, LLP, Philadelphia, Pennsylvania serves as the School District auditor.
Budgeting Process in School Districts under the Taxpayer Relief Act
In General. School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and 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, 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, the preliminary budget must be submitted to the Pennsylvania Department of Education (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.
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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 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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DONEGAL SCHOOL DISTRICT Comparative Statement of General Fund Financial Condition for Fiscal Years Ending June 30
2012-13 2013-14 2014-15 2015-16 2016-17 Audited Audited Audited Audited Budgeted REVENUES
Local Sources $ 28,306,442 $28,985,961 $30,232,161 $30,358,376 $30,921,991 State Sources 11,549,909 12,282,820 12,837,381 13,592,865 14,371,060 Federal Sources 1,662,271 1,458,181 1,624,658 2,092,673 1,725,000 Other 214,725 557,608 882,582 0 0
Total Funds Available 41,733,347 43,284,570 45,576,782 46,043,914 47,018,051
EXPENDITURES
Instruction 22,281,128 23,438,081 24,840,001 25,551,850 28,460,806 Support Services 9,986,782 10,640,456 10,888,225 11,654,377 12,457,751 Non-Instructional Services 602,268 588,813 627,229 697,014 830,098 Other/Transfers 2,250,000 2,218,000 2,406,747 8,094,186 2,175,625 Debt Service 5,752,794 5,845,613 5,921,795 0 3,859,328 Capital Outlay 0 0 0 0 0 Refund of Prior Year Expenditures (40,050) 0 0 0 0 Budgetary Reserve 0 0 0 0 450,000
Total Expenditures 40,832,922 42,730,963 44,683,997 45,997,427 48,233,608
Excess of Revenue Over Expenditures 900,425 553,607 892,785 46,487 (1,215,557)
Beginning General Fund Balance, July 1 8,292,187 9,192,612 9,746,219 10,639,004 10,685,491
Prior Period,,,, Adjustment 0 0 0 0 0
Closing Balance as of June 30 $ 9,192,612 $ 9,746,219 $ 10,639,004 $ 10,685,491 $ 9,469,934
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REVENUE FROM COMMONWEALTH SOURCES
School districts in the Commonwealth receive, annually, financial assistance from the Pennsylvania Department of Education. The amount of such assistance is based upon (i) the market value of real estate per weighted average daily membership, (ii) income per weighted average daily membership and (iii) the school district's tax effort, all as compared with such figures on a state-wide basis. The basic instructional subsidy received by a School District is calculated by multiplying the number of students in weighted average daily membership by the District's Market Value/Personal Income Aid Ratio and by the factor for educational expense.
Rental and sinking fund reimbursement from the Commonwealth for school projects is determined by the "Reimbursable Percentage" assigned to the school building project and by the school district's "Market Value Aid Ratio" or "Capital Account Reimbursement Factor" ("CARF") whichever is higher. The School District's CARF is currently higher at .5512 Most school building projects in Pennsylvania are eligible for Commonwealth reimbursement. Certain school building projects, such as school administration buildings and vehicle maintenance buildings, are ineligible for reimbursement. A reimbursable percentage, based upon the rated pupil capacity of the new or renovated structure and certain other costs, is assigned to the building project. This reimbursement percentage multiplied by the School District’s appropriate Aid Ratio determines the Commonwealth's share of the annual lease rental or debt service for that school year.
SCHOOL DISTRICT PENSION PROGRAM
School Districts in Pennsylvania are required to participate in a statewide pension program administered by the Public School Employees Retirement System (PSERS). All of the School District’s full-time employees, par-time employees who work more than 80 days in a school year, and hourly employees who work over 500 hours a year participate in the program. However, please note a Pennsylvania Supreme Court decision has removed the hourly de minimis requirement for current members of PSERS regarding the purchase of credit for their part-time school service rendered prior to their being members of PSERS, for purposes of increasing their pension benefits.
Beginning July 1, 1976, certain revisions were made in the pension program. The Retirement Board, previously under the Department of Education of the Commonwealth, 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. Employees belonging to the Public School Employees Retirement System (“PSERS”) prior to July 22, 1983 contribute 5.25% of their salary, and employees who joined the PSERS on or after July 22, 1983 contribute 6.25% of their salary. On February 17, 2002, Governor Ridge 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. Act 120 of 2010 was passed by the General Assembly on November 15 and signed by 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 will contribute a base rate of 10.3% with shared risk contribution levels between 10.3% and 12.3% and a pension multiplier or 2.5%. On December 8, 2015, the PSERS Board certified the employer rate, to be paid by the School District, of 30.03% for the 2016-17 fiscal year. On December 7, 2016, the PSERS Board certified the employer rate, to be paid by the School District, of 32.57% for the 2017-18 fiscal year. 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 contributions to PSERS. The Commonwealth reimburses school entities for one-half the payment for employees hired on or before June 30, 1994. School entities are reimbursed by the Commonwealth based on a statutory formula for employees hired after June 30, 1994, but not less than one-half of the payment. The School District contributions are made on a quarterly basis and employee contributions are deducted monthly for each paycheck and remitted monthly.
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Recent School District payments, net of reimbursement, have been as follows:
School District Fiscal Year Contribution 2012-13 $ 839,021 2013-14 1,190,735 2014-15 1,294,344 2015-16 2,048,077 2016-17 (Budgeted) 2,810,458
The School District is current in all payments.
PSERS is the 20th largest state-sponsored defined benefit pension fund in the nation. PSERS is primarily responsible for administering a defined benefit pension plan for public school employees in the Commonwealth of Pennsylvania. In the fall of 2015, the PSERS completed its process of publishing financial statements for the year ended June 30, 2015, in compliance with reporting standards established by the Government Accounting Standards Board’s Statement No. 67 and Statement No. 68. PSERS’ total plan net position decreased by $1.4 billion from $53.3 billion at June 30, 2014 to $51.9 billion at June 30, 2015. This decrease was due in large part to deductions for benefits and administrative expenses exceeding net investment income plus member and employer contributions. The change in total plan net position from June 30, 2013 to June 30, 2014 was an increase of $4.0 billion from $49.3 billion at June 30, 2013 to $53.3 billion at June 30, 2014. This increase was also due in large part to net investment income plus member and employer contributions exceeding deductions for benefits and administrative expenses. The Fund’s complete report is available on the PSERS website on the Internet: www.psers.state.pa.us. Source: PSERS Website.
In June 2012, the Government Accounting Standards Board (“GASB”) issued “Statement No. 68 Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement No 27.” The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. The new accounting standard requires the School District to report in its government-wide financial statements its proportionate share of the new pension liability of the pension systems to which it contributes. GASB 68 is effective for fiscal years beginning after June 15, 2014, which, in the case of the School District began with fiscal year ending June 30, 2015. Please see the School District’s Audited Financial Statements for fiscal year ending June 30, 2015 in Appendix B for the net effects of the implementation of GASB 68. Source: PSERS Website.
LABOR RELATIONS
The professional employees of the School District are represented in collective bargaining by the Donegal Education Association. The School District’s present contract with the Association expires on June 30, 2018. There are presently 399 employees of the School District, including 225 teachers and administrators, and 174 support personnel including secretaries, maintenance staff, custodians and teacher aides.
OTHER POST-EMPLOYMENT BENEFITS
During the year ended June 30, 2009, the District implemented Governmental Accounting Standards Board (GASB) Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes standards for the measurement, recognition and display of expenditures for postemployment benefits (OPES) other than pensions and the related liabilities (assets) in the financial reports of state and local governmental employers. As a result of the implementation of the standard, OPES costs are recognized in the government-wide statements and in the proprietary funds when the employee-related services are received by the employer rather than when the benefits are paid. The additional required financial note disclosures detailed in the School District’s Audit Report in Note 6, page 37, includes information about actuarial accrued liabilities for these promised benefits associated with past employee services, and whether and to what extent those benefits have been funded.
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Plan description:
The School District permits any professional employee who has 30 years of service, or is eligible for Superannuation Retirement with PSRS, to continue group insurance coverage to age 65 by remitting the monthly premium to the School District. The retiree’s cost of group insurance is calculated by the plan administrator and is based on projected expenditures for the year. The retiree’s premium for the group insurance is payable in advance on a monthly basis. The School District has elected to finance postemployment benefits on a pay-as-you go basis. The School District recognizes expenditures for postemployment group insurance when claims are filed with the plan administrator. The School District is responsible for all claims in excess of the premiums received by the qualified retirees. The plan does not issue a publicly available financial report. As of June 30, 2016, there were 11 participants receiving benefits
Funding policy:
The District currently follows a pay-as-you-go funding approach, paying an amount each year equal to the benefits claimed in that year.
SCHOOL DISTRICT FINANCIAL HISTORY
The School District and its predecessors have never defaulted on the payment of lease rentals or debt service.
The status of the School District's present indebtedness is shown in the table entitled "Current Long-Term School Financing," in Appendix A.
FUTURE FINANCING
The Board of School Directors of the School District is not considering additional long-term financing at this time.
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DEBT STATEMENT AND BORROWING CAPACITY (Under Local Government Unit Debt Act)
The borrowing capacity of the School District is calculated in accordance with provisions of the Debt Act, which describes the applicable debt limits for local government units, including school districts and municipalities. Under the Debt Act, the School District may incur electoral debt, which is debt that is approved by a majority of the School District's voters at either a general or special election, in an unlimited amount. Net nonelectoral debt, or debt not approved by the School District's electorate, net of state aid, may not exceed 225% of the School District's "Borrowing Base". The Bonds constitute nonelectoral debt under the Debt Act. The Borrowing Base is calculated as the annual arithmetic average of “Total Revenues” (as defined in the Debt Act), for the three full fiscal years next preceding the date of incurring debt. Combined net nonelectoral debt and net lease rental debt (debt represented by capital leases and other forms of agreement), net of state aid, incurred on behalf of the School District may not exceed 225% of the School District's Borrowing Base. The Borrowing Base and borrowing capacity of the School District are as follows:
2013-14 2014-15 2015-16
Total Revenues ...... $43,284,666 $ 45,576,781 $ 46,043,914 Less: Required Deductions (a) Rental and Sinking Fund Reimbursement ...... 1,428,382 1,346,067 1,176,089 (b) Revenues for Self-Liquidating Debt ...... 0 0 0 (c) Interest Earned on Sinking Funds ...... 11,084 26,117 219,049 (d) Grant and Gifts for Capital Projects ...... 0 0 0 (e) Sale of Equipment and Non-Recurring Items ...... 557,608 882,582 0 Total Deductions ...... $ 1,997,074 $ 2,254,766 $ 1,295,138 Total Revenues ...... $ 41,287,592 $ 43,322,015 $ 44,748,776 Total Net Revenues for Three Years ...... $ 129,358,383 Borrowing Base–Average Net Revenues for Three-Year Period $ 43,119,461
A. ELECTORAL DEBT ...... 0
B. NON-ELECTORAL DEBT
Computation of Net Non-Electoral Debt a. Outstanding Principal (including the Bonds) ...... $53,815,222 b. Less: Deductions * ...... 0 c. Net Non-Electoral Debt ...... $53,815,222
C. LEASE RENTAL DEBT
Computation of Net Lease Rental Debt a. Outstanding Principal under Lease Agreements ...... $ 884,476 b. Less: Deductions (described in the Act) ...... 0 c. Net Lease Rental Debt ...... $ 884,476
Computation of Combined Borrowing Capacity a. Debt Limit - 225% of Borrowing Base ...... $97,018,787 b. Less: Combined Net Lease Rental Debt and Net Non-Electoral Debt ...... 54,699,698
c. Current Combined Remaining Borrowing Capacity ...... $42,319,089
* Credits claimed for current appropriations pursuant to Section 8028(b) of the Act.
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TAXING POWERS OF THE SCHOOL DISTRICT
The School District, being a school district of the Second Class under the School Code, is empowered by the School Code to levy the following taxes:
1. A basic annual tax on all real property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes.
2. An unlimited tax on all real property taxable for school purposes to provide funds:
(a) for minimum salaries and increments of the teaching and supervisory staff;
(b) to pay rentals due any municipal authority or non-profit corporation or due the State Public School Building Authority;
(c) to pay interest and principal on any indebtedness incurred pursuant to the Local Government Unit Debt Act, or any prior or subsequent act governing the incurrence of indebtedness of the school district; and
(d) to pay for the amortization of a bond issue which provided a school building prior to the first Monday of July, 1959.
3. An annual per capita tax, not less than one dollar ($1.00) and not more than five dollars ($5.00) on each resident or inhabitant over 18 years of age.
The School District may also levy additional taxes, subject to division with other political subdivisions authorized to levy similar taxes on the same person, subject, business, transaction or privilege, under Act No. 511, enacted December 31, 1965, as amended (the “Local Tax Enabling Act”). These taxes, which may include, among others, an additional per capita tax, wage and other earned income taxes, real estate transfer taxes, gross receipts taxes, and occupation taxes, shall not exceed, in the aggregate, an amount equal to the product of the market valuation of real estate in the School District (as certified by the State Tax Equalization Board of the Commonwealth – “STEB”) multiplied by twelve mills. A recent amendment to the Local Tax Enabling Act authorized all taxing authorities to increase at their individual discretion, the exemption level for per capita, occupational, earned income and similar taxes from $5,000 to $10,000.
The Local Tax Enabling Act was amended by Act 222 of 2004 to authorize all taxing authorities to exempt from per capita, occupation, emergency and municipal service or earned income taxes any person whose total income from all source is less than $12,000 per year.
The taxing powers of the School District described above may be modified by the provisions of the Taxpayer Relief Act or certain other legislation. See “PENNSYLVANIA ACTS AFFECTING CERTAIN LOCAL TAXING POWERS OF SCHOOL DISTRICTS” below.
PENNSYLVANIA ACTS AFFECTING CERTAIN LOCAL TAXING POWERS OF SCHOOL DISTRICTS
The Taxpayer Relief Act (Act 1) Under Act 1, 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 summarized below is applicable and the use of such exception is approved by the PDE: 1. 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; to pay
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interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves; 2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and 3. to make payments into the State Public School Employees’ Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1. 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 Index applicable to the School District for the current and previous fiscal years is as follows:
2017-18 3.3% 2016-17 3.1% 2015-16 2.5% 2014-15 2.7% 2013-14 2.2%
In accordance with the Taxpayer Relief Act, the Board of School Directors of the School District placed a referendum on the ballot for the May 15, 2007 primary election seeking voter approval to levy (or increase the rate of) an earned income tax or personal income tax and use the proceeds to reduce local real estate taxes by a homestead and farmstead exclusion. The referendum was not approved by a majority of the voters at the primary election
A board of school directors may submit, but is not required to submit, a further referendum question to the voters at the municipal election in 2009 or any later year seeking approval to levy or increase the rate of an EIT or a PIT for the purpose of further funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate which, when combined with any tax rate authorized at the 2007 primary election, is required to provide the maximum homestead and farmstead exclusions allowable under law.
A board of school directors may submit, but is not required to submit, a further referendum question to the voters in a municipal election in 2009 or any later year seeking approval to levy or increase the rate of an EIT or a PIT for the purpose of further funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate required to provide the maximum homestead and farmstead exclusions allowable under law.
Act 1 also provides for gaming revenues received by the Commonwealth to be accumulated in the Property Tax Relief Reserve Fund (“Fund”). When the Fund has sufficient monies according to a formula, the Secretary of the Commonwealth announces that funds are available for distribution to school districts. The monies received by school districts from the Fund may only be used to provide a reduction in real estate taxes to qualified homestead/farmstead properties. To qualify for a homestead and/or farmstead tax reduction, the property must be owner-occupied and used for
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residential purposes. The monies received by the local school district from the Fund are offset on a dollar for dollar basis by reductions in the local real estate tax payments from owners of qualified homestead and farmstead properties.
This summary is not intended to be an exhaustive discussion of the provisions of Act 1 nor a legal interpretation of any provision of Act 1, and a prospective purchaser of the Bonds should review the full text of Act 1 as a part of any decision to purchase the Bonds.
Status of the Bonds Under Act 1
The Bonds do not represent indebtedness incurred prior to the effective date of the Taxpayer Relief Act. Any tax increase greater than the Index would trigger an Act 1 referendum in the absence of other (non-debt related) exceptions to the referendum requirement, in order to pay initial or increased debt service on the Bonds. The School District expects, absent an unforeseen event, to be able to absorb any annual increase related to debt service payments on the Bonds within the prescribed state Index limitations provided by Act 1.
Act 48 of 2003 – Limitation on Fund Balances
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 unassigned fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below:
Total Budgeted Expenditures: Estimated Ending Unassigned Fund Balance 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.
The total budgeted expenditures in the School District’s budget for the 2016-17 fiscal year including fund transfers and budgeted reserves are $48,233,608, and the School District’s estimated ending unassigned fund balance as a percentage of total budgeted expenditures for the 2016-17 fiscal year is 5.8%.
SET FORTH ABOVE IS A SUMMARY OF PORTIONS OF ACT 48. THIS SUMMARY IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF THE PROVISIONS OF ACT 48 NOR A LEGAL INTERPRETATION OF ANY PROVISIONS OF ACT 48. A PROSPECTIVE PURCHASER OF THE BONDS SHOULD REVIEW THE FULL TEXT OF ACT 48 AS A PART OF ANY DECISION TO PURCHASE THE BONDS.
