NEW ISSUE -- FULL BOOK-ENTRY RATING: Moody’s: “Aa3” See “RATING” herein In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing laws, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (“Code”). In the further opinion of Bond Counsel, interest on the Refunding Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation’s alternative minimum tax liabilities. In the further opinion of Bond Counsel, interest on the Refunding Bonds is exempt from State of California personal income taxation. Bond Counsel expresses no opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Refunding Bonds. See “TAX MATTERS.” $7,935,000 MORONGO UNIFIED SCHOOL DISTRICT (San Bernardino County, California) 2012 General Obligation Refunding Bonds
Dated: Date of Delivery Due: August 1, as shown on inside front cover Issuance. The Morongo Unified School District (San Bernardino County, California) 2012 General Obligation Refunding Bonds (the “Refunding Bonds”), in the aggregate principal amount of $7,935,000, are being issued by the Morongo Unified School District (the “District”) pursuant to a resolution of the Board of Education of the District adopted on October 16, 2012 (the “Bond Resolution”) and certain provisions of the Government Code of the State of California for the purpose of advance refunding certain maturities of the District’s outstanding General Obligation Bonds, 2005 Election, Series A, as described herein. See “PLAN OF FINANCE.” Security. The Refunding Bonds are general obligation bonds of the District payable solely from ad valorem taxes. The Board of Supervisors of San Bernardino County (the “County”) has the power and is obligated to annually levy ad valorem taxes upon all property subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the Refunding Bonds. The District has other general obligation bond indebtedness which is similarly secured by ad valorem taxes. See “SECURITY FOR THE REFUNDING BONDS” and “APPENDIX A” attached hereto. Redemption. The Refunding Bonds are subject to optional redemption prior to maturity under certain circumstances, as described herein. See “THE REFUNDING BONDS – Optional Redemption.” Book-Entry Only. The Refunding Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). Purchasers will not receive physical certificates representing their interests in the Refunding Bonds. See “THE REFUNDING BONDS - Book- Entry-Only System.” Payments. Interest with respect to the Refunding Bonds accrues from the date of delivery and is payable semiannually on February 1 and August 1 of each year, commencing February 1, 2013, by check mailed to the person in whose name the Refunding Bond is registered. Payments of principal and interest on the Refunding Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, as Paying Agent, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Refunding Bonds. See “THE REFUNDING BONDS – Description of the Refunding Bonds.”
MATURITY SCHEDULE (see inside front cover)
This cover page contains information for general reference only. It is not a summary of all the provisions of the Refunding Bonds. Investors must read the entire official statement to obtain information essential in making an informed investment decision. The Refunding Bonds are offered when, as and if issued, subject to the approval as to their legality by Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel. Jones Hall, A Professional Law Corporation, San Francisco, California is acting as Disclosure Counsel to the District. Nossaman, LLP, Irvine, California is serving as Underwriter’s Counsel. It is anticipated that the Refunding Bonds in definitive form will be available for delivery through the facilities of DTC on or about November 29, 2012.
The date of this Official Statement is November 14, 2012.
MATURITY SCHEDULE
MORONGO UNIFIED SCHOOL DISTRICT (San Bernardino County, California) 2012 General Obligation Refunding Bonds
Base CUSIP†: 617736
Maturity Date Principal Interest (August 1) Amount Rate Yield CUSIP† 2013 $150,000 2.000% 0.350% JS3 2014 55,000 3.000 0.550 JT1 2015 250,000 3.000 0.670 JU8 2016 275,000 3.000 0.820 JV6 2017 305,000 2.000 0.940 JW4 2018 335,000 3.000 1.090 JX2 2019 375,000 2.000 1.280 JY0 2020 400,000 3.000 1.540 JZ7 2021 435,000 3.000 1.820 KA0 2022 480,000 3.000 2.050 KB8 2023 520,000 3.000 2.290C KC6 2024 565,000 5.000 2.360C KD4 2025 625,000 5.000 2.480C KE2 2026 690,000 2.625 2.950 KF9 2027 735,000 2.750 3.010 KG7 2028 790,000 3.000 3.070 KH5 2029 850,000 3.000 3.130 KJ1 2030 100,000 3.000 3.190 KK8
C: Yield to par call on August 1, 2022. † CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services, managed by Standard & Poor's Financial Services LLC on behalf of The American Bankers Association. These data are not intended to create a database and do not serve in any way as a substitute for the CUSIP services. Neither the District nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth above.
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the sale of the Refunding Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the District or the Underwriter. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Refunding Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date hereof. Involvement of Underwriter. The Underwriter has provided the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Stabilization of and Changes to Offering Prices. The Underwriter may overallot or take other steps that stabilize or maintain the market prices of the Refunding Bonds at levels above that which might otherwise prevail in the open market. If commenced, the Underwriter may discontinue such market stabilization at any time. The Underwriter may offer and sell the Refunding Bonds to certain securities dealers, dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter. Document Summaries. All summaries of the Bond Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Refunding Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Refunding Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Refunding Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement. Website. The District maintains a website. However, the information presented on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Refunding Bonds.
MORONGO UNIFIED SCHOOL DISTRICT COUNTY OF SAN BERNARDINO STATE OF CALIFORNIA
DISTRICT BOARD OF EDUCATION
J. Edward Will Jr., President Chris Proudfoot, Clerk Donna Munoz, Member Ron Palmer, Member Phyllis Swinnerton, Member
DISTRICT ADMINISTRATION
Jim Majchrzak, Superintendent David Price, Assistant Superintendent, Business Services
FINANCIAL ADVISOR
Isom Advisors, A Division of Urban Futures Inc. Walnut Creek, California
BOND COUNSEL
Bowie, Arneson, Wiles & Giannone Newport Beach, California
DISCLOSURE COUNSEL
Jones Hall, A Professional Law Corporation San Francisco, California
UNDERWRITER’S COUNSEL
Nossaman, LLP Irvine, California
PAYING AGENT, TRANSFER AGENT, AUTHENTICATION AGENT AND BOND REGISTRAR
The Bank of New York Mellon Trust Company, N.A. Los Angeles, California
VERIFICATION AGENT
Causey Demgen & Moore P.C. Denver, Colorado
TABLE OF CONTENTS
Page Page
INTRODUCTION ...... 1 Partial Redemption of Refunding The District ...... 1 Bonds ...... 9 Sources of Payment for the Defeasance ...... 9 Refunding Bonds ...... 1 Book-Entry Only System ...... 10 Authority for Issuance of the Registration, Transfer and Exchange Refunding Bonds ...... 1 of Refunding Bonds ...... 10 Purpose of Issue ...... 1 PLAN OF FINANCE ...... 11 Description of the Refunding Bonds ...... 2 DEBT SERVICE SCHEDULE ...... 12 Legal Matters ...... 2 SOURCES AND USES OF FUNDS ...... 14 Tax Matters ...... 2 SECURITY FOR THE REFUNDING BONDS . 14 Offering and Delivery of the General ...... 14 Refunding Bonds ...... 3 Ad Valorem Property Taxation ...... 15 Continuing Disclosure ...... 3 Assessed Valuations ...... 15 Other Information ...... 3 Land Use ...... 18 THE REFUNDING BONDS ...... 4 Appeals of Assessed Value ...... 18 Authority for Issuance ...... 4 Typical Tax Rates ...... 20 Purpose of Issue ...... 4 Teeter Plan ...... 20 Security ...... 4 Largest Property Owners ...... 21 Description of the Refunding Bonds ...... 5 Debt Obligations ...... 21 Paying Agent ...... 6 TAX MATTERS ...... 23 Optional Redemption ...... 6 ABSENCE OF MATERIAL LITIGATION ...... 25 Selection of Bonds for Redemption ...... 6 CONTINUING DISCLOSURE ...... 26 Notice of Redemption ...... 7 RATING ...... 26 Contingent Redemption; Right to VERIFICATION OF MATHEMATICAL Rescind Notice of Redemption ...... 8 ACCURACY ...... 27 Payment of Redeemed Bonds ...... 8 UNDERWRITING ...... 27 Purchase In Lieu of Redemption ...... 9 ADDITIONAL INFORMATION ...... 27
APPENDIX A - General and Financial Information About the District APPENDIX B - Audited Financial Statements of the District for Fiscal Year Ended June 30, 2011 APPENDIX C - General Information about the City of Twentynine Palms and San Bernardino County APPENDIX D - Proposed Form of Opinion of Bond Counsel APPENDIX E - Form of Continuing Disclosure Certificate APPENDIX F - DTC and the Book-Entry System
-i-
[THIS PAGE INTENTIONALLY LEFT BLANK]
$7,935,000 MORONGO UNIFIED SCHOOL DISTRICT (San Bernardino County, California) 2012 General Obligation Refunding Bonds
INTRODUCTION
This Official Statement, which includes the cover page and appendices hereto, provides information in connection with the sale and delivery by the Morongo Unified School District (the “District”) of the Morongo Unified School District (San Bernardino County, California) 2012 General Obligation Refunding Bonds, in the principal amount of $7,935,000 (the “Refunding Bonds”).
This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Refunding Bonds to potential investors is made only by means of the entire Official Statement.
The District
The District is located in the Morongo Basin portion of the Mojave Desert, approximately 57 miles northeast of the City of Palm Springs, in San Bernardino County (the “County”). The District provides public school services to the residents of the City of Twentynine Palms and the incorporated Town of Yucca Valley. The District also serves the nearby unincorporated communities of Morongo Valley, Launders, Flamingo Heights, Yucca Mesa, Joshua Tree and Wonder Valley. The District currently operates 11 elementary schools, 2 middle schools, 2 high schools and 2 continuation schools. See “SECURITY FOR THE REFUNDING BONDS” for a description of the assessed valuation and other information regarding property in the District. See also “APPENDIX A – General and Financial Information About the District” and “APPENDIX B – Audited Financial Statement of the District for Fiscal Year Ended June 30, 2011.”