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TAX REVENUES OF THE SCHOOL DISTRICT
Largest Taxpayers in School District
The ten largest real estate taxpayers in the School District and 2016-17 assessed valuation of their real estate are as follows: See Attached
2016-17 Taxpayer Assessed Valuation
Corixa Corp. (Wyeth) $16,393,600 Donegal Mutual Insurance 12,805,000 Florin Hill Investors LP 12,543,200 Eleventen LLC 11,589,400 Esbenshade H Glenn 9,477,400 Donegal Crossing Assoc. LLC 7,259,200 Greiner Franklin B Jr.(Greiner Industries) 7,085,100 Propertyy Management Alternative 7,051,000 River Road Marietta LP 6,897,500 Patterson Dental Supply Inc. 6,429,500 $97,529,900* *Represents approximately 7.8% of total assessed valuation of the school district
Taxable Duplicate Total $1,244,221,800
Source: School District
Trends in Value of Real Property
Common Year Assessed Valuation Market Value Level Ratio 2006 $ 1,031,511,800 $ 1,346,621,149 76.6% 2007 1,050,890,400 1,427,840,217 73.6 2008 1,086,876,700 1,470,739,783 73.9 2009 1,120,726,700 1,490,328,059 75.2 2010 1,148,482,000 1,501,283,660 76.5 2011 1,172,993,400 1,488,570,305 78.8 2012 1,183,622,900 1,468,514,764 80.6 2013 1,198,135,600 1,514,709,987 79.1 2014 1,217,562,800 1,571,048,774 77.5 2015 1,229,400,400 1,628,244,900 75.5
Source: Pennsylvania State Tax Equalization Board
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Tax Collection Record
Collected in School Assessed Adjusted Year of Levy Total Collections Year Valuation Millage Levy Amount % Amount* % 2003-04 $ 819,201,900 14.11 11,493,384 11,493,384 96.7 11,785,151 99.1 2004-05 834,420,100 14.9 12,432,860 12,724,180 102.3 12,724,180 102.3 2005-06 1,007,164,300 13.61 13,707,506 13,413,750 97.9 13,736,428 100.2 2006-07 1,038,172,300 16.2 16,818,391 16,968,095 100.9 16,968,095 100.9 2007-08 1,074,239,800 17.74 19,057,014 18,367,827 96.4 18,746,838 98.4 2008-09** 1,098,654,300 18.73 20,577,795 19,142,852 93.0 19,732,153 95.9 2009-10 1,109,228,264 19.45 21,574,490 20,571,353 95.4 21,041,719 97.5 2010-11 1,126,616,236 20.169 22,722,724 21,848,341 96.2 22,296,970 98.1 2011-12 1,148,281,776 20.532 23,576,521 22,713,720 96.3 23,345,310 99.0 2012-13 1,164,690,540 20.9837 24,439,517 23,568,773 96.4 24,159,509 98.9 2013-14 1,178,652,700 21.4453 25,276,560 24,326,132 96.2 24,885,667 98.5 2014-15 1,192,130,272 22.0243 26,255,835 25,373,630 96.6 25,894,281 98.6 2015-16 1,213,158,034 22.0243 26,718,957 25,625,491 95.9 26,080,217 97.6 2016-17 1,215,529,738 22.464 27,305,659 26,471,954 96.9% N/A *Includes Delinquent Tax Collections ** Beginning in 2008-09 the amount of the Adjusted Levy is reduced by the amount of the Homestead/Farmstead Exemptions. The Adjusted levy shown excludes the amount payable from the Property Tax and Rent Rebate Program funded pursuant to Act 1 of the Commonwealth as follows:
Source: School District
2017 Tax Rates
Realty Tax Rates
Real Estate (Mills)
Municipality School District Municipal County East Donegal Township ...... 22.4640 3.95 3.735 Marietta Borough ...... 22.4640 6.50 3.735 Mount Joy Borough ...... 22.4640 4.91 3.735 Mount Joy Township ...... 22.4640 2.75 3.735 ______Source: PA Department of Community and Economic Development.
Non-Realty Tax Rates
Local Services Tax Real Estate Transfer Earned Income Per Capita Municipality Municipal School Municipal School Municipal School Municipal School East Donegal Twp $47.00 $5.00 0.5% 0.5% 0.5% 0.5% $0.00 $0.00 Marietta Borough 5.00 5.00 0.5 0.5 0.5 0.5 0.00 0.00 Mount Joy Borough 47.00 5.00 0.5 0.5 0.5 0.5 0.00 0.00 Mount Joy 0.00 5.00 0.5 0.5 0.5 0.5 0.00 0.00 Township
______Source: PA Department of Community and Economic Development.
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SUMMARY OF SCHOOL FINANCINGS AND RATIOS
Current Long-Term School Financings (As of April ____2017)
The School District is responsible for annual debt service in support of the following general obligation issues (including this issue).
(Market Value Aid Ratio = .5512)
Long-Term Percent Effective Debt Reimburse- Reimburse- State Local Issue Outstanding ment ment (1) Share (2) Share Series of 2017 $13,770,000* 27.75% 15.30% $2,106,810 11,663,190 Series of 2016 9,855,000 27.75 15.30 1,507,815 8,347,185 Series of 2013 3,295,000 0.00 0.00 0 3,295,000 SPSBA 2011 Notes 4,297,222 27.75 15.30 657,475 3,639,747 Series of 2011 Bonds 5,630,000 27.75 15.30 861,390 4,768,610 SPSBA 2010 Note 16,968,000 15.91 8.77 1,488,093 15,479,907
Lease Rentals LCCTC 884,476 .2850 .1425 126,038 758,438
TOTAL $54,699,698 $6,747,621 $47,952,077
(1) The Project Reimbursable Percentage multiplied by the School District’s 2016-17 MVAR of 55.12%. (2) State reimbursement is paid in annual amounts over the period of debt service. (3) Estimated.
Financial Factors and Ratios
STEB Market Valuation of Real Estate (2015)…………………………………………...... $1,628,244,900 STEB Assessed Valuation of Real Estate (2015)………………………………………...... $1,229,400,400 Common Level Ratio...... ………………………………………………………………...... 75.5%
Population: 2010 Census Information...... ………………………………………...... 27,626 Market Valuation of Real Estate to Population …………………………………………...... $58,939 Assessed Valuation of Real Estate to Population…………………………………………...... $44,502
*Preliminary, subject to change.
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Bonded Indebtedness
Obligations of the Residents of the School District School District General Obligation and Lease Rental ...... $54,699,968 Lancaster County (1) ...... 9,601,919 Municipalities (2) ...... 7,880,903 Total Obligations ...... $72,182,520
Ratio of Total Obligations to: Market Valuation of Real Estate ...... 4.43% Assessed Valuation of Real Estate ...... 5.87% Population ...... 2,613$
Obligations of the Residents after State Reimbursement School District General Obligations and Lease Rental ...... $47,952,077 Lancaster County (1) ...... 9,601,919 Municipalities (2) ...... 7,880,903 Total Obligations After State Reimbursement ...... $65,434,899
Ratio of Total Obligations after State Reimbursement to: Market Valuation of Real Estate ...... 4.02% Assessed Valuation of Real Estate ...... 5.32% Population ...... $2,369
1. Based on the School District’s percentage (3.85%) of the general obligation debt outstanding of the County of Lancaster ($249,400,500) as reported by DCED as of March 1, 2017. 2. General obligation debt of municipalities within the School District ($7,880,903), as reported by DCED as of March 1, 2017.
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APPENDIX B
Description of the School District
DESCRIPTION OF THE SCHOOL DISTRICT
Donegal School District covers 34 square miles and is comprised of East Donegal Township, a portion of Mount Joy Township, Marietta Borough and Mount Joy Borough. The School District is approximately 10 miles northwest of the City of Lancaster, in the northwestern section of Lancaster County, near the Susquehanna River. Major urban centers are readily accessible as the School District is located approximately 100 miles west of Philadelphia, 45 southwest of Reading, 90 miles southwest of Allentown, 15 miles east of York and 20 miles southeast of Harrisburg, the State Capital.
The School District is a School District of the Third Class, organized and existing under the laws of the Commonwealth of Pennsylvania (the "Commonwealth").
The governing body of the School District is a Board of nine school directors who are each elected for a four-year term. The daily operation and management of the School District is carried out by the administrative staff of the School District, headed by the Superintendent of Schools, who is appointed by the Board of School Directors.
Demographic Characteristics
The following tables provide population trends, age, wealth and housing indices for the School District, Lancaster County and the Commonwealth of Pennsylvania.
Population and Density
2010 2000 1990 Donegal School District 27,626 22,803 24,471 Lancaster County 519,445 470,658 422,822 Commonwealth 12,702,379 12,281,054 11,881,643
Age Composition (2010)
Under 18 65 or Over Donegal School District Lancaster County 24.8 15.0 Commonwealth 22.0 15.4
Income (5 year estimates 2010) Individuals Below Median Family Income Poverty Level Donegal School District Lancaster County 64,672 6.7 Commonwealth 61,890 9.3
Occupied Housing (2010)
Total Occupied Owner-Occupied Housing Housing Housing Units Units (%) Units (%)
Donegal School District Lancaster County 209,952 193,602 95.4 132,703 65.4 Commonwealth 5,567,315 5,018,904 90.1 3,491,722 62.7
Tourism
Lancaster County, Pennsylvania, the oldest inland town in the nation, boasts one of the strongest Amish/Dutch heritages of all Pennsylvania Dutch towns. True to its roots, the transportation method in this town is still horse and buggy in some areas. Travel and tourism is among the County’s leading industries. Lancaster County attracted 7.9 million visitors during 2013, generating an estimated $1.9 billion of visitor spending.
Source: Pennsylvania Dutch Convention and Visitors Bureau
Medical Facilities There are 4 general acute care hospitals and one rehabilitation hospital that serve Lancaster County. These hospitals, their licensed bed capacities and number of employees (full-time and part-time) are as follows:
Institution Location Licensed Beds Staff Lancaster County Full-Time Part-Time Wellspan Ephrata Community Hospital Ephrata 130 909 326 Heart of Lancaster Regional Medical Center Lititz 148 376 96 Lancaster General Hospital Lancaster 630 4,669 1,172 Lancaster Regional Medical Center Lancaster 214 516 173 Lancaster Rehabilitation Hospital Lancaster 59 154 105 ______Source: Pennsylvania Department of Health, Bureau of Health Statistics; June, 2015 reporting period.
Transportation
All of the County's major highways converge on the City of Lancaster with the exception of the Pennsylvania Turnpike which traverses the County in an east-west direction, 15 miles to the north. U.S. Route 30 crosses the Susquehanna River at Columbia, Pennsylvania, and meets Interstate Route 83 at York, Pennsylvania, 23 miles west of Lancaster. Interstate Route 83 provides a route to Washington and Baltimore. U.S. Route 222 runs in a north-south direction and connects with Reading, Allentown and Easton, and intersects the Pennsylvania Turnpike approximately 15 miles north of the City of Lancaster. Other major highways include U.S. Route 283 connecting Lancaster to Harrisburg, and State Route 501 which intersects the area providing access to Allentown, Bethlehem and Easton via the northeast extension of the Pennsylvania Turnpike to the east, and Wilkes-Barre, Scranton and Binghamton, New York, via U.S. Route 81 to the north.
Utilities
The County has been furnished with electric energy and related services by PPL since 1930. PPL, the second largest electric utility in the state, services approximately 900,000 customers throughout 10,000 square miles of central eastern Pennsylvania. PPL and eleven neighboring electric utilities have formed the Pennsylvania-New Jersey-Maryland interconnection which serves as a high capacity power pool fully integrating the generation and transmission systems of the participating utilities.
Natural gas is delivered to the County by UGI Corporation. UGI has been in operation for more than eighty years and has over 356 miles of distribution mains in the County.
Higher Education
Lancaster County has a number of institutions of higher learning including: Elizabethtown College, a privately owned institution in Elizabethtown, which offers an undergraduate liberal arts education; Franklin and Marshall College, a coeducational liberal arts college in Lancaster; Millersville University, a State-owned institution in Millersville; the Lancaster campus of Harrisburg Area Community College; the Lancaster Campus of Penn State; Pennsylvania College of Art and Design, a member of the National Association of Schools of Art & Design; Lancaster Bible College, a four-year Christian career college unaffiliated with any denomination; Thaddeus Stevens College of Technology and the Lancaster General College of Nursing and Health Sciences.
In addition, the Lancaster Theological Seminary, and three vocational-technical schools are located within the County.
ECONOMY
Classification of Employment by Industry Lancaster County, Pennsylvania
The following is a breakdown of employment in Lancaster County for 2014 from the Pennsylvania Department of Labor & Industry. Average annual earnings for workers are included.
Average Average Monthly Total Wages Average Annual Industry Quarterly Units Employment (1000s) Wage
Lancaster County 12,776 224,514 9,387,984 41,815
AGRICULTURE, FORESTRY, FISHING AND HUNTING 193 2,479 85,913 34,656 MINING 16 369 19,709 53,411 UTILITIES 11 187 17,445 93,287 CONSTRUCTION 1,602 14,202 746,367 52,554 MANUFACTURING 908 36,042 1,920,723 53,291 WHOLESALE TRADE 717 12,323 586,820 47,620 RETAIL TRADE 1,829 29,125 731,404 25,113 TRANSPORTATION AND WAREHOUSING 392 9,520 411,052 43,178 INFORMATION 112 2,977 136,060 45,704 FINANCE AND INSURANCE 599 6,526 459,178 70,361 REAL ESTATE AND RENTAL AND LEASING 337 1,870 76,543 40,932 PROFESSIONAL AND TECHNICAL SERVICES 989 8,502 507,079 59,642 MANAGEMENT OF COMPANIES AND ENTERPRISES 99 3,932 348,143 88,541 ADMINISTRATIVE AND WASTE SERVICES 582 9,249 247,340 26,742 EDUCATIONAL SERVICES 107 3,533 144,533 40,909 HEALTH CARE AND SOCIAL ASSISTANCE 1,589 36,006 1,553,965 43,159 ARTS, ENTERTAINMENT, AND RECREATION 1,026 19,012 290,068 15,257 ACCOMMODATION AND FOOD SERVICES 1,026 19,012 290,068 15,257 OTHER SERVICES (EXCEPT PUBLIC ADMINISTRATION) 1,186 7,041 204,976 29,112 FEDERAL GOVERNMENT 70 1,211 72,620 59,967 LOCAL GOVERNMENT 267 15,403 707,142 45,909 STATE GOVERNMENT 32 2,178 124,607 57,211 ______Source: Pennsylvania Department of Labor & Industry, report completed May 2016. * Data that might be identified with an individual employer and/or data involving fewer than twenty-five employees are not published.
Trends in Lancaster Labor Market Area Employment and Unemployment
Civilian Total Percentage Unemployed Year Labor Force Employment County Pennsylvania U.S. 2004 266,700 256,200 4.0 5.5 5.5 2005 270,400 260,600 3.6 5.0 5.1 2006 267,300 257,700 3.6 4.7 4.6 2007 267,400 258,400 3.4 4.4 4.6 2008 271,800 260,200 4.3 5.4 5.8 2009 269,700 250,200 7.2 8.1 9.3 2010 267,200 247,100 7.5 8.7 9.6 2011 266,400 248,100 6.8 7.9 8.5 2012 268,800 251,000 6.6 7.9 8.1 2013 268,600 252,100 6.1 7.4 7.4 2014 272,400 259,800 4.6 5.9 6.2 2015 275,900 264,900 4.0 5.1 5.0 2016 (Dec) 272,900 261,700 4.1 5.6 4.7
Source: Pennsylvania Department of Labor and Industry
Top Employers in Lancaster County
Name Description
Lancaster General Hospital Health Care Services Mutual Assistance Group Insurance County of Lancaster Government Dart Container Corporation Foodservice Products THLP CO Inc. Dairy Products School District of Lancaster Education Masonic Villages of the Grand Lodge Retirement Community Manheim Remarketing, Inc. Automotive State Government Government LSC Communications Communications ______Source: Pennsylvania Center for Workforce Information & Analysis 3rd Quarter 2016.
SCHOOL FACILITIES
The schools presently operated by the School District consist of one senior high school (grades 9-12), one junior high school (grades 7-8), one intermediate elementary school (grades 3-6), one primary elementary school (grades K-2), and in conjunction with the Lancaster-Lebanon Intermediate Unit 13 one cyber school (grades 7-12), all as described on the following table:
School Year 2016-17
Reimbursable 2016-17 School Facilities Grades Pupil Capacity Enrollment
ELEMENTARY Donegal Primary Elementary K-2 822 678 Donegal Intermediate Elementary 3-6 1,034 910
TOTAL ELEMENTARY 1,856 1588
Junior High School 7-8 746 476 High School 9-12 1517 924 Virtual Solutions cyber school 7-12 0 12
TOTAL ALL SCHOOLS 3,149 3000
Source: School District Officials
Pupil Enrollment - History
School Year Elementary Secondary Total 2002-03 1,110 1,428 2,538 2003-04 1,091 1,449 2,540 2004-05 1,167 1,526 2,693 2005-06 1,200 1,558 2,758 2006-07 1,243 1,560 2,803 2007-08 1,308 1,515 2,823 2008-09 1,345 1,472 2,817 2009-10 1,374 1,462 2,836 2010-11 1,371 1,473 2,844 2011-12 1,350 1,541 2,891 2012-13 1,548 1,328 2,876 2013-14 1,582 1,328 2,910 2014-15 1,570 1,348 2,918 2015-16 1,623 1,376 2,999 2016-17 1,584 1,409 2,993
APPENDIX C
Audited Financial Statements of the School District, Fiscal Year Ending June 30, 2016
Donegal School District Mount Joy, Pennsylvania Lancaster County
Financial Statements Year Ended June 30, 2016 DONEGAL SCHOOL DISTRICT
CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
MANAGEMENT’S DISCUSSION AND ANALYSIS 3
BASIC FINANCIAL STATEMENTS
Government-Wide Financial Statements Statement of Net Position (Deficit) 15 Statement of Activities 16
Fund Financial Statements Balance Sheet – Governmental Funds 17 Reconciliation of Governmental Funds Balance Sheet to Net Position (Deficit) of Governmental Activities on the Statement of Net Position (Deficit) 18 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 19 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to Change in Net Position (Deficit) of Governmental Activities on the Statement of Activities 20 Statement of Net Position (Deficit) – Proprietary Fund 21 Statement of Revenues, Expenses and Changes in Net Position (Deficit) – Proprietary Fund 22 Statement of Cash Flows – Proprietary Fund 23 Statement of Net Position – Fiduciary Fund 24
Notes to Financial Statements 25
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule – General Fund 46 Other Post-Employment Benefits Schedule of Funding Progress 47 Schedule of the District’s Proportionate Share of the Net Pension Liability 48 Schedule of the District’s Pension Plan Contributions 49
SINGLE AUDIT
Schedule of Expenditures of Federal Awards and Certain State Grants 50 Notes to Schedule of Expenditures of Federal Awards and Certain State Grants 52 Summary Schedule of Prior Audit Findings 53
DONEGAL SCHOOL DISTRICT
CONTENTS
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 54 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY UNIFORM GUIDANCE 56 Schedule of Findings and Questioned Costs 58
INDEPENDENT AUDITOR'S REPORT
Board of School Directors Donegal School District Mount Joy, 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 Donegal School District, Mount Joy, Pennsylvania as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Donegal 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 Donegal School District, Mount Joy, Pennsylvania 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.
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Other Matters Report on Summarized Comparative Information The financial statements of Donegal School District as of and for the year ended June 30, 2015, were audited by other auditors whose report, dated October 22, 2015, expressed unmodified opinions on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived.
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 – General Fund, the other post-employment benefits schedule of funding progress and the schedules of the District’s proportionate share of the net pension liability and pension plan contributions on pages 3 through 14 and 46 through 49 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Donegal School District’s basic financial statements. The schedule of expenditures of federal awards and certain state grants 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 not a required part of the basic financial statements.
The schedule of expenditures of federal awards and certain state grants is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards and certain state grants is fairly stated in all material respects in relation to the basic financial statements as a whole.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 25, 2016, on our consideration of Donegal School District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is 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 Donegal School District’s internal control over financial reporting and compliance.
BBD, LLP
Philadelphia, Pennsylvania October 25, 2016
-2- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
Management's discussion and analysis ("MD&A") of the financial performance of the Donegal School District (the "District") provides an overview of the District's financial performance for fiscal year ended June 30, 2016. Readers should also review the basic financial statements and related notes to enhance their understanding of the District's financial performance.
DISTRICT PROFILE
The District consists of one elementary school, an intermediate school, a junior high school and a senior high school consisting of approximately 3,000 students. The District covers 34 square miles 10 miles east of the City of Lancaster and is comprised of the Marietta and Mount Joy Boroughs, East Donegal Township and approximately one third of Mount Joy Township. During 2015-2016, there were 400 employees in the District, consisting of 205 teachers, 20 administrators, including general administration, principals, and supervisors, and 175 support personnel including administrative assistants, maintenance staff, custodial staff, transportation staff, food service staff and technology staff.
The mission of the District is to develop each learner as a productive citizen who thoughtfully meets personal, community and global challenges.
FINANCIAL HIGHLIGHTS
● On a government-wide basis including all governmental activities and the business type activities, the liabilities and deferred inflows of resources of the District exceeded the assets and deferred outflows of resources resulting in a deficit in total net position at the close of the 2015-2016 fiscal year of $5,013,189. During the 2015-2016 fiscal year, the District had an increase in total net position of $1,064,535. The net position of governmental activities increased by $1,036,386 and the net position of the business-type activities increased by $28,149.
● The General Fund reported an increase of fund balance of $46,487, bringing the cumulative balance to $10,685,491 at the conclusion of the 2015-2016 fiscal year.
At June 30, 2016, the General Fund fund balance includes $7,410,000 committed or assigned by the School Board or Management for the following purposes:
$1,810,000 committed to fund future self insurance expenditures
$1,890,000 committed to fund future curriculum initiatives
$1,810,000 committed to fund future technology initiatives
$1,350,000 committed for equipment and capital improvements
$250,000 committed for anticipated increases in the District's required share of retirement contributions
$300,000 assigned for capital projects
● Actual revenues were $1,273,200 more than budgeted amounts and actual expenditures and other financing uses were $20,567 less than budgeted amounts resulting in a net positive variance of $1,293,767.
-3- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
OVERVIEW OF THE FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.
GOVERNMENT-WIDE FINANCIAL STATEMENTS
The government-wide financial statements are designed to provide readers with a broad overview of the District’s finances, in a manner similar to a private-sector business.
The Statement of Net Position (Deficit) presents information on all of the District’s assets and deferred outflows of resources and liabilities and deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial condition of the District is improving or deteriorating. To assess the District’s overall health, the reader will need to consider additional nonfinancial factors such as changes in the District’s property tax base and the condition of school buildings and other facilities.
The Statement of Activities presents information showing how the District's net position changed during the most recent fiscal year. All changes in net position are reported as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).
The government-wide financial statements distinguish the functions of the District that are principally supported by taxes and intergovernmental revenues from other functions that are intended to recover all or a significant portion of their costs through user fees and charges.
In the government-wide financial statements, the District's activities are divided into two categories:
Governmental Activities Most of the District's basic services are included here, such as regular and special education, support services, maintenance, transportation and administration.
Business-Type Activities The District charges fees to cover the costs of its food services program.
The government-wide financial statements can be found on Pages 15 and 16 of this report.
FUND FINANCIAL STATEMENTS
The fund financial statements provide more detailed information about the District's funds. A fund is a group of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the District's funds can be divided into three categories: governmental funds, proprietary funds and fiduciary funds.
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MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
Governmental Funds Most of the District's activities are included in the governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on short- term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the District's near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the governmental near-term financing decisions. Both the Balance Sheet – Governmental Funds and Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.
The District maintains three major individual governmental funds. Information is presented separately in the Balance Sheet – Governmental Funds and Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds for each of the major funds.
The District adopts an annual appropriated budget for its General Fund. A budgetary comparison schedule has been provided for the General Fund to demonstrate compliance with the budget.
The governmental fund financial statements can be found on Pages 17 through 20 of this report.
Proprietary Fund The District maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Food Service Fund is reported as an enterprise fund of the proprietary fund type.
The proprietary fund financial statements provide separate financial information for its major fund. The proprietary fund financial statements can be found on Pages 21 through 23 of this report.
Fiduciary Fund The District is the trustee, or fiduciary, for assets that belong to others, consisting of a student activity fund. The District is responsible for ensuring that the assets reported in this fund are used for their intended purpose and by those to whom the assets belong. This fund is used to account for resources held for the benefit of parties outside the District. The fiduciary fund is not reflected in the government-wide financial statements because the resources of those funds are not available to support the District's own programs.
The fiduciary fund financial statements can be found on Page 24 of this report.
Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements.
The notes to the financial statements can be found on Pages 25 through 45 of this report.
Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information which consists of the budgetary comparison schedule for the General Fund, a schedule of the District's progress in funding its obligation to provide other post-employment benefits and schedules of net pension liability and District’s pension contributions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
The required supplementary information can be found on Pages 46 through 49 of this report.
GOVERNMENT-WIDE FINANCIAL ANALYSIS
As noted above, net position may serve over time as a useful indicator of the District's financial condition. At the close of the 2015-2016 fiscal year the District's liabilities and deferred inflows of resources exceeded assets and deferred outflows of resources by $5,013,189. The following table presents condensed information for the Statement of Net Position (Deficit) of the District at June 30, 2016 and 2015.
Governmental Business-Type Activities Activities Totals 2016 2015 2016 2015 2016 2015 ASSETS Current assets $ 24,820,726 $ 26,858,516 $ 649,493 $ 559,041 $ 25,470,219 $ 27,417,557 Noncurrent assets 83,239,990 81,794,526 403,344 490,270 83,643,334 82,284,796 Total assets 108,060,716 108,653,042 1,052,837 1,049,311 109,113,553 109,702,353 DEFERRED OUTFLOWS Deferred changes - pension 6,569,475 4,987,106 173,266 119,936 6,742,741 5,107,042 LIABILITIES Current liabilities 5,877,170 5,876,101 42,793 53,051 5,919,963 5,929,152 Noncurrent liabilities 113,242,194 110,015,890 1,350,326 1,240,997 114,592,520 111,256,887 Total liabilities 119,119,364 115,891,991 1,393,119 1,294,048 120,512,483 117,186,039 DEFERRED INFLOWS Deferred credits - pension 340,446 3,614,162 16,554 86,918 357,000 3,701,080 NET POSITION (DEFICIT) Net investment in capital assets 28,465,152 23,966,871 403,344 490,270 28,868,496 24,457,141 Restricted 8,052,500 10,120,949 - - 8,052,500 10,120,949 Unrestricted (deficit) (41,347,271) (39,953,825) (586,914) (701,989) (41,934,185) (40,655,814) Total net position (deficit) $ (4,829,619) $ (5,866,005) $ (183,570) $ (211,719) $ (5,013,189) $ (6.077,724)
The District's total assets as of June 30, 2016 were $109,113,553 of which $20,827,158 or 19.09% consisted of unrestricted cash and investments and $83,643,334 or 76.66% consisted of the District's net investment in capital assets. The District's total liabilities as of June 30, 2016 were $120,512,483 of which $54,774,838 or 45.45% consisted of general obligation debt used to acquire and construct capital assets and $58,042,000 or 48.16% consisted of the actuarially determined net pension liability.
The District had a deficit in unrestricted net position of $41,934,185 at June 30, 2016. The District’s unrestricted net position decreased by $1,278,371 during 2015-2016 primarily due to the results of current year operations.
A portion of the District's net position reflects its restricted net position which totaled $8,052,500 as of June 30, 2016. All of the District's restricted net position related to amounts restricted for capital expenditures and debt service.
-6- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
Another portion of the District's net position reflects its investment in capital assets net of accumulated depreciation less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to students; consequently, these assets are not available for future spending. Although the District's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. For the year ended June 30, 2016, the District's net investment in capital assets, increased by $4,411,355 because the debt used to acquire the capital assets was being repaid faster than the capital assets were being depreciated and capital assets were acquired with funding sources other long-term debt.
The following table presents condensed information for the Statement of Activities of the District for 2016 and 2015:
Governmental Business-Type Activities Activities Totals 2016 2015 2016 2015 2016 2015 REVENUES Program revenues Charges for services $ 138,532 $ 213,601 $ 640,651 $ 637,164 $ 779,183 $ 850,765 Operating grants and contributions 8,276,092 7,648,950 902,459 837,742 9,178,551 8,486,692 Capital grants and contributions 357,500 - - - 357,500 - General revenues Property taxes levied for general purposes 26,212,966 26,064,217 - - 26,212,966 26,064,217 Earned income taxes levied for general purposes 2,771,493 2,630,914 - - 2,771,493 2,630,914 Other taxes 678,301 705,528 - - 678,301 705,528 Grants and entitlements not restricted to specific programs 7,477,255 7,299,934 - - 7,477,255 7,299,934 Gain on sale of capital assets - 400,404 - - - 400,404 Investment earnings 273,367 106,616 582 548 273,949 107,164 Total revenues 46,185,506 45,070,164 1,543,692 1,475,454 47,729,198 46,545,618 EXPENSES Instruction 29,257,581 28,296,918 - - 29,257,581 28,296,918 Instructional student support services 3,765,296 3,503,822 - - 3,765,296 3,503,822 Administrative and financial support services 3,442,352 3,412,169 - - 3,442,352 3,412,169 Operation and maintenance of plant services 3,897,123 4,053,567 - - 3,897,123 4,053,567 Pupil transportation 1,571,553 1,468,981 - - 1,571,553 1,468,981 Student activities 757,249 679,257 - - 757,249 679,257 Interest and amortization expense related to non-current liabilities 2,457,966 2,664,757 - - 2,457,966 2,664,757 Food service - - 1,515,543 1,508,235 1,515,543 1,508,235 Total expenses 45,149,120 44,079,471 1,515,543 1,508,235 46,664,663 45,587,706 CHANGE IN NET POSITION (DEFICIT) $ 1,036,386 $ 990,693 $ 28,149 $ (32,781) $ 1,064,535 $ 957,912
Overall, the District's financial position has been improving but challenges such as increased medical costs, pension contributions, state-mandated programs and negotiated contracts have a potential to offset these gains in future fiscal years. Management of the District continues to aggressively implement cost efficiencies and revenue-generating strategies to combat these factors. In the governmental activities, the District's assessed property tax base drives the majority of the revenue generated. A majority of the District's property tax base is in the form of residential housing. Although the District is primarily a residential community, the District also has a property tax base derived from commercial facilities.
-7- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
The Statement of Activities provides detail that focuses on how the District finances its services. The Statement of Activities compares the costs of the District functions and programs with the resources those functions and programs generate themselves in the form of program revenues. As demonstrated by the following graph, all of the District's governmental activities are not self-supporting, raising enough program revenue to cover their costs, as most traditional governmental services are not.
2015 ‐ 2016 Expenses and Program Revenue ‐ Governmental Activities
Instruction
Instructional Student Support
Admin & Financial Support Services Program Revenues
Operation & Maint of Plant Svcs Expenses
Pupil Transportation
Student Activities
Interest & Amort. Exp on Debt
‐ 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000
To the degree that the District's functions or programs cost more than they raise, the Statement of Activities shows how the District chose to finance the difference through general revenues. The following chart shows that the District relies on tax revenues to finance its governmental activities.
2015‐2016 Revenues by Sources ‐ Governmental Activities
Capital Grants and Grants & Entitlements Contributions 0.77% Not Restricted 16.19%
Investment Earnings Charges for Services 0.59% 0.30%
Operating Grants & Taxes 64.23% Contributions 17.92%
-8- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
GOVERNMENTAL FUNDS
The governmental fund financial statements provide detailed information of the District's major funds. Some funds are required to be established by State statute while other funds are established by the District to manage monies restricted for a specific purpose. As of June 30, 2016, the District's governmental funds reported a combined fund balance of $18,737,991 which is a decrease of $2,021,962 from the prior year. The following table summarizes the District's total governmental fund balances as of June 30, 2016 and 2015 and the total 2016 change in governmental fund balances.
2016 2015 Change General Fund $ 10,685,491 $ 10,639,004 $ 46,487 Capital Projects Fund 6,504,274 9,092,216 (2,587,942) Debt Service Fund 1,548,226 1,028,733 519,493 $ 18,737,991 $ 20,759,953 $ (2,021,962)
GENERAL FUND
The General Fund is the District's primary operating fund. At the conclusion of the 2015-2016 fiscal year, the General Fund fund balance was $10,685,491 representing an increase of $46,487 in relation to the prior year. The increase in the District's General Fund fund balance is due to many factors. The following analysis has been provided to assist the reader in understanding the financial activities of the General Fund during the 2015-2016 fiscal year.
The District's reliance upon tax revenues is demonstrated by the graph below that indicates 64.52% of General Fund revenues are derived from local taxes.
2015‐2016 General Fund Revenues
Investment Earnings 0.09% Other 1.19%
Intergovernmental Revenues 34.20% Taxes 64.52%
General Fund Revenues 2016 2015 $ Change % Change Tax revenues $ 29,707,615 $ 29,404,704 $ 302,911 1.03 Intergovernmental revenues 15,748,346 14,937,973 810,373 5.42 Investment earnings 40,112 36,507 3,605 9.87 Other 547,841 1,197,597 (649,756) (54.25) $ 46,043,914 $ 45,576,781 $ 467,133 1.02
-9- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
Intergovernmental revenues increased primarily due to additional funding received for the state retirement subsidy which increased commensurate with the employer annual contribution percentage.
The decrease in other revenue of $649,756 from 2014-2015 to 2015-2016 is due to the revenue from sale of the District’s Pinkerton property in 2014-2015.
As the graph below illustrates, the largest portion of General Fund expenditures are for salaries and benefits. The District is an educational service entity and as such is labor intensive.
2015‐2016 General Fund Expenditures and Other Financing Uses Other Transfers Out 0.24% Equipment 17.60% 1.72%
Supplies 1.75% Salaries and Wages 37.60% Purchased Services 20.74% Employee Benefits 20.35%
General Fund Expenditures and Other Financing Uses 2016 2015 $ Change % Change Salaries and wages $ 17,294,939 $ 16,880,341 $ 414,598 2.46 Employee benefits 9,359,914 8,525,527 834,387 9.79 Purchased services 9,538,688 8,914,279 624,409 7.00 Supplies 803,644 1,227,818 (424,174) (34.55) Equipment 791,140 680,235 110,905 16.30 Other 114,916 127,257 (12,341) (9.70) Transfers out 8,094,186 8,328,542 (234,356) (2.81) $ 45,997,427 $ 44,683,999 $ 1,313,428 2.94
Employee benefits increased by $834,387 primarily due to the significant increase in the required annual retirement contribution to 25.84% in 2015-2016 from 21.40% in 2014-2015.