Sources of Payment for the Refunding Bonds
The Refunding Bonds are general obligation bonds of the District payable from ad valorem taxes. The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem taxes for the payment of the Refunding Bonds and the interest thereon upon all property within the District subject to taxation without limitation of rate or amount (except certain personal property which is taxable at limited rates). See “SECURITY FOR THE REFUNDING BONDS” herein.
Authority for Issuance of the Refunding Bonds
The Refunding Bonds will be issued pursuant to certain provisions of the Government Code of the State of California (the “State”), and other applicable State law, and pursuant to a resolution adopted by the Board of Education of the District adopted on October 16, 2012 (the “Bond Resolution”). See “THE REFUNDING BONDS - Authority for Issuance.”
-1-
Purpose of Issue
The net proceeds of the Refunding Bonds will be used to advance refund certain maturities of the District’s outstanding General Obligation Bonds, 2005 Election, Series A, as described herein (the “2005 Series A Bonds,” and the refunded portions being the “Refunded Bonds”), as more particularly identified herein. See “PLAN OF FINANCE” and “SOURCES AND USES OF FUNDS.”
Description of the Refunding Bonds
Form of Refunding Bonds. The Refunding Bonds will be dated their date of delivery (the “Dated Date”) and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple thereof. The Refunding Bonds will mature on August 1 in the years indicated on the inside cover page hereof.
Redemption. The Refunding Bonds are subject to optional redemption prior to maturity as described in “THE REFUNDING BONDS - Optional Redemption.”
Legal Matters
Issuance of the Refunding Bonds is subject to the approving opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel (“Bond Counsel”), to be delivered in substantially the form attached hereto as Appendix D. Jones Hall, A Professional Law Corporation, San Francisco, California, will serve as Disclosure Counsel to the District (“Disclosure Counsel”). Certain matters will be passed upon for E. J. De La Rosa & Co., Inc. (the “Underwriter”) by Nossaman LLP, Irvine, California (“Underwriter’s Counsel”). Payment of the fees of Bond Counsel, Disclosure Counsel and Underwriter’s Counsel is contingent upon issuance of the Refunding Bonds. See “APPENDIX D – Proposed Form of Opinion of Bond Counsel.”
Tax Matters
In the opinion of Bond Counsel, subject, however, to certain qualifications described herein, and based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (“Code”). In the further opinion of Bond Counsel interest on the Refunding Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations; however Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation’s alternative minimum tax liabilities. In the further opinion of Bond Counsel, interest on the Refunding Bonds is exempt from State personal income taxation. Bond Counsel expresses no opinion regarding or concerning any other tax consequences related to the ownership or disposition of the accrual or receipt of interest on the Refunding Bonds. See “TAX MATTERS” herein.
-2-
Offering and Delivery of the Refunding Bonds
The Refunding Bonds are offered when, as and if issued and received by the purchasers, subject to approval as to the legality by Bond Counsel. It is anticipated that the Bonds will be available for delivery through the facilities of DTC on or about November 29, 2012.
Continuing Disclosure
The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate, dated the date of the Refunding Bonds and executed by the District (the “Continuing Disclosure Certificate”). The form of the Continuing Disclosure Certificate is included in Appendix E hereto. See “CONTINUING DISCLOSURE.”
Other Information
For limiting factors about this Official Statement, see “General Information About This Official Statement” inside the cover hereof.
Copies of documents referred to herein and information concerning the Refunding Bonds are available from the Superintendent of the District, Morongo Unified School District, 5715 Utah Trail, Twentynine Palms, California 92277; telephone (760) 367-9191 (the “Superintendent's Office”). The District may impose a charge for copying, mailing and handling.
[END OF INTRODUCTION]
-3-
THE REFUNDING BONDS
Authority for Issuance
The Refunding Bonds are issued pursuant to the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Bond Law”), and other applicable State law, and pursuant to the Bond Resolution.
The District currently has other outstanding general obligation bonds that are similarly payable from ad valorem taxes levied on taxable parcels in the District. See “DEBT SERVICE SCHEDULES” below, and Appendix A under the heading “DISTRICT FINANCIAL INFORMATION – Long-Term Debt” for additional information.
Purpose of Issue
The Refunding Bonds are being issued for the purpose of refunding, on an advance basis, the Refunded Bonds and paying the related costs of issuance. See “PLAN OF FINANCE”.
Security
Ad Valorem Taxes. The Refunding Bonds are payable solely from ad valorem taxes. The Board of Supervisors of the County has the power and is obligated to levy ad valorem taxes for the payment of the Refunding Bonds and the interest thereon upon all property within the District subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates). Such taxes are required to be levied annually, in addition to all other taxes, during the period that the Refunding Bonds are outstanding in an amount sufficient to pay the principal and interest on the Refunding Bonds when due. Such taxes, when collected, will be deposited into an interest and sinking fund for the Refunding Bonds pursuant to the provisions of the Bond Resolution (the “Debt Service Fund”), which is maintained by the County and which is created by statute for the payment of principal of and interest on the Refunding Bonds when due. Although the County is obligated to levy an ad valorem tax for the payment of the Refunding Bonds, and will maintain the Debt Service Fund pledged to the repayment of the Refunding Bonds, the Refunding Bonds are not a debt of the County.
The moneys in the Debt Service Fund, to the extent necessary to pay the principal and interest on the Refunding Bonds as the same become due and payable, shall be transferred by the County to the Paying Agent (as defined below) which, in turn, shall pay such moneys to DTC to pay the principal and interest on the Refunding Bonds. DTC will thereupon make payments of principal and interest on the Refunding Bonds to the DTC Participants who will thereupon make payments of principal and interest to the beneficial owners of the Refunding Bonds.
The rate of the annual ad valorem tax levied by the County to repay the Refunding Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Refunding Bonds. A reduction in the assessed valuation of taxable property in the District caused by economic factors beyond the District's control, such as economic recession, slower growth, or deflation of land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or
-4-
other natural disaster, could cause a reduction in the assessed value of the District and necessitate an unanticipated increase in the annual tax levy. For further information regarding the District's tax base, tax rates, overlapping debt and other matters concerning taxation, see “SECURITY FOR THE BONDS” herein.
Description of the Refunding Bonds
General. The Refunding Bonds shall be issued in the denominations of $5,000 principal amount each or any integral multiple thereof. The Refunding Bonds mature on August 1, in the years and amounts set forth on the inside cover page hereof. The Refunding Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Refunding Bonds (“DTC”). Purchasers will not receive physical certificates representing their interest in the Refunding Bonds.
Interest Payments. Interest with respect to the Refunding Bonds accrues from their Dated Date, and is payable semiannually on February 1 and August 1 of each year (each, an “Interest Payment Date”) commencing February 1, 2013. Each Refunding Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated as of a day during the period from the 16th day of the month next preceding any Interest Payment Date to the Interest Payment Date, inclusive, in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated on or before the first Record Date in which event it shall bear interest from the date if issuance, computed using a year of 360 days, comprised of twelve 30-day months; provided, however, that if at the time of authentication of any Refunding Bond, interest is then in default thereon, such Refunding Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.
Interest on the Refunding Bonds, including the final interest payment upon maturity, is payable by check of the Paying Agent (defined herein) mailed on the Interest Payment Date via first-class mail to the current registered holder of a Refunding Bond (the “Owner”) thereof at such Owner’s address as it appears on the bond register maintained by the Paying Agent at the close of business on the fifteenth (15th) day of the month preceding the Interest Payment Date (the “Record Date”), or at such other address as the Owner may have filed with the Paying Agent for that purpose, or upon written request filed with the Paying Agent as of the Record Date by an Owner of at least $1,000,000 in aggregate principal amount of Refunding Bonds, by wire transfer.
Principal Payments. Payments of principal of, and redemption premiums, if any, with respect to the Refunding Bonds, are payable at maturity or redemption upon surrender at the office of the Paying Agent. In the event the Paying Agent shall provide written notice of a change in the location for payment of Principal, redemption premiums and interest on the Refunding Bonds, the Paying Agent shall thereafter provide notice of such change to the Informational Services and Securities Depositories (as defined in the Bond Resolution) of such change. The Paying Agent is authorized in the Bond Resolution to pay the Refunding Bonds when duly presented for payment at maturity, and to cancel all Refunding Bonds upon payment thereof.
-5-
Paying Agent
The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, will act as the registrar, transfer agent, authentication agent and paying agent for the Refunding Bonds (the “Paying Agent”). As long as DTC is the registered owner of the Refunding Bonds and DTC's book-entry method is used for the Refunding Bonds, the Paying Agent will send any notice of redemption or other notices to owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the redemption of the Refunding Bonds called for redemption or of any other action covered by such notice.
The Paying Agent, the District, the County and the Underwriter of the Refunding Bonds identified on the cover page hereof have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the Refunding Bonds.
Optional Redemption
The Refunding Bonds maturing on or before August 1, 2022 are not subject to redemption prior to their respective stated maturities. The Refunding Bonds maturing on or after August 1, 2023, are subject to redemption prior to maturity, as a whole, or in part among maturities at the written direction of the District and in the absence of such direction in inverse order of maturity and by lot within a maturity, at the option of the District, from any available source of funds, on August 1, 2022 and on any date thereafter, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the date fixed for redemption, without premium.
For the purpose of selection for optional redemption, Refunding Bonds will be deemed to consist of $5,000 portions, and any such portion may be separately redeemed.
Selection of Bonds for Redemption
Whenever less than all of the Outstanding Refunding Bonds are to be redeemed, the Paying Agent, upon written direction from the District shall select the Refunding Bonds to be redeemed as so directed, and if not so directed in inverse order of maturity, and within a maturity, the Paying Agent shall select Refunding Bonds for redemption by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that the portion of any Refunding Bond to be redeemed in part shall be in the Principal Amount of $5,000 or any integral multiple thereof. The Paying Agent shall promptly notify the District of the Refunding Bonds so selected for redemption on such date. In the event that Term Bonds are subject to optional redemption there shall be pro rata reductions in the annual sinking fund payments due on such Outstanding Term Bonds.