The decrease in expenditures for supplies of $424,174 from 2014-2015 to 2015-2016 was due to our curriculum refresh cycle. The subjects that were addressed in 2015-2016 had fewer supply demands than the subjects that were addressed in 2014-2015.
The increase in our equipment expenditures of $110,905 in 2015-2016 when compared to 2014-2015 was due to some additional equipment needs in our facility department as well as purchases of computers to start our one to one initiative.
-10- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
CAPITAL PROJECTS FUND
The Capital Projects Fund accounts for construction and renovation activity associated with the District's buildings and major equipment purchases. The Capital Projects Fund receives the majority of its revenues from the issuance of general obligation debt and transfers from the General Fund. During 2015-2016, the Capital Projects Fund reported a decrease in fund balance of $2,587,942 due to amounts expended for capital expenditures in excess of transfers from the General Fund. The remaining fund balance of $6,504,274 as of June 30, 2016 is restricted for future capital expenditures.
DEBT SERVICE FUND
The Debt Service Fund accounts for the interest and principal payments due on the District's outstanding general obligation debt. Transfers are made during the year from the General Fund to finance debt service payments as they become due.
Pursuant to loan agreements with the State Public School Building Authority under its Qualified School Construction Bonds program, the District established a Debt Sinking Fund. The District is required to make deposits annually into the Debt Sinking Fund. The deposits and investment earnings on the deposits are available for payment of maturities under the loan agreement.
As of June 30, 2016, the fund balance in the Debt Service Fund was $1,548,226 and is restricted for future debt service expenditures.
GENERAL FUND BUDGET INFORMATION
Actual revenues were $1,273,200 more than budgeted amounts and actual expenditures and other financing uses were $20,567 less than budgeted amounts resulting in a net positive variance of $1,293,767. Major budgetary highlights for 2015-2016 were as follows:
Local source revenues exceeded budgeted amounts by $822,189, resulting from higher than anticipated collections for earned income taxes and realty transfer taxes. The taxable real estate assessment at July 1 was also higher than anticipated. The contribution by the Donegal Athletic Club in the amount of $355,000 also contributed to the variance. These funds were then transferred to the Capital Projects Fund and utilized on the athletic complex.
State and Federal revenues exceeded budgeted amounts by $451,011 and was due to the District budgeting either modest to no increases in their Basic Education and Ready to Learn Grant subsidies as well as Title I program revenues. This was done in response to the 2015-2016 State budget impasse.
Regular program expenditures were $653,143 less than budget. The favorable variance is primarily due to amounts under expended for professional salaries and corresponding benefits. Health insurance costs across the District continue to be favorable and are not increasing at the same rate as industry standards suggest.
Special education costs were $395,714 less than budget. The favorable variance is primarily due to amounts under expended for salaries and benefits. The District also realized savings with its special education contract with the Lancaster-Lebanon Intermediate Unit #13.
The budget variances in our pupil support services, instructional staff services and support services – central office were mainly due to changes in the reporting structure that were made by the Pennsylvania Department of Education after the original budget was submitted.
Total operation and maintenance of plant services were $354,145 less than budget. The favorable variance can be attributed to amounts under expended for salaries and benefits and cost savings related to utility usage and pricing.
Total transfers out were over budget by $2,068,388 due to excess revenues received over budget and expenditures under budget being appropriated in the amount of $1,800,000 by the School Board to the Capital Projects Fund to subsidize future capital needs.
-11- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
BUSINESS-TYPE ACTIVITIES AND FOOD SERVICE FUND
During 2015-2016, the net position of the business-type activities and Food Service Fund increased by $28,149. As of June 30, 2016, the business-type activities and Food Service Fund had a deficit in net position of $183,570.
CAPITAL ASSETS
The District's net investment in capital assets for its governmental and business-type activities as of June 30, 2016 amounted to $83,643,334 net of accumulated depreciation. This investment in capital assets includes land, site improvements, buildings and improvements, furniture and equipment and vehicles. The total increase in the District's net investment in capital assets for the current fiscal year was $1,358,538 or 1.65%. The increase was the result of current year capital additions in excess of current year depreciation and loss on disposals.
Current year capital additions were $5,502,819 and depreciation expense and loss on disposals were $4,144,282.
Major capital additions (including reclass from construction in progress) for the current fiscal year included the following:
● Donegal Athletic Stadium $4,454,262 ● 900 Dell Chromebooks $ 296,100
NONCURRENT LIABILITIES
At the end of the current fiscal year, the District had total general obligation debt of $54,774,838 consisting of $30,365,000 in bonds payable, $57,823 in notes payable, $22,950,000 in qualified school construction bonds and net deferred credits of $1,402,015. The entire amount is backed by the full faith and credit of the District. General obligation debt was issued to finance capital expenditures or to finance the retirement (refund) of prior obligation debt. The District's general obligation debt decreased by $3,052,817 or 5.28% during the fiscal year.
State statutes limit the amount of general obligation debt the District may issue up to 225% of its borrowing base capacity which is calculated as the annual arithmetic average of the total revenues for the preceding three fiscal years. The current debt limitation for the District is $97,034,922 which exceeds the District's outstanding general obligation debt as of June 30, 2016.
The District reports its allocated portion of its defined benefit unfunded benefit obligation related to its participation in PSERS. The District's allocated portion of the net pension liability is an actuarially determined estimate of the unfunded cost of the pension plan obligation which totaled $58,042,000 as of June 30, 2016. The District's net pension liability increased by $6,270,423 or 12.11% during the fiscal year.
The District maintains an AA rating from Standard and Poor's.
Other noncurrent liabilities consist of the District's liabilities for accrued retirement bonuses, compensated absences and its net obligation for post-employment benefits, which totaled $1,775,682 as of June 30, 2016. These liabilities increased by $118,027 or 7.12% during the fiscal year.
FACTORS BEARING ON THE DISTRICT'S FUTURE
The actual enrollment in the District at October 1 decreased by 44 students from 2015 to 2016.
The District continues to watch for trends that will impact growth and/or decline in student population; however, no formal study has been undertaken in recent years. The various townships and municipalities within the District have completed a "Comprehensive Regional Planning" initiative and are addressing areas to be targeted for urban growth, high-density vs. traditional housing, agricultural preserve, and industrial/commercial zoning. This plan suggests that the District should prepare for additional growth in student population in the future. If initiatives for bringing commercial and industrial properties to the region are successful, the tax base could be positively impacted.
-12- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
The District has completed all major renovation projects on its buildings, all district instructional facilities are in good repair with adequate space to accommodate anticipated enrollment. The Donegal Athletic Stadium officially opened in June 2016. This summer the District also renovated the Varsity Softball Field as well as expanded the Donegal Primary School Parking lot. The District continues to evaluate and make upgrades to our current athletic facilities. A five-year capital improvement plan has been developed and is used to implement a facility maintenance program for the District.
Concerns regarding future employer contributions to fund the Public School Employees’ Retirement System ("PSERS") continue to linger with no legislative action to date. The employer contribution rate for the 2015-16 school year was 25.84% which was an increase of 20.75% from the 2014-15 employer contribution rate. The employer contribution for the 2016-2017 school year was certified by the legislature to be 30.03%. This is an increase of 16.20% from 2015-2016. The District will take reasonable steps to prepare for anticipated growth, but believes that the only realistic solution must come from Legislative actions.
Actual health care costs continue to remain consistent to last year. However, the District expects to see increases in costs relating to the Federal Health Care provisions. Additional reporting and member fees are two of those expenditures as well as a general overall increase in health care costs. The District also continues to review and plan and evaluate how the Federal Health Care Act requirements will affect it in the future.
The Board has established five committed fund balances; self–insurance, curriculum, technology, equipment and capital projects, and PSERS. The District is self-insured for its health care costs and amounts committed for self- insurance will protect the District’s assets from medical claims which may from time to time exceed the current year’s budgeted expenses. The fund balance committed for curriculum will help the District to fund major curriculum changes that are expected in the next few years. The committed fund balance for technology will be utilized to fund a seven-year technology refresh cycle and its one to one initiative so that the District can maintain adequate technology to continue its educational programs. The fund balance committed for equipment and capital projects will be utilized to fund major maintenance or instructional equipment or furniture needed that exceed the current year’s budget. The fund balance committed for PSERS was established to offset the anticipated, significant increase in mandated contributions to the school employee retirement program.
The District has a contract with the professional staff that remains in effect through June 30, 2018.
In 2006, Act 1 was passed, which provided taxpayer relief through gambling revenues generated at the State level. The intent of this legislation is to provide a mechanism to relieve the burden of funding public education from property owners. This new legislation has put a "ceiling" on the percentage increase of local real estate taxes that can be levied year-to-year in order to balance the school district budget. Pennsylvania school districts are now required to either change their taxing strategies to make up for the shortfall of increases in real estate tax refunds or seek the taxpayers’ approval through back-end referendum to increase taxes higher than the approved index. This law puts an already increased burden on the District’s revenue stream in future years.
For the 2016-2017 fiscal year, the District was allowed to increase the real estate property tax rate by 3.10% under the Act 1 index. However, the board approved property tax rate increase for the 2015-2016 fiscal year was 2.00%.
Certain exceptions are provided under Act 1 that, if approved by the appropriate authority, may permit increases above the Act 1 index without the need for a back-end referendum. Typically, these exceptions relate to emergencies and cost increases in excess of the Act 1 index (e.g., retirement system contributions or special education) over which the school district has no control.
Gaming revenues distributed under the provision of Act 1 (Act 1 permitted gambling in Pennsylvania) are to be used for the purpose of reducing property taxes for homesteaders and farmsteaders. The District’s distribution for 2015- 2016 was $668,494.
-13- DONEGAL SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS – UNAUDITED
June 30, 2016
The index for the 2017-2018 budget for the District is 3.30%. The administration will review revenue projections and continue to identify ways to reduce operating costs in an effort to develop a balanced budget that provides adequate current revenue to cover current expenditures.
CONTACTING THE DISTRICT FINANCIAL MANAGEMENT
This financial report is designed to provide a general overview of the District's finances for all those with an interest in the District's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Business Services, Donegal School District, 1051 Koser Road, Mount Joy, PA 17552.
-14- DONEGAL SCHOOL DISTRICT
STATEMENT OF NET POSITION (DEFICIT)
June 30, 2016 with summarized comparative totals for 2015 Governmental Business-type Totals Activities Activities 2016 2015 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES CURRENT ASSETS Cash $ 3,025,044 $ 663,806 $ 3,688,850 $ 2,299,794 Investments 17,138,308 - 17,138,308 21,984,710 Restricted assets: Cash held by fiscal agent 944 - 944 - Investments held by fiscal agent 1,547,282 - 1,547,282 - Taxes receivable 997,259 - 997,259 1,079,235 Due from other governments 1,929,023 16,788 1,945,811 1,780,989 Internal balances 72,122 (72,122) - - Other receivables 106,798 1,789 108,587 230,683 Prepaid expenses 3,946 - 3,946 8,720 Inventories - 39,232 39,232 33,426 Total current assets 24,820,726 649,493 25,470,219 27,417,557 NONCURRENT ASSETS Capital assets, net 83,239,990 403,344 83,643,334 82,284,796 Total assets 108,060,716 1,052,837 109,113,553 109,702,353 DEFERRED OUTFLOWS OF RESOURCES Deferred charges on proportionate share of pension 6,569,475 173,266 6,742,741 5,107,042
LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION (DEFICIT)
CURRENT LIABILITIES Accounts payable 986,831 3,006 989,837 1,493,954 Accrued salaries, payroll withholdings and benefits 3,884,915 6,981 3,891,896 3,362,182 Accrued interest payable 521,317 - 521,317 549,276 Unearned revenue 484,107 32,806 516,913 523,740 Total current liabilities 5,877,170 42,793 5,919,963 5,929,152 NONCURRENT LIABILITIES Due within one year 1,092,817 - 1,092,817 3,243,379 Due in more than one year 112,149,377 1,350,326 113,499,703 108,013,508 Total noncurrent liabilities 113,242,194 1,350,326 114,592,520 111,256,887 Total liabilities 119,119,364 1,393,119 120,512,483 117,186,039 DEFERRED INFLOWS OF RESOURCES Deferred credits on proportionate share of pension 340,446 16,554 357,000 3,701,080 NET POSITION (DEFICIT) Net investment in capital assets 28,465,152 403,344 28,868,496 24,457,141 Restricted 8,052,500 - 8,052,500 10,120,949 Unrestricted (deficit) (41,347,271) (586,914) (41,934,185) (40,655,814)
Total net position (deficit) $ (4,829,619) $ (183,570) $ (5,013,189) $ (6,077,724)
See accompanying notes 15 DONEGAL SCHOOL DISTRICT
STATEMENT OF ACTIVITIES
Year ended June 30, 2016 with summarized comparative totals for 2015 Net (Expense) Revenue and Program Revenues Changes in Net Position (Deficit) Charges Operating Capital for Grants and Grants and Governmental Business-type Totals Expenses Services Contributions Contributions Activities Activities 2016 2015 GOVERNMENTAL ACTIVITIES Instruction $ 29,257,581 $ 84,740 $ 4,991,765 $ - $ (24,181,076) $ - $ (24,181,076) $ (23,706,237) Instructional student support services 3,765,296 - 400,426 - (3,364,870) - (3,364,870) (2,966,253) Administrative and financial support services 3,442,352 9,270 338,881 - (3,094,201) - (3,094,201) (3,135,785) Operation and maintenance of plant services 3,897,123 8,255 174,962 - (3,713,906) - (3,713,906) (3,904,423) Pupil transportation 1,571,553 - 1,128,674 - (442,879) - (442,879) (580,176) Student activities 757,249 36,267 65,295 357,500 (298,187) - (298,187) (604,441) Interest and amortization expense related to noncurrent liabilities 2,457,966 - 1,176,089 - (1,281,877) - (1,281,877) (1,318,690) Total governmental activities 45,149,120 138,532 8,276,092 357,500 (36,376,996) - (36,376,996) (36,216,005)
BUSINESS-TYPE ACTIVITIES Food service 1,515,543 640,651 902,459 - - 27,567 27,567 (34,244) -16- Total primary government $ 46,664,663 $ 779,183 $ 9,178,551 $ 357,500 (36,376,996) 27,567 (36,349,429) (36,250,249)
GENERAL REVENUES Property taxes levied for general purposes 26,212,966 - 26,212,966 26,064,217 Earned income taxes levied for general purposes 2,771,493 - 2,771,493 2,630,914 Other taxes levied for general purposes 678,301 - 678,301 705,528 Grants and entitlements not restricted to specific programs 7,477,255 - 7,477,255 7,299,934 Gain on sale of capital assets - - - 400,404 Investment earnings 273,367 582 273,949 107,164 Total general revenues 37,413,382 582 37,413,964 37,208,161
CHANGE IN NET POSITION (DEFICIT) 1,036,386 28,149 1,064,535 957,912
NET POSITION (DEFICIT) Beginning of year (5,866,005) (211,719) (6,077,724) (7,035,636)
End of year $ (4,829,619) $ (183,570) $ (5,013,189) $ (6,077,724)
See accompanying notes DONEGAL SCHOOL DISTRICT
BALANCE SHEET - GOVERNMENTAL FUNDS
June 30, 2016 with summarized comparative totals for 2015 Major Funds Capital Debt General Projects Service Totals Fund Fund Fund 2016 2015 ASSETS
Cash $ 1,895,437 $ 1,129,607 $ - $ 3,025,044 $ 1,725,958 Investments 13,155,271 3,983,037 - 17,138,308 20,956,835 Restricted assets: Cash held by fiscal agent - - 944 944 858 Investments held by fiscal agent - - 1,547,282 1,547,282 1,027,875 Taxes receivable 997,259 - - 997,259 1,079,235 Due from other funds 73,835 1,800,000 - 1,873,835 1,567,805 Due from other governments 1,559,501 - - 1,559,501 1,393,638 Other receivables 106,798 - - 106,798 228,398 Prepaid items 3,946 - - 3,946 8,720
Total assets $ 17,792,047 $ 6,912,644 $ 1,548,226 $ 26,252,917 $ 27,989,322
LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES
LIABILITIES Accounts payable $ 579,531 $ 407,300 $ - $ 986,831 $ 1,489,850 Due to other funds 1,800,643 1,070 - 1,801,713 1,500,328 Accrued salaries, payroll withholdings and benefits 3,884,915 - - 3,884,915 3,340,105 Unearned revenues 484,107 - - 484,107 496,870 Total liabilities 6,749,196 408,370 - 7,157,566 6,827,153
DEFERRED INFLOWS OF RESOURCES Unavailable revenues - property and per capita taxes 357,360 - - 357,360 402,216
FUND BALANCES Nonspendable Prepaid items 3,946 - - 3,946 8,720 Restricted for Capital projects - 6,504,274 - 6,504,274 9,092,216 Debt service - - 1,548,226 1,548,226 1,028,733 Committed to Self-insured health insurance 1,810,000 - - 1,810,000 1,810,000 Curricumlum initiatives 1,890,000 - - 1,890,000 1,890,000 Technology initiatives 1,810,000 - - 1,810,000 1,810,000 Equipment and capital improvements 1,350,000 - - 1,350,000 1,350,000 Retirement rate stabilization 250,000 - - 250,000 250,000 Assigned for Capital projects 300,000 - - 300,000 300,000 Unassigned 3,271,545 - - 3,271,545 3,220,284 Total fund balances 10,685,491 6,504,274 1,548,226 18,737,991 20,759,953
Total liabilities, deferred inflows of resources and fund balances $ 17,792,047 $ 6,912,644 $ 1,548,226 $ 26,252,917 $ 27,989,322
See accompanying notes 17 DONEGAL SCHOOL DISTRICT
RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO NET POSITION (DEFICIT) OF GOVERNMENTAL ACTIVITIES ON THE STATEMENT OF NET POSITION (DEFICIT)
June 30, 2016 TOTAL GOVERNMENTAL FUND BALANCES $ 18,737,991
Amounts reported for governmental activities in the statement of net position (deficit) are different because:
Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds balance sheet. 83,239,990
Deferred outflows of resources and deferred inflows of resources related to pensions are not reported as assets and liabilities in the governmental funds balance sheet. 6,229,029
Some of the District's property and per capita taxes will be collected after year-end, but are not available soon enough to pay for the current period's expenditures, and therefore are reported as deferred inflows of resources on the governmental funds balance sheet. 357,360
Receivables related to subsidies for long-term debt are not available to pay for current period expenditures and thus are not recognized in the governmental funds but are recognized in the statement of net position (deficit). 369,522
Noncurrent liabilities are not due and payable in the current period and therefore are not reported as liabilities in the governmental funds balance sheet. (113,242,194)
Accrued interest payable on long-term liabilities is included in the statement of net position (deficit), but is excluded from the governmental funds balance sheet until due and payable. (521,317)
NET POSITION (DEFICIT) OF GOVERNMENTAL ACTIVITIES $ (4,829,619)
See accompanying notes 18 DONEGAL SCHOOL DISTRICT
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS
Year ended June 30, 2016 with summarized comparative totals for 2015 Major Funds Capital Debt General Projects Service Totals Fund Fund Fund 2016 2015 REVENUES Local sources $ 30,358,376 $ 16,706 $ 219,049 $ 30,594,131 $ 29,826,335 State sources 13,592,865 - - 13,592,865 12,837,381 Federal sources 2,092,673 - - 2,092,673 2,100,592 Total revenues 46,043,914 16,706 219,049 46,279,669 44,764,308
EXPENDITURES Current Instruction 25,551,850 - - 25,551,850 24,840,001 Support services 11,654,377 - - 11,654,377 10,888,225 Operation of noninstructional services 697,014 - - 697,014 627,229 Facilities acquisition, construction and improvement services - 4,859,648 - 4,859,648 2,727,602 Debt service - - 5,538,742 5,538,742 7,670,977 Total expenditures 37,903,241 4,859,648 5,538,742 48,301,631 46,754,034
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 8,140,673 (4,842,942) (5,319,693) (2,021,962) (1,989,726)
OTHER FINANCING SOURCES (USES) Sale of/compensation for capital assets - - - - 882,582 Transfers in - 2,255,000 5,839,186 8,094,186 8,328,542 Transfers out (8,094,186) - - (8,094,186) (8,328,542) Total other financing sources (uses) (8,094,186) 2,255,000 5,839,186 - 882,582
NET CHANGE IN FUND BALANCES 46,487 (2,587,942) 519,493 (2,021,962) (1,107,144)
FUND BALANCES Beginning of year 10,639,004 9,092,216 1,028,733 20,759,953 21,867,097
End of year $ 10,685,491 $ 6,504,274 $ 1,548,226 $ 18,737,991 $ 20,759,953
See accompanying notes 19 DONEGAL SCHOOL DISTRICT
RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO CHANGE IN NET POSITION (DEFICIT) OF GOVERNMENTAL ACTIVITIES ON THE STATEMENT OF ACTIVITIES
Year ended June 30, 2016 NET CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS $ (2,021,962)
Amounts reported for governmental activities in the statement of activities are different because:
Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation expense and loss on disposal of capital assets in the current period. Capital outlay expenditures $ 5,494,331 Depreciation expense (4,043,295) Loss on disposal of capital assets (5,573) 1,445,463
Because some property and per capita taxes will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred inflows of resources decreased by this amount in the current period. Deferred inflows of resources June 30, 2015 (402,216) Deferred inflows of resources June 30, 2016 357,360 (44,856)
The 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 the governmental funds. Neither transaction, however, has any effect on the change in net position of governmental activities. Also, governmental funds report the effect of premiums, discounts and similar items when long-term debt is issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Repayment of bonds and note payable 2,907,823 Amortization of discounts, premiums and deferred amounts on refunding 144,994 3,052,817
Some expenses reported in the statement of activities do not require the use of current financial resources, and, therefore are not reported as expenditures on governmental funds. Current year change in accrued interest payable 27,959 Change in net pension liability and related deferred inflows and outflows (1,304,048) Current year change in accrued retirement bonus 9,337 Current year change in compensated absences 15,054 Current year change in net post-employment benefit (OPEB) obligation (143,378) (1,395,076)
CHANGE IN NET POSITION (DEFICIT) OF GOVERNMENTAL ACTIVITIES $ 1,036,386
See accompanying notes 20 DONEGAL SCHOOL DISTRICT
STATEMENT OF NET POSITION (DEFICIT) - PROPRIETARY FUND
June 30, 2016 with summarized comparative totals for 2015 Food Service Fund 2016 2015 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES
CURRENT ASSETS Cash $ 663,806 $ 572,978 Due from other funds 643 328 Due from other governments 16,788 17,829 Other receivables 1,789 2,285 Inventories 39,232 33,426 Total current assets 722,258 626,846
NONCURRENT ASSETS Capital assets, net 403,344 490,270 Total assets 1,125,602 1,117,116
DEFERRED OUTFLOWS OF RESOURCES Deferred charges on proportionate share of pension 173,266 119,936
LIABILITIES, DEFERRED INFLOW OF RESOURCES AND NET POSITION (DEFICIT)
LIABILITIES Accounts payable 3,006 4,104 Due to other funds 72,765 67,805 Accrued salaries, payroll withholdings and benefits 6,981 22,077 Unearned revenue 32,806 26,870 Total current liabilities 115,558 120,856
NONCURRENT LIABILITIES Accrued retirement bonus 24,212 25,172 Net pension liability 1,326,114 1,215,825 Total noncurrent liabilities 1,350,326 1,240,997 Total liabilities 1,465,884 1,361,853
DEFERRED INFLOWS OF RESOURCES Deferred credits on proportionate share of pension 16,554 86,918
NET POSITION (DEFICIT) Net investment in capital assets 403,344 490,270 Unrestricted (deficit) (586,914) (701,989)
Total net position (deficit) $ (183,570) $ (211,719)
See accompanying notes 21 DONEGAL SCHOOL DISTRICT
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (DEFICIT) - PROPRIETARY FUND
June 30, 2016 with summarized comparative totals for 2015 Food Service Fund 2016 2015 OPERATING REVENUES Charges for services $ 640,651 $ 637,164
OPERATING EXPENSES Salaries 427,824 420,728 Employee benefits 214,218 249,389 Purchased professional and technical services 18,122 10,757 Repairs and maintenance 9,526 6,264 Supplies 740,667 725,101 Depreciation 95,414 87,527 Other operating expenses 9,772 8,469 Total operating expenses 1,515,543 1,508,235
Operating income (loss) (874,892) (871,071)
NONOPERATING REVENUES Earnings on investments 582 548 State sources 118,643 107,391 Federal sources 783,816 730,351 Total nonoperating revenues 903,041 838,290
CHANGE IN NET POSITION 28,149 (32,781)
NET POSITION (DEFICIT) Beginning of year (211,719) (178,938)
End of year $ (183,570) $ (211,719)
See accompanying notes 22 DONEGAL SCHOOL DISTRICT
STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS
Year ended June 30, 2016 with summarized comparative totals for 2015 Food Service Fund 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from charges for services $ 647,083 $ 645,340 Cash payments to employees for services (666,543) (415,848) Cash payments to supplies for goods and services (666,212) (864,395) Cash payments for other operating expenses (9,772) (8,469) Net cash provided by (used for) operating activities (695,444) (643,372)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State sources 120,329 109,886 Federal sources 673,849 654,759 Net cash provided by noncapital financing activities 794,178 764,645
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (8,488) (79,588)
CASH FLOWS FROM INVESTING ACTIVITIES Earnings on investments 582 548
Net increase in cash 90,828 42,233
CASH Beginning of year 572,978 530,745
Ending of year $ 663,806 $ 572,978
Reconciliation of operating loss to net cash provided by (used for) operating activities: Operating income (loss) $(874,892) $(871,071) Adjustments to reconcile operating loss to net cash provided by (used for) operating activities Depreciation 95,414 87,527 Donated commodities used 109,322 95,698 (Increase) decrease in Due from other funds (315) (323) Other receivables 496 3,569 Inventories (5,806) (4,659) Deferred outflows of resources - pension (53,330) (58,878) Increase (decrease) in Accounts payable (1,098) (315) Due to other funds 4,960 11,070 Accrued salaries, payroll withholdings and benefits (15,096) (8,815) Unearned revenue 5,936 4,608 Accrued retirement bonus (960) 2,947 Net pension liability 110,289 8,352 Deferred inflows of resources - pension (70,364) 86,918 Net cash provided by (used for) operating activities $(695,444) $(643,372)
SUPPLEMENTAL DISCLOSURE Noncash noncapital financing activity USDA donated commodities $ 109,322 $ 95,698
See accompanying notes 23 DONEGAL SCHOOL DISTRICT
STATEMENT OF NET POSITION - FIDUCIARY FUND
June 30, 2016 Agency Fund 2016 2015 ASSETS Cash $ 72,608 $ 61,791 Other accounts receivable 199 - Total assets 72,807 61,791
LIABILITIES Accounts payable 17,538 2,132 Due to student groups 55,269 59,659 Total liabilities $ 72,807 $ 61,791
See accompanying notes 24 DONEGAL SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS
June 30, 2016
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Donegal School District (the "District") operates one elementary school, one intermediate school, one junior high school and a senior high school to provide education and related services to the residents in the Boroughs of Marietta and Mount Joy, East Donegal Township and approximately one third of Mount Joy Township. The District operates under current standards prescribed by the Pennsylvania Department of Education in accordance with the provisions of the School Laws of Pennsylvania as a school district of the third class. The District operates under a locally elected nine-member board form of government (the "School Board").
The financial statements of the District have been prepared in accordance with generally accepted accounting principles ("GAAP") as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. The more significant of these accounting policies are as follows:
Reporting Entity GASB has established the criteria for determining the activities, organizations and functions of government to be included in the financial statements of the reporting entity. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the District's accountability. The criteria used to evaluate component units for possible inclusion as part of the District's reporting entity are financial accountability and the nature and significance of the relationship. The District is considered to be an independent reporting entity and has no component units.
Basis of Presentation Government-Wide Financial Statements The statement of net position and the statement of activities display information about the District as a whole. These statements distinguish between activities that are governmental and those that are considered business-type activities. These statements include the financial activities of the primary government except for fiduciary funds.
The government-wide financial statements are prepared 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 timing of related cash flow. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared as further defined below. Therefore, governmental fund financial statements include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements of governmental funds.
The government-wide statement of net position presents the financial position of the District which is the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources and is classified in one of three components. Net investment in capital assets consists of capital assets net of accumulated depreciation and reduced by the outstanding balances of borrowing attributable to acquiring, constructing or improving those assets. The net position of the District is reported as restricted when constraints placed on net position use is either externally imposed by creditors (such as through debt covenants), grantors, contributors or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. Unrestricted net position is the net position that does not meet the definition of "net investment in capital assets" or "restricted net position."
The statement of net position includes separate sections for deferred outflows of resources and deferred inflows of resources. Deferred outflows of resources represent a consumption of net position that applies to future periods and will not be recognized as an outflow of resources (expense) until that time. Deferred inflows of resources represent an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time.
-25- DONEGAL SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS
June 30, 2016
The government-wide statement of activities presents a comparison between expenses and program revenues for each function of the business-type activities of the District and for each governmental function. Expenses are those that are specifically associated with a service or program and are therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each function is self-financing or draws from the general revenues of the District.
Except for interfund activity and balances between the funds that underlie governmental activities and the funds that underlie business-type activities, which are reported as transfers and internal balances, the effect of interfund activity has been removed from these statements.
Fund Financial Statements During the school year, the District segregates transactions related to certain District functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Fiduciary fund financial statements are presented by fund type.
Governmental Funds All governmental funds are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. The District reports the following major governmental funds:
The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.
The Capital Projects Fund accounts for financial resources restricted, committed or assigned to be used for capital expenditures or for the acquisition, construction of capital facilities, improvements and/or equipment.
The Debt Sinking Fund is used to account for the accumulation of resources for, and the payment of, long-term principal, interest and other related costs.
Revenue Recognition In applying the "susceptible to accrual concept" under the modified accrual basis, 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 District considers tax revenue to be available if collected within 60 days of the end of the fiscal period. Deferred inflows of resources are reported in connection with receivables for tax revenues that are not considered to be available to liquidate liabilities of the current period. Revenue from federal, state and other grants designated for payment of specific District expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are reported as unearned revenues until earned. Other receipts are recorded as revenue when received in cash because they are generally not measurable until actually received.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Expenditure Recognition The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Most expenditures are measurable and are recorded when the related fund liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences, special termination benefits, other post-employment benefits and claims and judgments are recorded only when payment is due. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds.
Proprietary Funds Like the government-wide financial statements, proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. These funds account for operations that are primarily financed by user charges. The economic resource focus concerns determining costs as a means of maintaining the capital investment and management control. Revenues are recognized when they are earned and expenses are recognized when they are incurred. Allocations of certain costs, such as depreciation, are recorded in proprietary funds. The District reports the following proprietary fund:
The Food Service Fund accounts for the revenues and costs of providing meals to students during the school year.
These 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 the proprietary funds' principal ongoing operations. The principal operating revenues of the District's proprietary funds are charges for services. Operating expenses for the District's proprietary funds include payroll, employee benefits, supplies and administrative costs. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses.
Fiduciary Funds Fiduciary funds account for the assets held by the District as a trustee or agent for individuals, private organizations and/or governmental units and are, therefore, not available to support the District's own programs. The District accounts for these assets in an agency fund. The agency fund accounts for funds held on behalf of the students in the District. The agency fund is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations.
Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short- term investments with original maturities of three months or less from the date of acquisition.
Investments Investments are stated at fair value based upon quoted market prices, except for certificates of deposit which are recorded at cost.
Fair Value Measurements of Assets and Liabilities GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the District. Unobservable inputs reflect the District's assumptions about the inputs market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the District has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these assets and liabilities does not require a significant degree of judgment.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable, that is, inputs that reflect the District's own assumptions.
Interfund Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/due from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances."
Property Taxes Taxes are levied on July 1 and are payable in the following periods:
July 1 – August 31 - Discount period, 2% of gross levy September 1 – October 31 - Face period November 1 to collection - Penalty period, 10% of gross levy January 1 - Lien date
The County Board of Assessments determines assessed valuations of property, and the District bills and collects its own property taxes. The tax on real estate for public school purposes for fiscal 2015-2016 was 22.0243 mills ($22.02 for $1,000 of assessed valuation). The District experiences very small losses from uncollectible property taxes. Property taxes constitute a lien against real property and usually can be collected in full when title transfers. Only balances that remain after tax sales are written off each year. Accordingly, an allowance for doubtful accounts has not been established by the District for property taxes receivable.
Taxpayers within the District have the option of paying in three installments. These installments have the following due dates:
Installment One - August 31 Installment Two - October 31 Installment Three - December 31
The discount (two percent) is not applicable to installment payments; however, the penalty (10 percent) will be added if second and third installments are paid subsequent to the due dates.
Unearned Revenues Unearned revenue arises when assets are recognized before revenue recognition criteria have been satisfied.
Prepaid Items and Inventories Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the government-wide and fund financial statements.
All inventories are valued at the lower of cost (first-in, first-out method) or market.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Capital Assets Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements and the proprietary fund financial statements. Capital assets are defined by the District as assets with an initial individual cost of more than $5,000. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as projects are constructed, inclusive of ancillary costs.
Property, plant and equipment (net of salvage value) of the District is depreciated using the straight-line method over the following estimated useful lives: site improvements – 20-40 years; buildings and improvements – 15-40 years; furniture and equipment – 5-10 years and vehicles – 8-10 years.
Impairment of Long-Lived Assets The District evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset is generally considered impaired if both (a) the decline in service utility of the capital asset is large in magnitude and (b) the event or change in circumstances is outside the normal life cycle of the capital asset. If a capital asset is considered to be impaired, the amount of impairment is measured by the method that most reflects the decline in service utility of the capital asset at the lower of carrying value or fair value for impaired capital assets that will no longer be used by the District. No impairment losses were recognized in the year ended June 30, 2016.
Compensated Absences District policies permit employees to accumulate earned but unused vacation, personal and sick days. The liability for these compensated absences is recorded as a noncurrent liability in the government-wide financial statements. A liability for these amounts is reported in the governmental fund financial statements only to the extent they have matured, for example, as a result of employee resignations and retirements.
Accrued Retirement Bonus Upon voluntary retirement, employees with qualifying years of service according to their respective employment contract are eligible to receive a lump sum retirement bonus.
Long-Term Obligations In the government-wide and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bonds payable are reported net of the applicable bond premium or discount. Bond premiums and discounts are deferred and amortized over the life of the bonds. Deferred amounts on refunding are recorded as a deferred outflow of resources and amortized over the life of the old debt or the life of the new debt, whichever is shorter. All amounts are amortized using the straight-line method.