“Outstanding” as used herein means all Refunding Bonds except:
(1) Refunding Bonds theretofore canceled by the District or surrendered to the District for cancellation;
-6-
(2) Refunding Bonds for the transfer or exchange of or in lieu of or in substitution for which other Refunding Bonds shall have been authenticated and delivered by the District pursuant to the terms of the Bond Resolution; and
(3) Refunding Bonds paid and discharged pursuant to the provisions of the Bond Resolution.
Notice of Redemption
Form of Notice. The Paying Agent is required to give notice of each designated redemption (“Redemption Notice”) of the Refunding Bonds at the expense of the District. Such Redemption Notice shall specify: (a) that the Refunding Bonds or a designated portion thereof are to be redeemed; (b) if less than all of the then outstanding Bonds are to be called for redemption, shall designate the numbers (or state that all Refunding Bonds between two stated numbers both inclusive have been called for redemption) and CUSIP® numbers, if any, of the Refunding Bonds to be redeemed; (c) the date of notice and the date of redemption; (d) the place or places where the redemption will be made; and (e) descriptive information regarding the Refunding Bonds and the specific Refunding Bonds to be redeemed, including the dated date, interest rate and stated maturity date of each. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Refunding Bond to be redeemed, the portion of the principal amount of such Refunding Bond to be redeemed, together with interest accrued, to the date of redemption, and redemption premium, if any, and that from and after such date interest with respect thereto shall cease to accrue.
Provision of Notice of Redemption. Any Redemption Notice shall be mailed, by first class mail, postage prepaid, to the registered owners of the Refunding Bonds, to a Securities Depository and to the Informational Services (as such terms are defined in the Bond Resolution), and by first class mail, postage prepaid, to the District and County and the respective Owners of any registered Refunding Bonds designated for redemption at their addresses appearing on the Refunding Bond registration books, in every case at least thirty (30) days, but not more than sixty (60) days, prior to the designated redemption date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of such Refunding Bonds nor entitle the Owner thereof to interest beyond the date given for redemption. A certificate provided by the Paying Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties, and it shall not be open to a Bond Owner to show that he or she failed to receive notice of such redemption. In case of the redemption, as permitted herein, of all the Outstanding Bonds of any one maturity, notice of redemption shall be given by mailing as herein provided, except that the notice of redemption need not specify the serial or CUSIP® numbers of the Refunding Bonds of such maturity.
Neither failure to receive or failure to send, to the Securities Depositories or Informational Services, any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Bonds. Neither the failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of such Refunding Bonds or the cessation of accrual of interest, represented thereby from and after the redemption date.
-7-
Contingent Redemption; Right to Rescind Notice of Redemption
Any redemption notice may specify that redemption of the Refunding Bonds designated for redemption on the specified date will be subject to the receipt by the District of monies sufficient to cause such redemption (and will specify the proposed source of such monies), and neither the District nor the County will have any liability to the Owners of any Refunding Bonds, or any other party, as a result of the District's failure to redeem the Refunding Bonds designated for redemption as a result of insufficient monies therefor.
Additionally, the District may rescind any optional redemption of the Refunding Bonds, and notice thereof, for any reason on any date prior to the date fixed for such redemption by causing written notice of the rescission to be given to the owners of the Refunding Bonds so called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Refunding Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. Neither the District nor the Paying Agent will have any liability to the owners of any Refunding Bonds, or any other party, as a result of the District's decision to rescind a redemption of any Refunding Bonds.
Payment of Redeemed Bonds
When a Redemption Notice has been given substantially as provided for in the Bond Resolution, and, when the amount necessary for the redemption of the Refunding Bonds called for redemption (principal, interest and premium, if any) is set aside for that purpose in the Debt Service Fund, as provided herein, the Refunding Bonds designated for redemption shall become due and payable on the date fixed for redemption thereof and upon presentation and surrender of said Refunding Bonds at the place specified in the Redemption Notice, said Refunding Bonds shall be redeemed and paid at the redemption price from funds held in the Debt Service Fund.
Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Refunding Bonds shall bear or include the CUSIP® number identifying, by issue and maturity, the Refunding Bonds being redeemed with the proceeds of such check or other transfer.
If on such redemption date, money for the redemption of all the Refunding Bonds to be redeemed as provided in this Section, together with interest to such redemption date, shall be available therefor on such redemption date, and if notice of redemption thereof shall have been given as aforesaid (and not rescinded), then from and after such redemption date, interest with respect to the Refunding Bonds to be redeemed shall cease to accrue. All money held for the redemption of Refunding Bonds shall be held in trust for the account of the registered Owners of the Refunding Bonds so to be redeemed. All unpaid interest payable at or prior to the designated redemption date shall continue to be payable to the respective Owners, but without interest thereon.
-8-
Purchase In Lieu of Redemption
In lieu of, or partially in lieu of, any mandatory sinking fund redemption of Refunding Bonds, monies in the Debt Service Fund may be used to purchase the outstanding Refunding Bonds that were to be redeemed with such funds in the manner hereinafter provided. Purchases of outstanding Refunding Bonds may be made by the District or the County through the Paying Agent prior to the selection of Refunding Bonds for redemption at public or private sale as and when and at such prices as the District may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest. Any accrued interest payable upon the purchase of Refunding Bonds may be paid from the Debt Service Fund for payment of interest on the next following Interest Payment Date. Any Refunding Bond purchased in lieu of redemption shall be transmitted to the Paying Agent and shall be canceled by the Paying Agent upon surrender thereof, and shall not be re-issued or resold.
Partial Redemption of Refunding Bonds
Upon surrender of any Refunding Bond redeemed in part only, the Paying Agent shall authenticate and deliver to the Owner thereof a new Refunding Bond or Refunding Bond of like tenor and maturity and of authorized denominations equal in Transfer Amounts to the unredeemed portion of the Refunding Bond surrendered. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the District shall be released and discharged thereupon from all liability to the extent of such payment.
Defeasance
The Refunding Bonds may be defeased prior to maturity in the following ways:
(a) Cash: By irrevocably depositing with a bank or trust company, in escrow, an amount of cash which, together with amounts then on deposit in the Debt Service Fund, is sufficient to pay all Refunding Bonds Outstanding, including all principal and interest and premium, if any; or
(b) Defeasance Obligations: By irrevocably depositing with a bank or trust company, in escrow, noncallable Defeasance Obligations, permitted under Section 149(d) of the Code; together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and monies then on deposit in the Debt Service Fund, together with the interest to accrue thereon, be fully sufficient to pay and discharge all Refunding Bonds (including all Principal and interest represented thereby and redemption premiums, if any) at or before their maturity date.
If the Refunding Bonds are defeased, then, notwithstanding that any Refunding Bonds shall not have been surrendered for payments, all obligations of the District or the County with respect to all Outstanding Refunding Bonds shall cease and terminate, except only the obligation of the Paying Agent to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) above, to the Owners of the Refunding Bonds not so surrendered and paid all sums due with respect thereto.
“Defeasance Obligations” means direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the
-9-
United States of America, including (in the case of direct and general obligations of the United States of America) evidence of direct ownership or proportionate interests in future interest or principal payments of such obligations (which shall not be required to carry any particular or designated rating(s)). In the case of investments in such proportionate interests, such shall be limited to circumstances wherein: (a) a bank or trust company acts as custodian and holds the underlying Defeasance Obligations; (b) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying Defeasance Obligations; and (c) the underlying Defeasance Obligations are held in a special account, segregated from the custodian’s general assets, and are not available to satisfy any claims of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated.
The Bond Resolution also sets forth terms governing the partial defeasance of the Refunding Bonds.
Book-Entry Only System
The Refunding Bonds will be registered initially in the name of “Cede & Co.,” as nominee of DTC, which has been appointed as securities depository for the Refunding Bonds, and registered ownership may not be transferred thereafter except as provided in the Bond Resolution. Purchasers will not receive certificates representing their interests in the Refunding Bonds. Principal of the Refunding Bonds will be paid by the Paying Agent to DTC, which in turn is obligated to remit such principal to its participants for subsequent disbursement to beneficial owners of the Refunding Bonds as described herein. See “APPENDIX F – DTC and the Book- Entry System.”
Registration, Transfer and Exchange of Refunding Bonds
If the book entry system is discontinued, the District shall cause the Paying Agent to maintain and keep at its principal corporate trust office all books and records necessary for the registration, exchange and transfer of the Refunding Bonds.
If the book entry system is discontinued, the person in whose name a Refunding Bond is registered on the Bond Register shall be regarded as the absolute owner of that Bond. Payment of the principal of and interest on any Refunding Bond shall be made only to or upon the order of that person; neither the District, the County nor the Paying Agent shall be affected by any notice to the contrary, but the registration may be changed as provided the Bond Resolution.
Refunding Bonds may be exchanged at the principal corporate trust office of the Paying Agent in San Bernardino, California for a like aggregate principal amount of Refunding Bonds of authorized denominations and of the same maturity. Any Refunding Bond may, in accordance with its terms, but only if (i) the District determines to no longer maintain the book entry only status of the Refunding Bonds, (ii) DTC determines to discontinue providing such services and no successor securities depository is named or (iii) DTC requests the District to deliver Refunding Bond certificates to particular DTC Participants, be transferred, upon the books required to be kept pursuant to the provisions of the Bond Resolution, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Refunding Bond for cancellation at the office of the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed.