In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources and uses. Premiums received and discounts paid on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures except for refundings paid from proceeds which are reported as other financing costs.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Fund Equity As prescribed by GASB, governmental funds report fund balance in classifications based primarily on the extent to which the District is bound to honor constraints on the specific purposes for which amounts in the fund can be spent. The District reports the following fund balance classifications:
Non-spendable Non-spendable fund balances are amounts that cannot be spent because they are either (a) not in spendable form – such as inventory or prepaid insurance or (b) legally or contractually required to be maintained intact – such as a trust that must be retained in perpetuity.
Restricted Restricted fund balances are restricted when constraints placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors or laws or regulations of other governments or (b) imposed by law through constitutional provisions or enabling legislation.
Committed Committed fund balances are amounts that can only be used for specific purposes determined by a formal action of the District's highest level of decision-making authority, the School Board. Committed amounts cannot be used for any other purpose unless the School Board removes those constraints by taking the same type of formal action (e.g., resolution).
Assigned Assigned fund balances are amounts that are constrained by the District's intent to be used for specific purposes, but are neither restricted nor committed. Intent is expressed by (a) the Director of Business Services or (b) an appointed body or (c) an official to which the District has delegated the authority to assign, modify or rescind amounts to be used for specific purposes.
Assigned fund balance includes (a) all remaining amounts that are reported in governmental funds (other than the General Fund) that are not classified as non-spendable, restricted or committed, and (b) amounts in the General Fund that are intended to be used for a specific purpose. Specific amounts that are not restricted or committed in a special revenue fund or the capital projects fund are assigned for purposes in accordance with the nature of their fund type.
Unassigned Unassigned fund balance is the residual classification for the General Fund. This classification represents General Fund balance that has not been assigned to other funds, and that has not been restricted, committed or assigned to specific purposes within the General Fund.
When both restricted and unrestricted resources are available for use, it is the District's policy to use externally restricted resources first, then unrestricted resources–committed, assigned or unassigned–in order as needed.
The School Board has set a policy to maintain an unassigned General Fund fund balance of not less than 5% and a maximum unassigned General Fund fund balance of 8% of the following year's expenditure budget. Unassigned General Fund fund balance in excess of 8% of the following year's expenditure budget may be appropriated by the School Board for nonrecurring expenditures.
Comparative Data Comparative totals for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the District's financial position and operations. Certain amounts presented in the prior year have been reclassified in order to be consistent with the current year's presentation. However, presentation of prior year totals by fund and activity type have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. Summarized comparative information should be read in conjunction with the District's financial statements for the year ended June 30, 2015, from which the summarized information was derived.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
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.
Implementation of New Accounting Pronouncements Effective July 1, 2015, the District adopted the provisions of GASB Statement No. 72, "Fair Value Measurement and Application". GASB Statement No. 72 addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GASB Statement No. 72 provides guidance for determining a fair value measurement for financial reporting purposes and for applying fair value to certain investments and disclosures related to all fair value measurements.
New Accounting Pronouncements GASB Statement No. 76, "The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments" will be effective for the District for the year ended June 30, 2017. The objective of this Statement is to identify—in the context of the current governmental financial reporting environment—the hierarchy of GAAP. The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. GASB Statement No. 76 reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.
GASB Statement No. 77, "Tax Abatement Disclosures" will be effective for the District for the year ended June 30, 2017. GASB Statement No. 77 is intended to improve financial reporting by requiring governments that enter into tax abatement agreements to disclose certain information about the agreements.
GASB Statement No. 78, "Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans" will be effective for the District for the year ended June 30, 2017. GASB Statement No. 78 amends the scope and applicability of GASB Statement No. 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan meeting certain criteria.
GASB Statement No. 79, "Certain External Investment Pools and Pool Participants" will be effective for the District for the year ended June 30, 2017. The objective of GASB Statement No. 79 is to address for certain external investment pools and their participants the accounting and financial reporting implications that result from changes in the regulatory provisions referenced by previous accounting and financial reporting standards.
(2) STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
Budgetary Information An annual budget is adopted prior to the beginning of each year for the General Fund on a modified accrual basis of accounting. The General Fund is the only fund for which a budget is legally required, although project-length financial plans are adopted for the Capital Projects fund.
The District is required to publish notice by advertisement at least once in a newspaper of general circulation in the municipalities in which it is located, and within 20 days of final action, that the proposed budget has been prepared and is available for public inspection at the administrative offices of the District. Notice that public hearings will be held on the proposed operating budget must be included in the advertisement; such hearings are required to be scheduled at least 10 days prior to when final action on adoption is taken by the School Board.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
After the legal adoption of the budget, the School Board is required to file a copy of the budget with the Pennsylvania Department of Education by July 31. Additional copies of the budget also are required to be filed with the Housing Education Committee and the Senate Education Committee by September 15.
Legal budgetary control is maintained at the sub-function/major object level. The School Board may make transfers of funds appropriated in any particular item of expenditure by legislative action in accordance with Pennsylvania School Code. Management may amend the budget at the sub-function/sub-object level without approval from the School Board. 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.
(3) DEPOSITS AND INVESTMENTS
State statutes authorize the District to invest in U.S. Treasury bills, time or share accounts of institutions insured by the Federal Deposit Insurance Corporation or in certificates of deposit when they are secured by proper bond or collateral, repurchase agreements, state treasurer's investment pools or mutual funds.
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. At June 30, 2016, the carrying amount of the District's deposits was $3,762,402 and the bank balance was $3,978,888. The District is required by state statute to deposit funds in depositories that are either banks, banking institutions or trust companies located in the Commonwealth of Pennsylvania. To the extent that such deposits exceed federal insurance, the depositories must pledge as collateral obligations of the United States, Commonwealth of Pennsylvania or any political subdivision. Under Act 72 of 1971, as amended, the depositories may meet this collateralization requirement by pooling appropriate securities to cover all public funds on deposit. Of the bank balance, $250,948 was covered by federal depository insurance and $2,199,259 was collateralized by the District's depositories in accordance with Act 72. The remaining cash deposits of the District 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, PSDLAF acts like a money market mutual fund in that its objective is to maintain a stable net assets value of $1 per share, is rated by a nationally recognized statistical rating organization and is subject to an independent annual audit. As of June 30, 2016, PSDLAF was rated as AAA by a nationally recognized statistical rating agency.
Investments As of June 30, 2016, the District had the following investments:
Investment Maturities (In Years) Investment Type Fair Value Less than 1 1 – 5 6 – 10 11 – 15 Certificates of deposit $17,138,308 $17,138,308 $ - $ - $ - U.S. Treasury strips 1,547,282 - - - 1,547,282 $18,685,590 $17,138,308 $ - $ - $ 1,547,282
U.S. Treasury strips were valued using Level 2 inputs.
Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of the investments or collateral security that are in the possession of an outside party. The District had no investments subject to custodial credit risk as of June 30, 2016.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Interest Rate Risk The District's investment policy limits investment maturities in accordance with state statutes as a means of managing its exposure to fair value losses arising from increasing interest rates. The District had no investments subject to interest rate risk as of June 30, 2016.
Credit Risk The District's investment policy limits its investments that are not backed by the "full faith and credit" of the federal and state government to those with the highest credit rating available for such investments issued by a recognized statistical rating organization.
Restricted Deposits and Investments The District maintains restricted cash and investment balances held by fiscal agents, which are restricted for the repayment of Qualified School Construction Bonds (See Note 6). The total carrying amounts and related bank balances of these cash and investment accounts are $1,548,226 as of June 30, 2016.
(4) CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2016 was as follows:
Beginning Ending Balance Increases Decreases Balance Governmental activities Capital assets not being depreciated Land $ 1,403,584 $ - $ - $ 1,403,584 Construction in progress 1,336,453 256,344 1,279,960 312,837 Total capital assets not being depreciated 2,740,037 256,344 1,279,960 1,716,421 Capital assets being depreciated Site improvements 10,023,260 - - 10,023,260 Buildings and improvements 88,101,317 5,874,925 - 93,976,242 Furniture and equipment 12,984,994 611,497 13,769 13,582,722 Vehicles 390,318 31,525 - 421,843 Total capital assets being depreciated 111,499,889 6,517,947 13,769 118,004,067 Less accumulated depreciation for Site improvements (1,929,015) (385,502) - (2,314,517) Buildings and improvements (24,311,594) (2,342,687) - (26,654,281) Furniture and equipment (5,951,924) (1,287,385) (8,196) (7,231,113) Vehicles (252,866) (27,721) - (280,587) Total accumulated depreciation (32,445,399) (4,043,295) (8,196) (36,480,498) Total capital assets being depreciated, net 79,054,490 2,474,652 5,573 81,523,569 Governmental activities, net $ 81,794,527 $ 2,730,996 $1,285,533 $ 83,239,990 Business-type activities Machinery and equipment $ 1,082,902 $ 8,488 $ - $ 1,091,390 Less accumulated depreciation (592,632) (95,414) - (688,046) Business-type activities, net $ 490,270 $ 86,926 $ - $ 403,344
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Depreciation expense was charged to functions/programs of the District as follows:
Governmental activities Instruction $ 3,202,812 Instructional student support 155,572 Administrative and financial support services 56,950 Operation and maintenance of plant services 590,681 Pupil transportation 2,249 Student activities 35,031 Total depreciation expense – governmental activities $ 4,043,295 Business-type activities Food service $ 95,414
As of June 30, 2016, the District had outstanding construction projects to be completed. Construction commitments and the amounts completed as of June 30, 2016 are as follows:
Completed Project Through Remaining Amount June 30, 2016 Commitments Donegal Primary School parking lot $670,000 $125,553 $ 544,447 Softball field 317,000 187,284 129,716 $987,000 $312,837 $ 674,163
(5) INTERNAL RECEIVABLES, PAYABLES AND TRANSFERS
The composition of interfund balances as of June 30, 2016 is as follows:
Receivable To Amount Payable From Amount General Fund $ 1,070 Capital Projects Fund $ 1,070 Capital Projects Fund 1,800,000 General Fund 1,800,000 General Fund 72,765 Food Service Fund 72,765 Food Service Fund 643 General Fund 643 $ 1,874,478 $ 1,874,478
Interfund balances between funds represent temporary loans recorded at year-end as the result of a final allocation of expenses.
A summary of interfund transfers for the year ended June 30, 2016 is as follows:
Transfers In Amount Transfers Out Amount Capital Projects Fund $ 2,255,000 General Fund $ 2,255,000 Debt Service Fund 5,839,186 General Fund 5,839,186 $ 8,094,186 $ 8,094,186
Transfers from the General Fund to the Capital Projects Fund represent transfers to subsidize costs associated with the acquisition of capital assets and debt service requirements.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
(6) NONCURRENT LIABILITIES
The following summarizes the changes in noncurrent liabilities for the year ended June 30, 2016:
Amount Balance Balance Due Within July 1, 2015 Increases Decreases June 30, 2016 One Year Governmental activities General obligation debt Bonds payable $ 33,215,000 $ - $2,850,000 $ 30,365,000 $ 890,000 Note payable 115,646 - 57,823 57,823 57,823 Qualified school construction bonds 22,950,000 - - 22,950,000 - Bond premiums 1,665,916 - 154,709 1,511,207 154,709 Bond discounts (118,907) - (9,715) (109,192) (9,715) Total general obligation debt 57,827,655 - 3,052,817 54,774,838 1,092,817 Other noncurrent liabilities Accrued retirement bonus 1,118,025 - 9,337 1,108,688 - Compensated absences 158,844 - 15,054 143,790 - OPEB obligation 355,614 199,187 55,809 498,992 - Net pension liability (See Note 7) 50,555,752 6,160,134 - 56,715,886 - Total other noncurrent liabilities 52,188,235 6,359,321 80,200 58,467,356 - Total governmental activities 110,015,890 6,359,321 3,133,017 113,242,194 1,092,817 Business-type activities Accrued retirement bonus 25,172 - 960 24,212 - Net pension liability (See Note 7) 1,215,825 110,289 - 1,326,114 - Total business-type activities 1,240,997 110,289 960 1,350,326 - Total noncurrent liabilities $111,256,887 $6,469,610 $3,133,977 $114,592,520 $1,092,817
Non-current liabilities are generally liquidated by the General Fund.
General Obligation Debt General obligation debt is a direct obligation of the District for which full faith and credit are pledged and is payable from unrestricted local sources. The District has not pledged any assets as collateral for general obligation debt. General obligation debt was issued to finance capital expenditures or to finance the retirement (refund) of prior general obligation debt.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Qualified School Construction Bonds The District participates in the Qualified School Construction Bonds ("QSCB") program sponsored by the State Public School Building Authority ("SPSBA"). The SPSBA was formed by the Commonwealth of Pennsylvania for the purpose of financing the construction and improvement of public school facilities under the jurisdiction of the Pennsylvania Department of Education. The QSCB program was created by the American Recovery and Reinvestment Act ("ARRA") and allows schools to borrow at nominal or zero percent to fund new construction, renovation and rehabilitation of schools as well as the purchase of land and equipment. The SPSBA issues the bonds through the QSCB program and provides loans to schools for qualified projects. Under the QSCB program the SPSBA receives direct interest subsidy payments from the United States Treasury which are then transferred to the borrowers as a reimbursement of the interest portion of their loan repayments. On October 1, 2010, the District borrowed $17,000,000 from the SPSBA under the QSCB program. The District is required to deposit amounts ranging from $5,000 to $3,089,000 annually into a sinking fund through the maturity date of September 1, 2027. On November 1, 2011, the District borrowed $5,950,000 from the SPSBA under the QSCB program. The District is required to deposit $330,556 annually into a sinking fund through the maturity date of September 1, 2029. Sinking fund deposits are included as restricted assets held by fiscal agent in the accompanying financial statements.
General obligation debt outstanding as of June 30, 2016 consisted of the following:
Original Interest Issue Final Principal Description Rate(s) Amount Maturity Outstanding General obligation bonds Series of 2011 1.00% - 5.00% $28,100,000 06/01/2030 $ 27,000,000 Series of 2013 3.375% - 5.50% $3,500,000 03/01/2031 3,365,000 Total general obligation bonds 30,365,000
General obligation note Series of 1997A 6.50% $1,156,460 02/15/2017 57,823
Qualified school construction bonds Series of 2010B 5.00% $17,000,000 09/01/2027 17,000,000 Series of 2011A 5.088% $5,950,000 09/01/2029 5,950,000 Total qualified school construction bonds 22,950,000 Total general obligation debt $ 53,372,823
Annual debt service requirements to maturity on these obligations are as follows:
Principal Interest Debt Sinking Year ending June 30, Maturities Maturities Fund Total 2017 $ 947,823 $ 2,575,949 $ 335,556 $ 3,859,328 2018 2,820,000 2,546,167 335,556 5,701,723 2019 2,960,000 2,406,386 335,556 5,701,942 2020 3,105,000 2,259,605 335,556 5,700,161 2021 3,260,000 2,105,655 335,556 5,701,211 2022-2026 7,805,000 8,769,252 12,424,780 28,999,032 2027-2031 32,475,000 3,896,301 (15,449,776) 20,921,525 $ 53,372,823 $24,559,315 $ (1,347,216) $ 76,584,922
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Other Post-Employment Benefits The District's other post-employment benefits include a single-employer defined benefit plan that provides medical insurance to all retirees and their dependents. The School Board has the authority to establish and amend benefit provisions. The plan does not issue any financial report and is not included in the report of any public employee retirement system or any other entity.
Funding Policy The District's contributions are funded on a pay-as-you-go basis. The contribution requirements of retirees are established and may be amended by the School Board.
Annual OPEB Cost and Net OPEB Obligation The District's annual other post-employment benefit cost (expense) is calculated based on the annual required contribution of the employer ("ARC"), an amount actuarially determined. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.
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, 2016, 2015 and 2014 were as follows:
Percentage Annual of Annual OPEB OPEB Cost Net OPEB Year Cost Contributed Obligation 2016 $ 199,187 28.02% $498,992 2015 $ 259,547 42.88% $355,614 2014 $ 262,085 40.91% $207,371
The following table shows the components of the District's OPEB cost for the year, the amount actually contributed by the District and changes in the District's net OPEB obligation:
Annual required contribution $ 205,016 Interest on net OPEB (obligation) 16,003 Adjustment to annual required contribution (21,832) Annual OPEB cost (expense) 199,187 Contributions made (55,809) Increase in net OPEB (obligation) asset 143,378 Net OPEB obligation – beginning of year 355,614 Net OPEB obligation – end of year $ 498,992
Funded Status and Funding Progress As of July 1, 2015, the most recent actuarial valuation, the actuarial accrued liability for benefits was $1,468,461 all of which was unfunded. The covered payroll (annual payroll of active employees) was $16,384,614 and the ratio of the unfunded actuarial accrued liability ("UAAL") to the covered payroll was 8.96%.
Actuarial valuations 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 benefit cost trends. Amounts determined regarding the funded status and the annual required contribution of the District 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 whether the actuarial value of assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on substantive benefits (the benefits as understood by the District and employees) and included the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the District and retirees to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial liabilities and the actuarial value of assets, consistent with the long-term perspective of calculations.
In the most recent actuarial valuation, the normal cost method was used. The actuarial assumptions include a 4.50% discount rate and an annual healthcare cost trend rate of 6.00%, decreasing 0.50% to an ultimate rate of 5.50% in 2016-2017 and later. The UAAL is being amortized based on the level dollar, 30-year open period.