-10-
No exchanges of Refunding Bonds shall be required to be made (a) fifteen days prior to an Bond Payment Date or the date established by the Paying Agent for selection of Refunding Bonds for redemption until the close of business on the Bond Payment Date or day on which the applicable notice of redemption is given or (b) with respect to a Bond after such Bond has been selected or called for redemption in whole or in part.
PLAN OF FINANCE
The District received authorization at and election in the District held on November 8, 2005 and in accordance with Article XIIIA of the California Constitution to issue general obligation bonds, and pursuant to such authorization, the District has issued three series of general obligation bonds, including the 2005 Series A Bonds.
The Refunding Bonds are being issued by the District to refund certain maturities of the 2005 Series A Bonds (collectively, the “Refunded Bonds”) as identified in the following table. The 2005 Series A Bonds maturing on August 1, 2013 and August 1, 2014 are not being refunded with the proceeds of the Refunding Bonds and will remain outstanding following the issuance of the Refunding Bonds. See “DEBT SERVICE SCHEDULES” below.
MORONGO UNIFIED SCHOOL DISTRICT Identification of Refunded Bonds
Maturities to be Principal Amount Redemption Series Refunded Redeemed Date Redemption Price 2005 Series A Bonds 8/1/15 – 8/1/30 $7,580,000 08/01/2014 100.0%
With respect to the Refunded Bonds to be defeased and later redeemed, the District will deliver a portion of the proceeds of the Refunding Bonds to The Bank of New York Mellon Trust Company, N.A., as escrow agent (the “Escrow Agent”), for deposit in an escrow fund (the "Escrow Fund ”) established under the Escrow Agreement (the “Escrow Agreement”), entered into by and between the District and the Escrow Agent for the defeasance of the Refunded Bonds.
The Escrow Agent will invest all amounts deposited in the Escrow Fund, in the Escrow Investments as defined and set forth in the Escrow Agreement. From the maturing principal of the Escrow Investments, and the investment income and other earnings thereon, and any moneys held in cash in the Escrow Fund, the Escrow Agent will pay interest on the Refunded Bonds to and including August 1, 2014 (the “Redemption Date”), on which date the Refunded Bonds will be redeemed at the redemption price set forth on the table identified above.
Sufficiency of the deposits in the Escrow Fund for those purposes will be verified by Causey Demgen & Moore P.C., certified public accountants, Denver, Colorado (the “Verification Agent”). See “VERIFICATION OF MATHEMATICAL ACCURACY” below.
The amounts held and invested by the Escrow Agent in the Escrow Fund are pledged solely to the payment of the Refunded Bonds. Neither the funds deposited in the Escrow Fund, nor the interest on such invested funds, will be available for the payment of debt service with respect to the Refunding Bonds.
-11-
DEBT SERVICE SCHEDULES
Refunding Bonds. The following table shows the debt service schedule with respect to the Refunding Bonds (assuming no optional redemptions).
MORONGO UNIFIED SCHOOL DISTRICT Annual Debt Service Schedule for Refunding Bonds
Period Ending Refunding Bond Refunding Bond Annual Debt (August 1) Principal Interest Service 2013 $150,000 $167,467.36 $317,467.36 2014 55,000 246,125.00 301,125.00 2015 250,000 244,475.00 494,475.00 2016 275,000 236,975.00 511,975.00 2017 305,000 228,725.00 533,725.00 2018 335,000 222,625.00 557,625.00 2019 375,000 212,575.00 587,575.00 2020 400,000 205,075.00 605,075.00 2021 435,000 193,075.00 628,075.00 2022 480,000 180,025.00 660,025.00 2023 520,000 165,625.00 685,625.00 2024 565,000 150,025.00 715,025.00 2025 625,000 121,775.00 746,775.00 2026 690,000 90,525.00 780,525.00 2027 735,000 72,412.50 807,412.50 2028 790,000 52,200.00 842,200.00 2029 850,000 28,500.00 878,500.00 2030 100,000 3,000.00 103,000.00 Total $7,935,000 $2,821,204.86 $10,756,204.86
-12-
Combined Debt Service Schedule. The following schedule shows the combined debt service with respect to outstanding general obligation bonds issued by the District, together with debt service on the Refunding Bonds (assuming no optional redemptions).
MORONGO UNIFIED SCHOOL DISTRICT Combined Debt Service Schedule General Obligation Bonds
Period Aggregate Ending 2005 Election, 2005 Election, 2005 Election, Refunding Debt (Aug. 1) Series A Series B Series C Bonds Service 2013 $161,700.00 $1,638,847.52 $396,905.21 $317,467.36 $2,514,920.09 2014 181,900.00 1,662,047.52 304,012.50 301,125.00 2,449,085.02 2015 - 1,687,747.52 349,012.50 494,475.00 2,531,235.02 2016 - 1,712,003.76 399,012.50 511,975.00 2,622,991.26 2017 - 1,734,638.76 454,012.50 533,725.00 2,722,376.26 2018 - 1,695,571.26 579,012.50 557,625.00 2,832,208.76 2019 - 1,752,171.26 604,012.50 587,575.00 2,943,758.76 2020 - 1,805,601.26 639,012.50 605,075.00 3,049,688.76 2021 - 1,860,591.26 679,012.50 628,075.00 3,167,678.76 2022 - 1,926,791.26 709,012.50 660,025.00 3,295,828.76 2023 - 1,983,741.26 749,012.50 685,625.00 3,418,378.76 2024 - 2,046,361.26 789,012.50 715,025.00 3,550,398.76 2025 - 2,114,417.50 824,012.50 746,775.00 3,685,205.00 2026 - 2,182,155.00 869,412.50 780,525.00 3,832,092.50 2027 - 2,249,880.00 914,412.50 807,412.50 3,971,705.00 2028 - 2,321,605.00 964,412.50 842,200.00 4,128,217.50 2029 - 2,399,230.00 1,009,412.50 878,500.00 4,287,142.50 2030 - 2,099,850.00 1,434,412.50 103,000.00 3,637,262.50 2031 - 2,091,950.00 1,574,412.50 - 3,666,362.50 2032 - 2,025,450.00 1,779,412.50 - 3,804,862.50 2033 - 2,083,700.00 1,864,412.50 - 3,948,112.50 2034 - 2,136,537.50 1,959,412.50 - 4,095,950.00 2035 - 2,192,287.50 2,059,412.50 - 4,251,700.00 2036 - 2,255,425.00 2,154,412.50 - 4,409,837.50 2037 - 2,315,162.50 2,259,412.50 - 4,574,575.00 2038 - 626,237.50 4,119,412.50 - 4,745,650.00 2039 - - 4,924,412.50 - 4,924,412.50 2040 - - 5,107,537.50 - 5,107,537.50 2041 - - 5,299,987.50 - 5,299,987.50 2042 - - 5,487,387.50 - 5,487,387.50 TOTAL $343,600.00 $50,600,001.40 $51,256,742.71 $10,756,204.86 $112,612,948.97
-13-
SOURCES AND USES OF FUNDS
The sources and uses of funds with respect to the Refunding Bonds are as follows:
Sources of Funds: Principal Amount of Refunding Bonds $7,935,000.00 Plus Net Original Issue Premium 454,357.55
Total Sources: $8,389,357.55
Uses of Funds: Deposit to Escrow Fund $8,191,878.20 Underwriter’s Discount 71,415.00 Costs of Issuance(1) 126,064.35
Total Uses: $8,389,357.55
(1) Costs of Issuance include legal fees, financial advisory fees, printing costs, rating agency fee, verification fees, paying agent and escrow agent fees and other miscellaneous costs and expenses of issuing and delivering the Refunding Bonds.
SECURITY FOR THE REFUNDING BONDS
General
The Refunding Bonds are general obligations of the District payable solely from certain property tax levies. The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem taxes upon all property subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the Refunding Bonds. Such taxes are required to be levied annually, in addition to all other taxes, during the period that any Bonds are outstanding in an amount sufficient to pay the principal of and interest on the Refunding Bonds when due. Such taxes, when collected, will be deposited into the Debt Service Fund for the Refunding Bonds, which is maintained by the County and which is created by statute for the payment of principal of and interest on the Refunding Bonds when due. Although the County is obligated to levy an ad valorem tax for the payment of Bonds, and will maintain the Debt Service Fund pledged to the repayment of the Refunding Bonds, the Refunding Bonds are not a debt of the County. The moneys in the Debt Service Fund, to the extent necessary to pay the principal of and interest on the Refunding Bonds as the same become due and payable, will be transferred by the County to the Paying Agent which, in turn, will pay such moneys to DTC to pay the principal of and interest on the Refunding Bonds. DTC will thereupon make payments of principal of and interest on the Refunding Bonds to the DTC Participants who will thereupon make payments of principal of and interest to the beneficial owners of the Refunding Bonds. See “THE REFUNDING BONDS – The Book-Entry Only System.”
The amount of the annual ad valorem tax levied by the County to repay the Refunding Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Refunding Bonds. A reduction in the assessed valuation of taxable property in the District caused by economic factors beyond the District's control, such as economic recession, slower growth, or deflation of
-14-
land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the District and necessitate an unanticipated increase in the annual tax levy.
Ad Valorem Property Taxation
Taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Tax Collector and Treasurer.
Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee.
Assessed Valuations
The assessed valuation of property in the District is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the “full value” of the property, as defined in Article XIIIA of the California Constitution. The full value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area, or to reflect declines in property value caused by substantial damage, destruction or other factors, including assessment appeals filed by property owners. For a discussion of how properties currently are assessed, see Appendix A under the heading “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS.”
-15-
Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions.
Assessed Valuation History. The following table sets forth recent assessed valuations in the District.