(7) PENSION PLAN
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.
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. The members eligible to participate in the system include all full-time public 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 1 year credited service; (b) age 60 with 30 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 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 3 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% or 2.5%, 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 ten years of service.
Participants are eligible for disability retirement benefits after completion of five years of credited service. Such benefits are generally equal to 2% or 2.5%, 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.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
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 (ten 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
Member Contributions Active members who joined the system prior to July 22, 1983, contribute at 5.25% (Membership Class T- C) or at 6.50% (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% (Membership Class T-C) or at 7.50% (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% (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% (base rate) of the member's qualifying compensation. All new hires after June 30, 2011, who elect T-F membership, contribute at 10.3% (base rate) of the member's qualifying compensation. Membership Class T-E and T-F are affected by a "shared risk" provision in Act 120 of 2010 that in future fiscal years could cause Membership Class T-E contribution rate to fluctuate between 7.5% and 9.5% and Membership Class T-F contribution rate to fluctuate between 10.3% and 12.3%.
Employer Contributions The District's contractually required contribution rate for fiscal year ended June 30, 2016 was 25.00% 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. Contributions to the pension plan from the District were $4,354,741 for the year ended June 30, 2016.
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 $58,042,000 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 0.1340 percent, which was an increase of 0.0032 percent from its proportion measured as of June 30, 2014.
For the year ended June 30, 2016, the District recognized pension expense of $1,290,644. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Deferred Outflows Deferred Inflows of Resources of Resources Net difference between projected and actual investment earnings $ - $239,525 Changes in proportions - 117,475 Difference between employer contributions and proportionate share of total contributions 2,388,000 - Contributions subsequent to the measurement date 4,354,741 - $ 6,742,741 $357,000
$4,354,741 reported as deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year ended June 30: 2017 $ 358,272 2018 358,272 2019 358,272 2020 956,184 $ 2,031,000
Actuarial Assumptions The total pension liability as of June 30, 2014 was determined by rolling forward the system's total pension liability as the June 30, 2013 actuarial valuation to June 30, 2014 using the following actuarial assumptions, applied to all periods included in the measurement:
Actuarial cost method - Entry Age Normal - level % of pay
Investment return - 7.50% includes inflation at 3.00%
Salary increases - Effective average of 5.50%, which reflects an allowance for inflation of 3.00%, real growth wage of 1% and merit or seniority increases of 1.50%
Mortality rates were based on the RP-2000 Combined Healthy Annuitant Tables (male and female) with age set back 3 years for both males and females. For disabled annuitants the RP-2000 Combined Disabled Tables (male and female) with age set back 7 years for males and 3 years for females.
The actuarial assumptions used in the June 30, 2013 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 board 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.
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.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
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% 100.0 %
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, 2014.
Discount Rate The discount rate used to measure the total pension liability was 7.50%. 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.
Sensitivity of the District's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following represents the net pension liability, calculated using the discount rate of 7.50%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.50%) or 1-percentage point higher (8.50%) that the current rate:
Current Discount 1% Decrease Rate 1% Increase 6.50% 7.50% 8.50% District’s proportionate share of the net pension liability $ 71,543,000 $ 58,042,000 $46,695,000
Pension Plan Fiduciary Net Position Detailed information about the 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.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
(8) JOINT VENTURES AND JOINTLY GOVERNED ORGANIZATION
Joint Ventures Lancaster County Career and Technology Center The District and the other 15 Lancaster County school districts participate in the Lancaster County Career and Technology Center ("LCCTC"). The LCCTC provides vocational-technical training and education to students of the participating school districts. The LCCTC is controlled by a joint board comprised of representative school board members of the participating school districts. District oversight of the LCCTC operations is the responsibility of the joint board. The District’s share of operating costs for the LCCTC fluctuates based on the District’s percentage of enrollment. The District’s share of operating costs for 2015- 2016 was $460,515.
Lancaster County Career and Technology Center Authority The District and the other 15 Lancaster County school districts also participate in a joint venture for the operation of the Lancaster County Career and Technology Center Authority (the "Authority"). The Authority oversees acquiring, holding, constructing, improving and maintaining the LCCTC school buildings and facilities. The Authority is controlled by a joint board comprised of representative school board members of the participating school districts in the Authority. As further described below, the participating school districts have entered into a long-term lease agreement with the Authority to provide rental payments sufficient to retire the Authority’s outstanding debt obligations. The District’s share of rent expense for 2015-2016 was $49,023.
On September 20, 2011, the Authority authorized the issuance of Guaranteed Lease Revenue Bonds, Series of 2011 (the "2011 Revenue Bonds"), in the maximum aggregate principal amount of $43,000,000 to provide funds for the renovations and additions to the Brownstown, Mount Joy and Willow Street campuses of the LCCTC and pay for the costs of issuance. The District and the 15 Lancaster County school districts have entered into a long-term lease agreement with the Authority stipulating that each school district will pay its proportionate share of the lease rentals in order to retire the 2011 Revenue Bonds based on real estate market values as set forth in the LCCTC organization agreement. The 2011 Revenue Bonds were issued in three different series over three years. The amount of each series was not to exceed $10,000,000 without the participating school districts' approval. The 2011 Revenue Bonds were intended to be repaid over a period not to exceed thirty years, with gross annual debt service not to exceed $1,985,000 and net annual debt service (after reimbursement by the Commonwealth of Pennsylvania) of $1,330,000. On June 29, 2012, the Authority issued the first of three series in the total amount of $9,995,000. On September 20, 2013 the Authority issued the second of three series in the total amount of $9,995,000 and on July 9, 2014, the Authority issued the final of the three series in the total amount of $3,900,000. The District’s lease rental obligations for minimum rental payments related to the issued debt are as follows:
Year ending June 30, 2017 $ 49,123 2018 54,584 2019 54,522 2020 54,507 2021 54,588 2022-2026 272,843 2027-2031 272,556 2032-2036 272,804 2037 54,486 $ 1,140,013
Both the LCCTC and the Authority prepare financial statements that are available to the public from their administrative office located at 1730 Hans Herr Drive, P.O. Box 527, Willow Street, PA 17584.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
Jointly Governed Organizations
Lancaster-Lebanon Intermediate Unit The District and the other Lancaster and Lebanon County school districts are participating members of the Lancaster-Lebanon Intermediate Unit (the "LLIU"). The LLIU is a regional educational service agency, established by the Commonwealth of Pennsylvania, which is governed by a joint committee consisting of School Board members from each participating school district. The School Board of each participating school district must approve the annual program budget for the LLIU but the participating school districts have no ongoing fiduciary interest or responsibility to the LLIU. The LLIU is a self-sustaining organization that provides a broad array of services to the participating school districts which include: curriculum development and instructional improvement; educational planning services; instructional material; continuing professional development; pupil personnel services; management services and federal liaison services. During 2015-2016, the District contracted with the LLIU for special education services which totaled $1,930,322.
Lancaster-Lebanon Joint Authority The District and the other Lancaster and Lebanon County school district are also participating members of the Lancaster-Lebanon Joint Authority (the "Authority"). The Authority oversees acquiring, holding, constructing, improving and maintaining the buildings and facilities maintained for the participating school districts and the LLIU, which is governed by a joint committee consisting of School Board members from each participating school district. During 2015-2016, the District did not have any financial transactions with the Authority.
Lancaster County Tax Collection Bureau The District and the other 15 Lancaster County school districts along with Octorara Area School District of Chester County and the municipalities represented by those school districts are participating members of the Lancaster County Tax Collection Bureau (the "Bureau") for the collection of earned income taxes. Each participating school district appoints one member to serve on the joint operating committee and 16 members are appointed by the participating municipalities. The Bureau is a self-sustaining organization in which the participating members have no ongoing fiduciary interest or responsibility. The Bureau’s operating expenditures are deducted from each members earned income tax distributions. During 2015-2016, the District’s portion of operating expenditures for the Bureau totaled $56,924.
(9) CONTINGENCIES AND COMMITMENTS
Government Grants and Awards The District receives federal, state and local funding under a number of programs. Payments made by these sources under contractual agreements are provisional and subject to redetermination based on filing of reports and audits of those reports. Final settlements due from or to these sources are recorded in the year in which the related services are performed. Any adjustments resulting from subsequent examinations are recognized in the year in which the results of such examinations become known. District officials do not expect any significant adjustments as a result of these examinations.
Litigation The District is a defendant in various matters of litigation and claims. These matters result from the normal course of business. It is not presently possible to determine the ultimate outcome or settlement cost, if any, of these matters.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
(10) RISK MANAGEMENT
Health Insurance The District participates in a consortium with the LLIU to provide a self-insurance program for health insurance and related expenses for eligible employees, spouses and dependents. Accordingly, benefit payments plus an administrative charge are made to a third party administrator, who approves and processes all claims. The District was limited in liability to $100,000 per individual and $3,931,948 in total for self-insurance medical claims for the year ended June 30, 2016.
The District has recorded a liability in the General Fund for claims incurred through June 30, 2016 which has historically been satisfied within 60 days after June 30. The following table presents the components of the self-insurance medical claims liability and the related changes in the claims liability for the year ended June 30, 2016:
Insurance claims liability – beginning of year $ 365,277 Current year insurance claims and changes in estimates 2,938,944 Insurance claims paid (3,607,897) Insurance claims liability – end of year $ 303,676
Property and Liability The District and 11 participating member school districts from Lancaster and Lebanon County, the LLIU, the Lancaster County Academy, and the LCCTC participate in the Lancaster-Lebanon Public Schools Insurance Pool (the "Pool"), which is a public entity risk pool currently operating as a common risk management and insurance program. The District and the other participating members pay an annual premium to the Pool for the purpose of seeking prevention or lessening of casualty losses to participating members from injuries to persons or property which might result in claims being made against participating members and to the pools insurance risks, reserves, claims and losses and providing self-insurance and reinsurance thereof. It is the intent of the participating members of the Pool, that the Pool will utilize funds contributed by the participating members to provide self-insurance and reimbursement to the members for certain losses, to defend and protect each participating member of the Pool against certain liabilities and losses, and to purchase excess and aggregate stop-loss insurance for claims greater than $100,000 per occurrence. As of June 30, 2016, the District is not aware of any additional assessments relating to the Pool.
Workers’ Compensation The District and 16 participating member school districts from Lancaster and Lebanon County and the LLIU participate in the Lancaster-Lebanon Public Schools Workers’ Compensation Fund (the "Fund"), which is a cooperative voluntary trust arrangement. The District and the other participating members pay an annual premium to the Fund for the purpose of seeking prevention or lessening of claims due to injuries of employees of the participating members and pooling workers’ compensation and occupational disease insurance risks, reserves, claims, and losses and providing self-insurance and reinsurance thereof. It is the intent of the participating members of the Fund that the Fund will utilize funds contributed by the participating members, which shall be held in trust by the Fund, to provide self-insurance and reimbursement to the members for their obligations to pay compensation as required under the Workers’ Compensation Act and the Pennsylvania Occupational Disease Act and to purchase excess and aggregate insurance. As of June 30, 2016, the District is not aware of any additional assessments relating to this Fund.
Other Risks The District is exposed to other risks of loss, including errors and omissions. The District has purchased a commercial insurance policy to safeguard its assets from risk of loss due to errors and omissions. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years.
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NOTES TO FINANCIAL STATEMENTS
June 30, 2016
(11) SUBSEQUENT EVENTS
Management has evaluated subsequent events through October 25, 2016, the date on which the financial statements were available to be issued. Except as noted below, no material subsequent events have occurred since June 30, 2016 that required recognition or disclosure in the financial statements.
On September 8, 2016, the District authorized general obligation bonds, Series of 2016, in the amount of $9,855,000. The proceeds from the issuance of the bonds will be used to advance refund a portion of the general obligation bonds, Series of 2011, and to pay for the costs of issuance.
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REQUIRED SUPPLEMENTARY INFORMATION
DONEGAL SCHOOL DISTRICT
BUDGETARY COMPARISON SCHEDULE - GENERAL FUND
Year ended June 30, 2016 Variance with Final Original Budget and Final Positive Budget Actual (Negative) REVENUES Local sources $ 29,536,187 $ 30,358,376 $ 822,189 State sources 13,249,107 13,592,865 343,758 Federal sources 1,985,420 2,092,673 107,253 Total revenues 44,770,714 46,043,914 1,273,200
EXPENDITURES Instruction Regular programs 19,013,345 18,360,202 653,143 Special programs 7,050,556 6,654,842 395,714 Vocational programs 503,212 509,539 (6,327) Other instructional programs 72,619 27,267 45,352 Higher education programs 4,100 - 4,100 Total instruction 26,643,832 25,551,850 1,091,982 Support services Pupil support services 1,321,032 1,468,447 (147,415) Instructional staff services 1,668,423 1,466,903 201,520 Administrative services 2,694,371 2,510,781 183,590 Pupil health 531,805 516,894 14,911 Business services 595,958 452,064 143,894 Operation and maintenance of plant services 3,735,361 3,381,216 354,145 Student transportation services 1,549,305 1,567,338 (18,033) Support services - central 19,500 271,879 (252,379) Other support services 18,800 18,855 (55) Total support services 12,134,555 11,654,377 480,178 Operation of noninstructional services Student activities 788,809 697,014 91,795 Total expenditures 39,567,196 37,903,241 1,663,955
Excess (deficiencies) of revenues over (under) expenditures 5,203,518 8,140,673 2,937,155
OTHER FINANCING SOURCES (USES) Transfers out (6,025,798) (8,094,186) (2,068,388) Budgetary reserve (425,000) - 425,000 Total other financing sources (uses) (6,450,798) (8,094,186) (1,643,388)
NET CHANGE IN FUND BALANCE $ (1,247,280) 46,487 $ 1,293,767
FUND BALANCE Beginning of year 10,639,004
End of year $ 10,685,491
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OTHER POST-EMPLOYMENT BENEFITS SCHEDULE OF FUNDING PROGRESS
Year ended June 30, 2016
UAAL as a Actuarial Actuarial Unfunded Percentage Actuarial Value of Accrued AAL Funded Covered of Covered Valuation Assets Liability (AAL) - (UAAL) Ratio Payroll Payroll Date (a) Entry Age (b) (b-a) (a/b) (c) ((b-a)/c)
07/01/2015 $ - $ 1,468,451 $ 1,468,461 0.00% $16,384,614 8.96%
07/01/2013 $ - $ 1,925,375 $ 1,925,375 0.00% $15,525,289 12.40%
07/01/2011 $ - $ 2,235,982 $ 2,235,982 0.00% $14,722,798 15.19%
07/01/2009 $ - $ 2,091,031 $ 2,091,031 0.00% $14,421,658 14.50%
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SCHEDULE OF THE DISTRICT’S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY
Year ended June 30
2015 2014 District’s proportion of the net pension liability (asset) 0.1340% 0.1308% District’s proportionate share of the net pension liability (asset) $ 58,042,000 $ 51,771,577 District’s covered-employee payroll $ 17,235,638 $ 16,686,678 District’s proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 337% 310% Plan fiduciary net position as a percentage of the total pension liability 54% 57%
In accordance with GASB Statement No. 68, this schedule has been prepared prospectively as the above information for the preceding year is not readily available. This schedule will accumulate each year until sufficient information to present a ten-year trend is available.
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SCHEDULE OF THE DISTRICT’S PENSION PLAN CONTRIBUTIONS
Year ended June 30
2015 2014 Contractually required contribution 3,313,332 2,599,945 Contributions in relation to the contractually required contribution 3,313,332 2,599,945 Contribution deficiency (excess) - -
District’s covered-employee payroll $ 17,235,638 $ 16,686,678
Contributions as a percentage of covered-employee payroll 19% 16%
In accordance with GASB Statement No. 68, this schedule has been prepared prospectively as the above information for the preceding year is not readily available. This schedule will accumulate each year until sufficient information to present a ten-year trend is available.
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SINGLE AUDIT
DONEGAL SCHOOL DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND CERTAIN STATE GRANTS
Year ended June 30, 2016 Accrued Accrued Pass- (Deferred) (Deferred) Federal Through Grand Period Total Revenue Revenue Federal Grantor/Pass-Through Source CFDA Grantor's Beginning/ Grant Received July 1, Revenue June 30, Grantor/Project Title Code Number Number Ending Dates Amount for Year 2015 Recognized Expenditures 2016 U.S. Department of Education Passed-Through the Pennsylvania Department of Education Title I - Improving Basic Programs I 84.010 013-150119 07/01/14 - 09/30/15 $ 347,029 $ 240,568 240,568 $ - $ - $ - Title I - Improving Basic Programs I 84.010 013-160119 07/01/15 - 09/30/16 415,165 332,984 - 415,165 415,165 82,181 Total CFDA #84.010 573,552 240,568 415,165 415,165 82,181
Title II - Improving Teacher Quality I 84.367 020-150119 07/01/14 - 09/30/15 81,234 56,231 56,231 - - - Title II - Improving Teacher Quality I 84.367 020-160119 07/01/15 - 09/30/16 81,568 70,746 - 81,568 81,568 10,822 Total CFDA #84.367 126,977 56,231 81,568 81,568 10,822
-50- Passed Through the Lancaster-Lebanon I.U. I.D.E.A. - Part B, Section 619 I 84.173 131-140013 07/01/14 - 06/30/15 3,091 3,091 3,091 - - - I.D.E.A. - Part B, Section 619 I 84.173 131-150013 07/01/15 - 06/30/16 1,989 1,989 - 1,989 1,989 - Total CFDA #84.173 5,080 3,091 1,989 1,989 -
I.D.E.A. - Part B, Section 611 I 84.027 062-160013 07/01/15 - 06/30/16 482,541 482,541 - 482,541 482,541 - Total U.S. Department of Education 1,188,150 299,890 981,263 981,263 93,003
U.S. Department of Health and Human Services Passed Through the Pennsylvania Department of Public Welfare Medical Assistance Program I 93.778 N/A 07/01/15 - 06/30/16 N/A 5,912 - 12,070 12,070 6,158
U.S. Department of Agriculture Passed-Through the Pennsylvania Department of Education State Matching Share S N/A N/A 07/01/14 - 06/30/15 N/A 1,142 1,142 - - - State Matching Share S N/A N/A 07/01/15 - 06/30/16 N/A 49,488 - 50,774 50,774 1,286 Total State Matching 50,630 1,142 50,774 50,774 1,286
Continued on next page Accrued Accrued Pass- (Deferred) (Deferred) Federal Through Grand Period Total Revenue Revenue Federal Grantor/Pass-Through Source CFDA Grantor's Beginning/ Grant Received July 1, Revenue June 30, Grantor/Project Title Code Number Number Ending Dates Amount for Year 2015 Recognized Expenditures 2016 Passed-Through the Pennsylvania Department of Education (cont'd) Breakfast Program I 10.553 N/A 07/01/14 - 06/30/15 N/A 2,991 2,991 - - - Breakfast Program I 10.553 N/A 07/01/15 - 06/30/16 N/A 104,662 - 107,374 107,374 2,712 Total CFDA #10.553 107,653 2,991 107,374 107,374 2,712
National School Lunch Program I 10.555 N/A 07/01/14 - 06/30/15 N/A 11,867 11,867 - - - National School Lunch Program I 10.555 N/A 07/01/15 - 06/30/16 N/A 554,329 - 567,120 567,120 12,791
Passed-Through the Pennsylvania Department of Agriculture National School Lunch Program I 10.555 N/A 07/01/15 - 06/30/16 N/A 113,727 (9,222) 109,322 109,322 (13,626) Total CFDA #10.555 679,923 2,645 676,442 676,442 (835) Total U.S. Department of Agriculture 787,576 5,636 783,816 783,816 1,877
Total Federal Awards and Certain -51- State Grants $ 2,032,268 $ 306,668 $ 1,827,923 $ 1,827,923 $102,324
Total Federal Awards $ 1,981,638 $ 305,526 $ 1,777,149 $ 1,777,149 $101,038 Total State Awards 50,630 1,142 50,774 50,774 1,286 Total Federal Awards and Certain State Grants $ 2,032,268 $ 306,668 $ 1,827,923 $ 1,827,923 $102,324
Special Education Cluster (IDEA) (CFDA's #84.027 and #84.173) $ 487,621 $ 3,091 $ 484,530 $ 484,530 $ -
Child Nutrition Cluster (CFDA's #10.553 and #10.555) $ 787,576 $ 5,636 $ 783,816 $ 783,816 $ 1,877
Source Codes D - Direct Funding I - Indirect Funding S - State Funding DONEGAL SCHOOL DISTRICT
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND CERTAIN STATE GRANTS
June 30, 2016
(1) FEDERAL EXPENDITURES
The Schedule of Expenditures of Federal Awards and Certain State Grants reflects federal expenditures for all individual grants which were active during the fiscal year. Additionally, the Schedule reflects expenditures for certain state grants.
(2) BASIS OF ACCOUNTING
The District uses the modified accrual method of recording transactions except as noted for the accounting of donated commodities in Note 3. Revenues are recorded when measurable and available. Expenditures are recorded when incurred.
(3) NONMONETARY FEDERAL AWARDS – DONATED FOOD
The Commonwealth of Pennsylvania distributes federal surplus food to institutions (schools, hospitals and prisons) and to the needy. Expenditures reported in the Schedule of Expenditures of Federal Awards and Certain State Grants under CFDA #10.555 USDA Commodities represent federal surplus food consumed by the District during the 2015-2016 fiscal year.
(4) ACCESS PROGRAM
The District participates in the ACCESS Program which is a medical assistance program that reimburses local educational agencies for direct eligible health-related services provided to enrolled special needs students. Reimbursements are federal source revenues but are classified as fee-for-service and are not considered federal financial assistance. The amount of ACCESS funding recognized for the year ended June 30, 2016 was $54,734.
(5) QUALIFIED SCHOOL CONSTRUCTION BONDS PROGRAM
The District participates in the Qualified School Construction Bonds ("QSCB") program sponsored by the State Public School Building Authority ("SPSBA"). In conjunction with the QSCB Program, the District receives subsidy reimbursements for a portion of the interest payments made under its loan agreements with the SPSBA. Reimbursements are federal source revenues but are not considered federal financial assistance. The amount of QSCB subsidy payments recognized for the year ended June 30, 2016 was $1,044,606.
(6) INDIRECT COSTS
The District has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. No indirect costs were charged to the District’s Federal awards for the year ended June 30, 2016.
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SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
Year ended June 30, 2016
#2015-002
Department of Agriculture School Breakfast Program – CFDA #10.553
Department of Agriculture National School Lunch Program – CFDA #10.555
Criteria The District is required to verify the current free and reduced price eligibility of households selected from a sample of applications that it has approved for free and reduced meals. If the verification process determines changes to applicant free and reduced status, the District is required to make those changes.
Statement of Condition The District sampled the correct number of free and reduced applicant households. However, the District did not correctly classify and make changes to the free and reduced meal status of two of those households based on the documentation received.
Cause and Effect Errors in the review of verified free and reduced lunch applications led to the status of two of the verified free and reduced households to be incorrectly classified.
Questioned Costs None
Recommendation Review procedures should be established to ensure that the District correctly classifies and makes changes to the free and reduced meal status based on the documentation received.
Status During 2015-2016, the District correctly classified and made changes to the free and reduced status of those households sampled, where applicable. This finding is no longer applicable.
-53-
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
Board of School Directors Donegal School District Mount Joy, 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 Donegal School District, Mount Joy, Pennsylvania, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Donegal School District’s basic financial statements, and have issued our report thereon dated October 25, 2016.
Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Donegal 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 Donegal School District’s internal control. Accordingly, we do not express an opinion on the effectiveness of Donegal 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters As part of obtaining reasonable assurance about whether Donegal 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.
-54-
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 entity’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.
BBD, LLP
Philadelphia, Pennsylvania October 25, 2016
-55-
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE
Board of School Directors Donegal School District Mount Joy, Pennsylvania
Report on Compliance for Each Major Federal Program We have audited Donegal 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 Donegal School District’s major federal programs for the year ended June 30, 2016. Donegal School District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.
Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs.
Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of Donegal 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 ("CFR") Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (the "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 Donegal 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 Donegal School District’s compliance.
Opinion on Each Major Federal Program In our opinion, Donegal 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.
-56-
Report on Internal Control over Compliance Management of Donegal 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 Donegal School District’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Donegal 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. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
BBD, LLP
Philadelphia, Pennsylvania October 25, 2016
-57- DONEGAL SCHOOL DISTRICT
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year ended June 30, 2016
SUMMARY OF AUDITOR'S RESULTS
1. The auditor's report expresses an unmodified opinion on whether the financial statements of Donegal School District were prepared in accordance with GAAP.
2. No significant deficiencies or material weaknesses relating to the audit of the financial statements of Donegal School District are reported in the 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.
3. No instances of noncompliance material to the financial statements of Donegal School District, which would be required to be reported in accordance with Government Auditing Standards, were disclosed during the audit.
4. No significant deficiencies or material weaknesses in internal control over the major federal award programs are reported in the independent auditor's report on compliance for each major program and on internal control over compliance required by the Uniform Guidance.
5. The auditor's report on compliance for the major federal award programs for Donegal School District expresses an unmodified opinion on all major federal programs.
6. There are no audit findings that are required to be reported in accordance with 2 CFR Section 200.516(a) of the Uniform Guidance.
7. The programs tested as major programs were:
Child Nutrition Cluster: Breakfast Program – CFDA Number 10.553 National School Lunch Program – CDFA Number 10.555
8. The threshold used for distinguishing between Type A and B programs was $750,000.
9. The Donegal School District did not qualify as a low-risk auditee.
FINDINGS—FINANCIAL STATEMENT AUDIT
None
FINDINGS AND QUESTIONED COSTS—MAJOR FEDERAL AWARD PROGRAMS AUDIT
None
-58- APPENDIX D
Form of Opinion of Bond Counsel
DRAFT
DONEGAL SCHOOL DISTRICT GENERAL OBLIGATION BONDS, SERIES OF 2017 ______
OPINION
We have acted as Bond Counsel in connection with the issuance by Donegal School District, Lancaster County, Pennsylvania (the “School District”), of the $______General Obligation Bonds, Series of 2017 dated ______, 2017 (the "Bonds”).
We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.
Based upon the foregoing, we are of the opinion that, under existing law:
1. The Bonds are issued in accordance and in compliance with the provisions of the Local Government Unit Debt Act of the Commonwealth of Pennsylvania, as codified by the Act of December 19, 1996 (53 Pa. Cons. Stat. Chs. 80-82), ("the Act"), without the assent of the electors, and pursuant to a resolution adopted by the Board of School Directors of the School District on September 8, 2016.
2. The Bonds are a valid and binding obligation of the School District.
3. The School District has established with the Paying Agent, as Sinking Fund Depositary, a sinking fund in which it has covenanted to deposit amounts sufficient to pay the principal of and interest on the Bonds as the same become due and payable and, to the extent required, to apply such amounts to such purposes.
4. The School District has further covenanted that, subject to statutory restrictions and limitations, it will include in its budget for each fiscal year in which the Bonds are outstanding, and will appropriate in each such fiscal year, the amount of the debt service on the Bonds for such year, that it will duly and punctually pay or cause to be paid, the principal of and interest on the Bonds at the dates and place and in the manner stated on the Bonds; and for such budgeting, appropriation and payment, the School District has irrevocably pledged its full faith, credit and taxing power. For purposes of such payments, the School District has covenanted that it will exercise its ad valorem taxing power, within limitations provided by law, upon all taxable property within the School District. The Bonds are additionally secured by the “state aid intercept” provisions of Section 633 of the Public School Code of 1949, as amended by Act 150 of 1975.
5. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings. The opinions set forth in the preceding sentence are subject to the condition that the School District comply with all requirements of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder, that must be satisfied subsequent to the issuance of the Bonds, in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The School District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.
6. Under the laws of the Commonwealth of Pennsylvania as presently enacted and construed, the Bonds and the interest thereon will be free from taxation for state and local purposes within the Commonwealth of Pennsylvania, but this exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the Bonds or the interest thereon. Under the laws of the Commonwealth, profits, gains or income derived from the sale, exchange or other disposition of certain government obligations, including the Bonds, may be subject to state and local taxation within the Commonwealth of Pennsylvania.
The rights of the holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.
We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Bonds.
Very truly yours,
Kegel Kelin Almy & Lord LLP
______, 2017
160915 -2- APPENDIX E
Form of Continuing Disclosure Certificate
160916
DRAFT
DONEGAL SCHOOL DISTRICT LANCASTER COUNTY, PENNSYLVANIA
$______GENERAL OBLIGATION BONDS, SERIES OF 2017 DATED, ISSUED AND DELIVERED ______, 2017
CONTINUING DISCLOSURE AGREEMENT
This agreement (the "Agreement") is executed as one of the closing documents for the $______General Obligation Bonds, Series of 2017 (the "Bonds") in accordance with the provisions of Rule 15c2-12, as amended (the "Rule"), promulgated by the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934.
The undersigned are officers of the Board of School Directors of Donegal School District (the "School District"), a Pennsylvania governmental unit, and hereby certify on behalf of the School District as follows:
Section 1. Undertaking to file current information with MSRB. The School District agrees, in accordance with the Rule, to provide or cause to be provided, to the Municipal Securities Rulemaking Board (“MSRB”) as designated by the Commission in accordance with the Rule, and to the Bond Insurer defined in Section 9 hereof, the following annual financial information and operating data commencing with the fiscal year ended June 30, 2017:
a. A copy of its budget and audited financial statements, prepared in accordance with the guidelines adopted by the Governmental Accounting Standard Board and the American Institute of Certified Public Accountants' Audit Guide, Audits of State and Local Government, containing the:
(i) Combined balance sheet of all fund types and account groups; and
(ii) Combined statement of revenues, expenditures and changes in fund balances - all governmental fund types and expendable trust funds.
b. An update of the following information under the heading Tax Revenues of the School District provided in Appendix A of the Official Statement for the Bonds dated ______, 2017:
(i) Largest Taxpayers in School District;
(ii) Trends in Value of Real Property; and
(iii) Tax Collection Record.
Section 2. Modification of types of information and format of information permitted. The School District reserves the right to modify from time to time the specific types of information provided, the time period within which the information must be filed, the format of the presentation of such information, or any other requirements hereunder, in its sole discretion, so long as such modification or amendment would have been allowed under the Rule at the time of the undertaking. Any such modification will be done in a manner consistent with the Rule at the time of the undertaking, and will not substantially impair the interest of the holders of the Bonds.
Section 3. Time period within which annual information must be filed. The annual information and operating data described above in Section 1 must be provided within 270 days after the end of each fiscal year, commencing with the fiscal year ending June 30, 2017. Such information shall be made available, in addition to the MSRB, to the Paying Agent for the Bonds and to each holder of Bonds who makes request for such information. In the event that no such audited financial statement is available within 270 days of the close of the fiscal year, the School District shall provide an unaudited statement, and shall thereafter provide an audited financial statement for the same period as soon as available. Upon receipt of the audited financial statement, the School District will promptly file it.
Section 4. Notice of failure to comply with annual information updates. The School District agrees to provide or cause to be provided, in a timely manner, to the Paying Agent for the Bonds, and to the MSRB, notice of a failure by the School District to provide the annual financial information described in Section 1 above on or prior to the date set forth in Section 3 above.
Section 5. Event disclosure. The School District agrees to provide or cause to be provided to the MSRB, in a timely manner, not to exceed ten (10) days after occurrence, notice of the occurrence of any of the following events with respect to the Bonds:
a. Principal and interest payment delinquencies;
b. Non-payment related defaults, if material;
c. Unscheduled draws on debt service reserves reflecting financial difficulties;
d. Unscheduled draws on credit enhancements reflecting financial difficulties;
e. Substitution of any credit or liquidity providers, or their failure to perform;
f. Adverse tax opinions, IRS notices or material events affecting the tax status of the Bonds;
g. Modifications to rights of holders of the Bonds, if material;
h. Bond calls, if material, and tender offers;
i. Defeasances;
-2- j. Release, substitution, or sale of property securing repayment of the Bonds, if material;
k. Rating changes;
l. Bankruptcy, insolvency, receivership or similar event of the School District (which is considered to occur when any of the following occur: appointment of a receiver, fiscal agent or similar officer for the School District 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 School District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of any 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 School District);
m. Merger, consolidation or acquisition involving the School District, if material; or
n. Appointment of successor or additional trustee or the change of name of a trustee, if material.
The School District may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if, in the judgment of the School District, such other event is material with respect to the Bonds, but the School District does not commit to provide any such notice of the occurrence of any material event except those events listed above.
Section 6. Termination of reporting obligation. The School District's obligations under this Agreement shall terminate upon the redemption or payment in full of all of the Bonds.
Section 7. Enforcement. The School District agrees that its undertakings pursuant to this Agreement are intended to be for the benefit of the holders of the Bonds (including beneficial owners thereof) and shall be enforceable by the holders of the Bonds or the Paying Agent for the Bonds on behalf of such holders; provided that the holders of the Bonds, or in lieu thereof, the Paying Agent's 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.
Section 8. Amendment; waiver. Notwithstanding any other provision of this Agreement, the School District may amend this Agreement, and any provision of this Agreement may be waived, if such amendment or waiver is supported by an opinion of Bond Counsel, 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.
-3- IN WITNESS WHEREOF, the undersigned officers of the School District, being duly authorized, have executed this certificate in the name of and on behalf of the School District and in our own names and on our own behalf, the day and year of the issuance and delivery of the Bonds set forth above.
DONEGAL SCHOOL DISTRICT
By:______President
Attest:______Secretary
(SEAL)
-4- APPENDIX F
Bond Amortization Schedule
DONEGAL SCHOOL DISTRICT Lancaster County, Pennsylvania $13,770,000* General Obligation Bonds (Limited Tax Obligations), Series of 2017
Dated: Date of Delivery Interest Payable: June 1 and December 1 Due: June 1, as shown below First Interest Payment: December 1, 2017 Denomination: Integral multiples of $5,000 Form: Book-Entry Only
Fiscal Year Payment Debt Ended Fiscal Date Principal Coupon Interest Service June 30 Debt Service
December 1, 2017 June 1, 2018 December 1, 2018 June 1, 2019 December 1, 2019 June 1, 2020 December 1, 2020 June 1, 2021 December 1, 2021 June 1, 2022 December 1, 2022 June 1, 2023 December 1, 2023 June 1, 2024 December 1, 2024 June 1, 2025 December 1, 2025 June 1, 2026 December 1, 2026 June 1, 2027 December 1, 2027 June 1, 2028 December 1, 2028 June 1, 2029 December 1, 2029 June 1, 2030
Total
*Preliminary, subject to change.