MORONGO UNIFIED SCHOOL DISTRICT Assessed Valuations of All Taxable Property Fiscal Years 2007-08 to 2012-13
Year Local Secured Utility Unsecured Total 2007-08 $3,571,258,746 $1,059,337 $71,854,904 $3,644,172,987 2008-09 3,851,242,506 1,059,337 82,701,619 3,935,003,462 2009-10 3,604,980,406 1,063,201 95,182,934 3,701,226,541 2010-11 3,383,735,209 1,063,201 99,748,384 3,484,546,794 2011-12 3,385,092,880 1,063,201 86,658,978 3,472,815,059 2012-13 3,368,922,661 1,063,201 79,487,452 3,449,473,314
Source: California Municipal Statistics, Inc.
-16-
Assessed Valuation of Single Family Residential Parcels. The following table shows a breakdown of the assessed valuations of improved single-family residential parcels in the District, for fiscal year 2012-13.
MORONGO UNIFIED SCHOOL DISTRICT Per Parcel 2012-13 Assessed Valuation of Single Family Homes
No. of 2012-13 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 22,349 $2,142,399,698 $95,861 $82,000
2012-13 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24,999 917 4.103% 4.103% $ 16,340,639 0.763% 0.763% $25,000 - $49,999 3,614 16.171 20.274 140,254,228 6.547 7.309 $50,000 - $74,999 5,243 23.460 43.734 326,989,052 15.263 22.572 $75,000 - $99,999 4,201 18.797 62.531 362,911,519 16.939 39.512 $100,000 - $124,999 2,941 13.159 75.690 328,858,604 15.350 54.862 $125,000 - $149,999 2,224 9.951 85.641 303,538,009 14.168 69.030 $150,000 - $174,999 1,242 5.557 91.199 199,832,766 9.328 78.357 $175,000 - $199,999 704 3.150 94.349 131,331,652 6.130 84.487 $200,000 - $224,999 451 2.018 96.367 95,405,284 4.453 88.941 $225,000 - $249,999 267 1.195 97.561 63,095,911 2.945 91.886 $250,000 - $274,999 172 0.770 98.331 44,841,996 2.093 93.979 $275,000 - $299,999 133 0.595 98.926 38,015,101 1.774 95.753 $300,000 - $324,999 82 0.367 99.293 25,345,218 1.183 96.936 $325,000 - $349,999 44 0.197 99.490 14,769,953 0.689 97.626 $350,000 - $374,999 27 0.121 99.611 9,746,930 0.455 98.081 $375,000 - $399,999 16 0.072 99.682 6,218,115 0.290 98.371 $400,000 - $424,999 20 0.089 99.772 8,214,142 0.383 98.754 $425,000 - $449,999 13 0.058 99.830 5,647,258 0.264 99.018 $450,000 - $474,999 9 0.040 99.870 4,120,130 0.192 99.210 $475,000 - $499,999 6 0.027 99.897 2,901,290 0.135 99.346 $500,000 and greater 23 0.103 100.000 14,021,901 0.654 100.000 Total 22,349 100.000% $2,142,399,698 100.000%
(1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.
Assessed Value by Jurisdiction. The table below shows the assessed valuation in the District, by jurisdiction.
MORONGO UNIFIED SCHOOL DISTRICT 2012-13 Assessed Valuation by Jurisdiction(1)
Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in School District School District of Jurisdiction in School District City of Twentynine Palms $ 816,571,648 23.67% $816,571,648 100.00% City of Yucca Valley 1,354,426,741 39.26 $1,354,426,741 100.00% Unincorporated San Bernardino County 1,278,474,925 37.06 $26,382,391,990 4.85% Total San Bernardino County $3,449,473,314 100.00% $163,505,175,998 2.11%
(1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc.
-17-
Land Use
The assessed value of property in the District derives predominantly from residential uses, with approximately 75% of assessed valuation of property in the District used for residential purposes, and 45% of all parcels used for residential purposes. A significant portion of the territory of the District is identified as vacant parcels and governmental land (52.46% of all parcels), which is attributable to the northern territory of the District containing a U.S. Marine Corps base, and the southern portion containing portions of a National Park (Joshua Tree). Federal lands are generally exempt from property taxation, and as noted in the below table, the assessed valuation by land use does not include assessed values of exempt properties. The following table shows a breakdown of local secured property assessed value and parcels within the District by land use for fiscal year 2012-13.
MORONGO UNIFIED SCHOOL DISTRICT Local Secured Property Assessed Valuation and Parcels by Land Use Fiscal Year 2012-13
2012-13 % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Commercial $360,241,644 10.69% 819 1.29% Industrial 34,773,970 1.03 110 0.17 Recreational 2,214,348 0.07 29 0.05 Government/Social/Institutional 12,008,290 0.36 98 0.15 Miscellaneous 4,034,605 0.12 124 0.19 Subtotal Non-Residential $413,272,857 12.27% 1,180 1.85%
Residential: Single Family Residence $2,142,399,698 63.59% 22,349 35.10% Recreational/Cabin 51,480,688 1.53 3,335 5.24 Condominium/Townhouse 3,173,925 0.09 54 0.08 Mobile Home 96,154,819 2.85 1,658 2.60 Mobile Home Park 22,306,886 0.66 44 0.07 2-4 Residential Units 116,179,704 3.45 1,083 1.70 5+ Residential Units/Apartments 70,531,640 2.09 296 0.46 Miscellaneous Residential Improvements 8,463,618 0.25 416 0.65 Subtotal Residential $2,510,690,978 74.53% 29,235 45.91%
Vacant Parcels $444,958,826 13.21% 33,258 52.23%
Total $3,368,922,661 100.00% 63,673 100.00%
(1) Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.
Appeals of Assessed Value
There are two types of appeals of assessed values that could adversely impact property tax revenues within the District.
Appeals may be based on Proposition 8 of November 1978, which requires that for each January 1 lien date, the taxable value of real property must be the lesser of its base year value, annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution, or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” in Appendix A.
-18-
Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the County board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Proposition 8 reductions may also be unilaterally applied by the County Assessor.
Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. These reductions are subject to yearly reappraisals and are adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” in Appendix A hereto.
A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.
The District cannot predict the changes in assessed values that might result from pending or future appeals by taxpayers. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the tax rate levied to repay the Refunding Bonds to increase accordingly, so that the fixed debt service on the Refunding Bonds (and other outstanding general obligation bonds, if any) may be paid.
-19-
Typical Tax Rates
Below are historical typical tax rates in one of the tax rate areas within the District for the years 2007-08 through 2012-13.
MORONGO UNIFIED SCHOOL DISTRICT Typical Tax Rates per $100 of Assessed Valuation Fiscal Years 2007-08 through 2012-13 TRA 23-000(1)
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 General 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% Morongo Unified School District 0.0404 .0540 .0391 .0465 .0483 .0581 Copper Mountain Community College 0.0248 .0140 .0240 .0298 .0267 .0295 Total All Property 1.0652 1.0680 1.0631 1.0763 1.0750 1.0876
Mojave Water Agency 0.0550 .0550 .0550 .0550 .0550 .0550 Mojave Water Agency, I.D. M 0.0850 .0850 .0850 .0850 .0850 .1050 Total Land and Improv.Tax Rate 0.1400 .1400 .1400 .1400 .1400 .1600
Mojave Water Agency, I.D. No. 1 0.1125 .1125 .1125 .1125 .1125 .1125 Total Land Only Tax Rate 0.1125 .1125 .1125 .1125 .1125 .1125
(1) 2012-13 assessed valuation of TRA 23-000 is $774,000,867. Source: California Municipal Statistics, Inc.
Teeter Plan
The District’s total secured tax collections and delinquencies are apportioned on a County-wide basis, according to the District’s designated tax rate amount. Therefore, the total secured tax levies, as well as collections and delinquencies reported, do not represent the actual secured tax levies, collections and delinquencies of tax payers within the tax areas of the District. In addition, the District’s total secured tax levy does not include special assessments, supplemental taxes or other charges which have been assessed on property within the District or other tax rate areas of the County.
The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan") as provided for in the State Revenue and Taxation Code, which requires the County to pay 100% of secured property taxes due to local agencies in the fiscal year such taxes are due. Pursuant to these provisions, each county operating under the Teeter Plan establishes a delinquency reserve and assumes responsibility for all secured delinquencies, assuming that certain conditions are met.
Because of this method of tax collection, the K-12 districts located in counties operating under the Teeter Plan and participating in the Teeter Plan, including the District, are assured of 100% collection of their secured tax levies if the conditions established under the applicable county’s Teeter Plan are met. However, such districts are no longer entitled to share in any penalties due to delinquent payments. This method of tax collection and distribution is subject to future discontinuance at the County’s option or if demanded by the participating taxing agencies.
-20-
Largest Property Owners
The following table shows the 20 largest owners of taxable property in the District as determined by secured assessed valuation in fiscal year 2012-13.
Each taxpayer listed below is a unique name listed on the tax rolls. The District cannot determine from County assessment records whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table below. A large concentration of ownership in a single individual or entity results in a greater amount of tax collections which are dependent upon that property owner’s ability or willingness to pay property taxes. MORONGO UNIFIED SCHOOL DISTRICT Largest Local Secured Taxpayers Fiscal Year 2012-13 2012-13 % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Home Depot USA Inc. Commercial $ 10,750,309 0.32% 2. Wal-Mart Realty Co. Commercial 9,151,150 0.27 3. Netreit Yucca Valley LLC Commercial 6,700,000 0.20 4. K Partners Twenty Nine Palms LP Hotel/Motel 6,208,389 0.18 5. Shamrock Millco-Aztec LLC Mobile Home Park 6,149,472 0.18 6. Yashraj Hospitality Inc. Hotel/Motel 5,516,749 0.16 7. Bisram Hospitality Inc. Hotel/Motel 5,395,918 0.16 8. Salsha Enterprises LLC Commercial 4,840,000 0.14 9. Robert J. Ruehman II, Trust Commercial 4,364,537 0.13 10. Stater Bros. Markets Commercial 4,131,605 0.12 11. Motel 6 Operating LP Hotel/Motel 4,119,803 0.12 12. Depierro Development LLC Undeveloped 4,117,177 0.12 13. Oakcrest Manor Industrial 4,056,672 0.12 14. Pacific/Costanzo-Lewis Commercial 4,046,007 0.12 15. Hospitality Ventures #1 LP Hotel/Motel 4,038,094 0.12 16. Jack A. and Pamela L. Domingue Industrial 4,031,052 0.12 17. VN Hospitality Hotel/Motel 3,966,174 0.12 18. Apache Mobilehome Park Mobile Home Park 3,903,962 0.12 19. Yucca Development LLC Commercial 3,774,646 0.11 20. Susan Sandelman, Trust Commercial 3,695,461 0.11 $102,957,177 3.06%
(1) 2012-13 Local Secured Assessed Valuation: $3,368,922,661 Source: California Municipal Statistics, Inc.
Debt Obligations
Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and with respect to debt issued as of November 1, 2012. The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith.
-21-
The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.
MORONGO UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt For Debt Issued as of November 1, 2012
2012-13 Assessed Valuation:$3,449,473,314
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 11/1/12 Copper Mountain Community College District 100. % $18,205,430 Morongo Unified School District 100. 44,832,652 (2) Mojave Water Agency 10.372 1,610,772 Mojave Water Agency, I.D. M 98.878 24,274,549 Joshua Basin Water District, I.D. No. 2 100. 330,000 Joshua Basin County Water District, A.D. No .1995 100. 3,459,000 Twenty Nine Palms Water District Assessment District 100. 85,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $92,797,403
OVERLAPPING GENERAL FUND DEBT: San Bernardino County General Fund Obligations 2.700% $15,647,445 San Bernardino County Pension Obligations 2.700 14,033,121 San Bernardino County Flood Control District General Fund Obligations 2.700 2,827,035 Hi Desert County Water District Authority 100. 2,695,000 TOTAL OVERLAPPING GENERAL FUND DEBT $35,202,601
OVERLAPPING TAX INCREMENT DEBT: Twentynine Palms Redevelopment Agency Four Corners Project Area 100. % $11,545,000 Yucca Valley Redevelopment Project No. 1 100. 9,935,000 TOTAL TAX INCREMENT DEBT $21,480,000
COMBINED TOTAL DEBT $149,480,004 (3)
(1) Based on 2011-12 ratios. (2) Excludes general obligation bonds to be sold. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.
Ratios to 2012-13 Assessed Valuation: Direct Debt ($44,832,652) ...... 1.30% Total Direct and Overlapping Tax and Assessment Debt ... 2.69% Combined Total Debt ...... 4.33%
Ratios to Redevelopment Incremental Valuation ($388,421,259): Total Tax Increment Debt ...... 5.53%
Source: California Municipal Statistics, Inc.
-22-
TAX MATTERS
Opinion of Bond Counsel. In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject to certain qualifications described herein, under existing laws, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Refunding Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”). In the further opinion of Bond Counsel, interest on the Refunding Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation’s alternative minimum tax liabilities.
The opinions of Bond Counsel set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Refunding Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the Date of Issuance.
In the further opinion of Bond Counsel, interest on the Refunding Bonds is exempt from State of California personal income taxation.
Although Bond Counsel has rendered an opinion that interest on the Refunding Bonds is excluded from gross income for federal income tax purposes, the accrual or receipt of interest on the Refunding Bonds may otherwise affect the recipient’s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the recipient’s particular tax status and other items of income or deduction. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of the accrual or receipt of interest on the Refunding Bonds.
Certain requirements and procedures contained or referred to in the Bond Resolution and other relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with an approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to the effect on any Refunding Bond or the interest thereon if any such change occurs or action is taken upon advice or approval of bond counsel other than Bond Counsel.
See APPENDIX D for the proposed form of opinion of Bond Counsel.
Bond Counsel’s engagement with respect to the Refunding Bonds ends with the issuance of the Refunding Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners of the Refunding Bonds regarding the tax-exempt status of the Refunding Bonds in the event of an audit examination by the Internal Revenue Service. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners of the Refunding Bonds, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent
-23-
review of Internal Revenue Service positions with which the District legitimately disagrees may not be practicable. Any action of the Internal Revenue Service, including but not limited to selection of the Refunding Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Refunding Bonds, and may cause the District or the Beneficial Owners to incur significant expense.
Original Issue Discount; Premium Bonds. If the initial public offering price of the Refunding Bonds is less than the amount payable with respect to such Bonds at maturity, an amount not less than the difference between the initial public offering price of a Bond and the amount payable at the maturity of such Bond constitutes original issue discount. Original issue discount on a tax-exempt obligation, such as the Refunding Bonds, accrues on a compounded basis. The amount of original issue discount that accrues to the owner of a Refunding Bond issued with original issue discount will be excludable from such owner’s gross income and will increase the owner’s adjusted basis in such Refunding Bonds, potentially affecting the amount of gain or loss realized upon the owner’s sale or other disposition of such Refunding Bonds. The amount of original issue discount that accrues in each year is not included as a tax preference for purposes of calculating alternative minimum taxable income and may therefore affect a taxpayer’s alternative minimum tax liability. Consequently, taxpayers owning the Refunding Bonds issued with original issue discount should be aware that the accrual of original issue discount in each year may result in an alternative minimum tax liability although the taxpayer has not received cash attributable to such original issue discount in such year.
Purchasers should consult their personal tax advisors with respect to the determination for federal income tax purposes of the amount of original issue discount properly accruable with respect to the Refunding Bonds, other federal income tax consequences of owning tax-exempt obligations with original issue discount and any state and local consequences of owning the Refunding Bonds.
The Refunding Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Refunding Bonds, the interest on which is excluded from gross income for federal income tax purposes. However a purchaser’s basis in a Premium Bond, and under Treasury Regulations, the amount of tax exempt interest received will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Refunding Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners of the Refunding Bonds from realizing the full current benefit of the tax status of such interest.
For example, Congress has considered in the past, is currently considering and may consider in the future, legislative proposals, including some that carry retroactive effective dates, that, if enacted, would alter or eliminate the exclusion from gross income for federal income tax purposes of interest on municipal securities, such as the Refunding Bonds.
-24-
The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the Refunding Bonds. Prospective purchasers of the Refunding Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation as to which Bond Counsel expresses no opinion.
Internal Revenue Service Audit of Tax-Exempt Securities Issues. The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt securities issues, including both random and target audits. It is possible that the Refunding Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the Refunding Bonds might be affected as a result of such an audit of the Refunding Bonds (or by an audit of similar securities).
Information Reporting and Backup Withholding. Information reporting requirements apply to interest (including original issue discount) paid after March 31, 2007, on tax-exempt obligations, including the Refunding Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, "Request for Taxpayer Identification Number and Certification," or unless the recipient is one of a limited class of exempt recipients, including corporations. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to "backup withholding," which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a "payor" generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient.
If an owner purchasing Bonds through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Refunding Bonds from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner's federal income tax once the required information is furnished to the Internal Revenue Service.
ABSENCE OF MATERIAL LITIGATION
No litigation is pending or threatened concerning the validity of the Refunding Bonds, and a certificate to that effect will be furnished to the Underwriter at the time of the original delivery of the Refunding Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District's ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District's ability to issue and retire the Refunding Bonds.
The District may be or may become a party to lawsuits and claims which are unrelated to the Refunding Bonds or actions taken with respect to the Refunding Bonds and which have arisen in the normal course of operating the District. The District maintains certain insurance policies which provide coverage under certain circumstances and with respect to certain types of incidents. There currently are no claims or actions pending which are not covered in part or in whole by insurance and could have a material adverse affect on the financial position or
-25-
operations of the District. The District cannot predict what types of claims may arise in the future.
CONTINUING DISCLOSURE
The District has covenanted for the benefit of holders and beneficial owners of the Refunding Bonds to provide certain financial information and operating data relating to the District by not later than nine (9) months following the end of the District’s fiscal year (which currently would be by March 31 each year based upon the June 30 end of the District’s fiscal year), commencing March 31, 2013, with the report for the 2011-12 Fiscal Year (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events. The Annual Report and any event notices will be filed by the District with the Municipal Securities Rulemaking Board (the “MSRB”). The specific nature of the information to be contained in an Annual Report or the notices of material events is set forth below under the caption “APPENDIX E - Form of Continuing Disclosure Certificate.” These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”).
The District has existing disclosure undertakings that have been made pursuant to the Rule in connection with the issuance of its outstanding 2005 Series A Bonds, its General Obligation Bonds, 2005 Election, Series B (the “2005 Series B Bonds”) and its General Obligation Bonds, 2005 Election, Series C. In the last five years, annual reports were filed in a timely manner pursuant to such undertakings, but did not include information regarding largest taxpayers in the District for fiscal years 2007-08 through 2011-12. The District is in the process of making supplemental filings with this information. In addition, with respect to the 2005 Series A Bonds and the 2005 Series B Bonds, which were issued with bond insurance, the District did not file event notices regarding downgrades of bond insurance companies that insured such bonds in a timely manner, although supplemental filings regarding rating changes have been made. In order to assist it in complying with its disclosure undertakings for its outstanding bonds and the Refunding Bonds, the District has engaged Isom Advisors, A Division of Urban Futures, Inc., its Financial Advisor, to serve as its initial dissemination agent with respect to its each of its disclosure undertakings, including the Continuing Disclosure Certificate to be executed in connection with the Refunding Bonds.
RATING
Moody’s Investors Service (“Moody’s”) has assigned the Refunding Bonds a rating of “Aa3.” This rating reflects only the view of Moody’s, and an explanation of the significance of this rating, and any outlook assigned to or associated with this rating, should be obtained from Moody’s.
Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The District has provided certain additional information and materials to Moody’s (some of which does not appear in this Official Statement).
There is no assurance that this rating will continue for any given period of time or that this rating will not be revised downward or withdrawn entirely by Moody’s, if in the judgment of the rating agency, circumstances so warrant. The District has not undertaken any responsibility either to bring to the attention of the owners of the Refunding Bonds any proposed change in or
-26-
withdrawal of a rating, or to oppose any such proposed revision or withdrawal. Any such downward revision or withdrawal of any rating on the Refunding Bonds may have an adverse effect on the market price or marketability of the Refunding Bonds.
VERIFICATION OF MATHEMATICAL ACCURACY
The Verification Agent, upon delivery of the Refunding Bonds, will deliver a report of the mathematical accuracy of certain computations, contained in schedules provided to them on behalf of the District, relating to (a) the sufficiency of the anticipated amount of proceeds of the Refunding Bonds and other funds available to pay, when due, the principal, whether at maturity or upon prior redemption, interest and redemption premium requirements of the Refunded Bonds and (b) the “yields” on the amount of proceeds held and invested prior to redemption of the Refunded Bonds and on the Refunding Bonds considered by Bond Counsel in connection with the opinion rendered by Bond Counsel that the Refunding Bonds are not “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended.
The report of the Verification Agent will include the statement that the scope of their engagement is limited to verifying mathematical accuracy, of the computations contained in such schedules provided to them, and that they have no obligation to update their report because of events occurring, or data or information coming to their attention, subsequent to the date of their report.
UNDERWRITING
The Refunding Bonds were sold to E. J. De La Rosa & Co., Inc. (the “Underwriter”), pursuant to a bond purchase agreement for the Refunding Bonds. The Underwriter has agreed to purchase the Refunding Bonds at a price of $8,317,942.55 which is equal to the initial principal amount of the Refunding Bonds of $7,935,000, plus a net original issue premium of $454,357.55 less an Underwriter’s discount of $71,415.00. The purchase contract relating to the Refunding Bonds provides that the Underwriter will purchase all of the Refunding Bonds (if any are purchased), and provides that the Underwriter’s obligation to purchase is subject to certain terms and conditions, including the approval of certain legal matters by counsel.
The Underwriter may offer and sell Refunding Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof. The offering prices may be changed by the Underwriter.
ADDITIONAL INFORMATION
The reference herein to the Bond Resolution and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to said documents. Copies of the documents mentioned under this heading are available from the Underwriter and following delivery of the Refunding Bonds will be on file at the offices of the Paying Agent in Los Angeles, California.
-27-
References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available from upon written request to the District.
Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Refunding Bonds.
The execution and delivery of this Official Statement have been duly authorized by the District.
MORONGO UNIFIED SCHOOL DISTRICT
By: /s/ Jim Majchrzak Superintendent
-28-
APPENDIX A
GENERAL AND FINANCIAL INFORMATION FOR THE MORONGO UNIFIED SCHOOL DISTRICT
GENERAL DISTRICT INFORMATION
The information in this and other sections concerning the District's operations and operating budget is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Refunding Bonds is payable from the general fund of the District. The Refunding Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof. See "THE REFUNDING BONDS –Security for the Refunding Bonds" in the front half of the Official Statement.
General Information
The District is located in the Morongo Basin portion of the Mojave Desert, approximately 57 miles northeast of Palm Springs. The District provides public school services to the residents of the City of Twentynine Palms and the incorporated Town of Yucca Valley. The District also serves the nearby unincorporated communities of Morongo Valley, Launders, Flamingo Heights, Yucca Mesa, Joshua Tree and Wonder Valley. The District is the home of Joshua Tree National Park and host of the world’s largest United States Marine Corps Base, the Marine Corps Air Ground Combat Center at Twentynine Palms.
The District currently operates 11 elementary schools, 2 middle schools, 2 high schools, 2 continuation schools and an independent study program, and had enrollment in 2011-12 of approximately 8,885 students and has enrollment of approximately 8,595 students in 2012-13. Student to teacher ratios in the District are 23:1 for kindergarten through second grade, 30:1 for grades three through six and 29.9:1 for grades seven through twelve.
Administration
Board of Education. The District is governed by a five-member Board of Education, each member of which is elected to a four-year term. Elections for positions to the Board are held every two years, alternating between two and three available positions. Current members of the Board of Education, together with their office and the date their term expires, are listed below:
Name Office Current Term Expires J. Edward Will Jr. President December, 2012 Chris Proudfoot Clerk December, 2014 Donna Munoz Member December, 2014 Ron Palmer Member December, 2012 Phyllis Swinnerton Member December, 2012
Superintendent and Administrative Personnel. The day-to-day operations are managed by a board-appointed Superintendent of Schools. Jim Majchrzak is currently serving as Superintendent and David Price is serving as Assistant Superintendent, Business Services. The District does not expect any changes in senior management in the foreseeable future.
A-1
Recent Enrollment Trends
The following table shows recent enrollment history for the District.
ANNUAL ENROLLMENT Fiscal Years 2004-05 through 2012-13 Morongo Unified School District
School Year Enrollment Change in Enrollment % Change 2004-05 9,563 -- -- 2005-06 9,730 167 1.7 2006-07 9,628 (102) (1.0) 2007-08 9,631 3 0.0 2008-09 9,722 91 0.9 2009-10 9,545 (177) (1.8) 2010-11 9,233 (312) (3.3) 2011-12 8,885 (348) (3.7) 2012-13(1) 8,595 (290) (3.3)
(1) Budgeted. Source: California Department of Education for 2004-05 through 2010-11; District for 2011-12 and 2012-13.
The District attributes declining enrollment commencing in fiscal year 2009-10 with the general economic recession and reduction in construction jobs, which caused families to relocate out of the District in pursuit of employment. In addition, a public charter school opened in the District in September, 2011 and has enrollment of approximately 325 students, some of which would be eligible to attend District schools. The District has been proactively addressing declining enrollment with staffing layoffs, attrition, reduction in working hours for certain employees, a closed school and offering a supplemental retirement plan to its employees.
Employee Relations
The following table summarizes the number of employees in the District and their collective bargaining arrangements.
COLLECTIVE BARGAINING UNITS Morongo Unified School District
Number of Expiration Date of Current Bargaining Unit Type of Employee Employees Contract* Morongo Teachers Association Certificated 404 June 30, 2012 California Schools Employees’ Assn. Classified 449 June 30, 2012 Total: 953
*The District operates pursuant to terms of expired contracts during renegotiations. Source: Morongo Unified School District.
District Retirement Systems
District employees are covered under multiple-employer retirement plans maintained by agencies of the State. Certificated employees are members of California State Teachers’ Retirement System (“STRS”) and classified employees are members of the California Public Employees’ Retirement System (“PERS”). See also Note 12 set forth in Appendix B hereto.
A-2
STRS. The District participates in STRS. This plan covers basically all full-time certificated employees. Active plan members are required to contribute 8.0% of their salary and the District is to contribute an actuarially determined rate, which was 8.25% of payroll for the 2010-11 fiscal year. The District’s contribution to STRS for fiscal year 2010-11 was $2,712,933, for fiscal year 2011-12 was $2,759,795 (unaudited actual), and for fiscal year 2012-13, $2,624,591 is budgeted .
PERS. The District also participates in PERS. This plan covers all classified personnel who are employed four or more hours per day. Active plan members are required to contribute 7.0% of their salary and the District is required to contribute an actuarially determined rate, which was 10.707% of annual payroll for 2010-11. In addition, since 2007, the District contributes 2.3% on behalf of employees represented by CSEA, the classified bargaining unit. The District’s contribution to PERS for fiscal year 2010-11 was $957,263, for fiscal year 2011-12 was $1,022,079 (unaudited actual), and for fiscal year 2012-13, $1,028,211 is budgeted.
PARS. The District contributes to the Public Agency Retirement System (“PARS”), which is a defined contribution pension plan that provides pension benefits in return for services rendered, provides and individual account for each participant, and specific how contributions to the individual’s account are to be determined instead of specifying the amount of benefits the individual is to receive. Benefits received depend solely on the amount contributed to the participant’s account, the returns on those investments, and forfeitures of other participants’ benefits that may be allocated to such participant’s account. PARS is the alternative plan for employees who do not participate in STRS or PERS. The District contributes 6.05 percent for classified bargaining unit employees and 3.75 percent of all other employees’ gross earnings. Classified employees contribute 3.875 percent of their gross earnings. For year ended June 30, 2011, the District’s required and actual contributions were $167,702. The amounts for fiscal year 2011-12 and 2012-13 will be identified in the District’s audit. For budgeting purposes, this item is combined with other costs.
State Pensions Trusts. Both the PERS and STRS systems are operated on a statewide basis. District contribution rates to these two retirement systems vary annually depending on changes in actuarial assumptions and other factors, such as liability. STRS has a substantial State unfunded actuarial liability, being $64.5 billion as of June 30, 2011. Since this liability has not been broken down by the state agency, information is not available showing the District's share. Both STRS and PERS issue separate comprehensive financial reports that include financial statements and required supplemental information. Copies of such reports may be obtained from STRS and PERS, respectively, as follows: (i) STRS, P.O. Box 15275, Sacramento, California 95851-0275; (ii) PERS, P.O. Box 942703, Sacramento, California 94229-2703. More information regarding STRS and PERS can also be obtained at their websites, www.calstrs.com and www.calpers.ca.gov, respectively. However, information in the financial reports and on the websites is not incorporated in this Official Statement by reference. See also the following paragraph on recent pension reform legislation.
Pension Reform Act of 2013 (Assembly Bill 340). On September 12, 2012, Governor Brown signed AB 340, a bill that will enact the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”) and that will also amend various sections of the California Education and Government Codes. AB 340 (i) increases the retirement age for new State, school, and city and local agency employees depending on job function, (ii) caps the annual PERS and STRS pension benefit payouts, (iii) addresses numerous abuses of the system, and (iv) requires State, school, and certain city and local agency employees to pay at least half of the costs of their
A-3
PERS pension benefits. PEPRA will apply to all public employers except the University of California, charter cities and charter counties (except to the extent they contract with PERS.)
The provisions of AB 340 will go into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on that date and after; existing employees who are members of employee associations, including employee associations of the District, will have a five-year window to negotiate compliance with AB 340 through collective bargaining. If no deal is reached by January 1, 2018, a city, public agency or school district could force employees to pay their half of the costs of PERS pension benefits, up to 8 percent of pay for civil workers and 11 percent or 12 percent for public safety workers.
PERS has predicted that the impact of AB 340 on employers, including the District and other employers in the STRS system, and employees will vary, based on each employer’s current level of benefits. To the extent that the new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. Additionally, PERS has noted that changes arising from AB 340 could ultimately have an adverse impact on public sector recruitment in areas that have historically experienced recruitment challenges due to higher pay for similar jobs in the private sector.
The District is unable to predict what the amount of STRS liabilities will be in the future or the amount of the STRS contributions which the District may be required to make, all as a result of the implementation of AB 340, and as a result of negotiations with its employee associations.
More information about AB 340 can be accessed through the PERS’s web site at www.calpers.ca.gov/index.jsp?bc=/member/retirement/pension-reform-impacts.xml&pst=ACT& pca=ST and through the STRS web site at http://www.calstrs.com/Newsroom/whats_new/ AB340_detailed_impact_analysis.pdf. The references to these internet websites are shown for reference and convenience only; the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference.
Health Care Plan for Retirees
The District does not provide a post-retirement benefit health care plan. District retirees may, up to the age of 65, participate in the District’s health plan, however the retiree is responsible for 100% of the associated premiums. However, since retiree contributions are based on average rates that include active employees, Governmental Accounting Standards Board (“GASB”) Statement No. 45 requires that a valuation be done to reflect the implicit rate subsidy, being the difference between the cost of retiree benefits and the rates charged retirees. As of June 30, 2011, there were 82 retirees receiving implicit subsidies through the District’s benefits plan. For fiscal year ending June 30, 2011, the actuarially determined amount contributed by the District as an implicit rate subsidy to retirees was $105,708. See Note 11 to the District’s Audited Financial Statement for Year Ending June 30, 2011, attached as Appendix B hereto.
A-4
Public Entity Risk Pools
The District is a member of the Hi Desert and Inland Employee and Employer Trust, Southern California Schools Employees Benefit Association, Schools Excess Liability Fund and Southern California Schools Risk Management public entity risk pools. The District pays annual premiums to each entity for health, vision and dental, excess liability and workers’ compensation coverage. See Note 14 to the District’s Audited Financial Statement for Year Ending June 30, 2011 attached as Appendix B hereto.
DISTRICT FINANCIAL INFORMATION
The information in this and other sections concerning the District's operations and operating budget is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Refunding Bonds is payable from the general fund of the District. The Refunding Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof.
Accounting Practices
The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section 41010 of the California Education Code, is to be followed by all California school districts. The financial resources of the District are divided into separate funds for which separate accounts are maintained for recording cash, other resources and all related liabilities, obligations and equities. The major fund classification is the general fund which accounts for all financial resources not required to be accounted for in another fund. The District's fiscal year begins on July 1 and ends on June 30.
All governmental funds and fiduciary funds are maintained on the modified accrual basis of accounting. As such, revenues are recognized when they become susceptible to accrual, that is, both measurable and available to finance expenditures for the current period. For more information on the District’s accounting method, see Note 1 of “APPENDIX A – MORONGO UNIFIED SCHOOL DISTRICT AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR 2010-11” attached hereto.
The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information.
A-5
Financial Statements
General. The District's general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. The District's Audited Financial Statements for the fiscal year ending fiscal year 2010-11 were prepared by Vavrinik, Trine, Day & Co., LLP, Certified Public Accountants, Rancho Cucamonga, California. Audited financial statements for the District for the fiscal year ended June 30, 2011 and prior fiscal years are on file with the District and available for public inspection at the Superintendent’s Office. See Appendix A hereto for the 2010-11 Audited Financial Statements of the District. The District has not requested nor did the District obtain permission from Vavrinik, Trine, Day & Co., LLP to include the audited financial statements as an appendix to this Official Statement. Accordingly, Vavrinik, Trine, Day & Co., LLP has not performed any post-audit review of the financial condition or operations of the District. The District’s audited financial statement for fiscal year 2011-12 is currently expected to be approved by the District Board on or about December 11, 2012.
General Fund Revenues, Expenditures and Changes in Fund Balance. The District's general fund is the primary operating fund of District. All general revenues are contained in this general fund, including State operational dollars, specific categorical grants from both State and Federal sources, lottery funds, and locally generated dollars (interest, rents, etc.). Expenses for instructional personnel, support personnel, supplies, books, utilities, transportation, Special Education, maintenance, etc., are incorporated in this general fund. Some funds within the District’s general fund are “legally restricted,” (such as Special Education, Title I, and EIA), and can be used only for the designated programs or expenses.
The following table shows the audited general fund income and expense statements for the District for the fiscal years 2008-09 through 2010-11.
A-6
Morongo Unified School District General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years 2008-09 through 2010-11 (Audited)
Audited Audited Audited 2008-09 2009-10 2010-11 Revenues Revenue limit sources $ 51,495,347 $45,310,194 $46,891,191 Federal sources 11,008,718 9,669,327 9,861,360 Other State sources 17,020,907 17,030,021 17,776,847 Other local sources 1,829,604 1,471,319 1,160,109 Total Revenues 81,354,576 73,480,861 75,689,507
Expenditures Instruction 50,420,968 46,515,676 43,710,984 Instruction-related services: Supervision of instruction 2,548,722 2,018,529 2,315,265 Library, media and technology 629,527 582,412 593,777 School site administration 5,604,220 5,231,661 5,270,115 Pupil services: Home-to-school transportation 3,707,543 3,619,854 3,565,123 All other pupil services 3,360,530 3,404,488 3,439,624 Administration: Data processing 725,411 524,419 613,891 Other general administration 3,625,288 3,352,503 3,574,673 Plant services 8,195,703 7,715,011 7,736,611 Facility acquisition, construction 59,219 113,186 146,760 Ancillary services 328,068 268,156 261,643 Community services 161,910 143,010 121,076 Other outgo 65,104 35,968 54,716 Debt Service Principal -- -- 29,283 Debt Service Interest and Other - -- 13,534 Total Expenditures 79,432,213 73,524,873 71,447,457
Excess of Revenues Over/(Under) 1,922,363 (44,012) 4,242,050 Expenditures
Other Financing Sources (Uses) Interfund transfers in -- 299,910 -- Other sources -- -- 38,723 Interfund transfers out (398,141) -- -- Total Other Fin. Source(Uses) (398,141) 299,910 38,723
Net change in fund balance 1,524,222 255,898 4,280,773
Fund Balance, July 1* 18,293,303 19,817,525 20,073,423 Fund Balance, June 30 $19,817,525 $20,073,423 $24,354,196
*Beginning balance as restated. Source: Morongo Unified School District Audited Financial Statements.
A-7
District’s General Fund 2011-12 Unaudited Actuals and 2012-13 Budgeted Figures. The following table shows the Unaudited Actual figures for fiscal year 2011-12, a well as the budgeted amounts for 2012-13 for the District’s General Fund. The Unaudited Actual and Adopted Budget presentations differ from the audit reports; for budgeting purposes expenses are presented by object, not function.
Morongo Unified School District General Fund Revenues, Expenditures and Changes in Fund Balance For Fiscal Years Ended June 30, 2012 and June 30, 2013 (Unaudited Actuals and Budgeted)
Original Budget Unaudited Actuals Budgeted 2011-12 2011-12 2012-13* REVENUES Revenue Limit Sources $45,678,608 $44,051,652 $41,136,385 Federal 9,292,788 11,368,609 8,383,946 Other State 14,237,020 15,002,219 14,882,519 Other Local 920,223 940,807 618,728 Total Revenues 70,128,639 $71,363,288 $65,021,578
EXPENDITURES Certificated Salaries 33,424,358 33,727,943 31,651,202 Classified Salaries 10,813,614 10,792,277 10,262,083 Employee Benefits 13,527,291 13,564,639 13,498,355 Books and Supplies 4,028,768 4,158,756 3,974,436 Services, other operating expenses 10,217,066 10,681,314 10,470,007 Capital Outlay 24,300 73,384 97,330 Other Outgo 92,325 121,419 107,436 Other Outgo – Debt Service -- 53,546 52,325 Other Outgo - Transfers of Indirect Costs (175,000) (93,762) (85,000) Total Expenditures 71,952,722 73,079,515 70,028,174
Revenues Over (Under) Expends (1,824,083) (1,716,228) (5,006,596)
Net Change in Fund Balance (1,824,083) (1,716,228) (5,006,596)
Fund Balance, July 1 18,028,707 24,354,196 22,637,968 Fund Balance, June 30 $16,204,624 $22,637,968 $17,631,372
*The 2012-13 Budget includes an assumption that Proposition 30, the Governor’s initiative on the November 6, 2012 ballot, would not pass resulting in trigger reductions in State education funding, therefore includes a reduction in average daily attendance of $457 per ADA. However, Proposition 30 was approved by a majority of State voters on November 6, 2012 therefore such trigger reductions will not occur. See 2012-13 State Budget below. Source: Morongo Unified School District.
Board Adopted Policy Regarding Reserves
During fiscal year 2010-11, the District Board adopted a minimum fund balance policy for the General Fund in order to protect the District against revenue shortfalls or unpredicted one- time expenditures. The policy requires a reserve for economic uncertainties consisting of unassigned amounts (unrestricted fund balance) equal to no less than 3 percent of General Fund expenditures and other financing uses.
The District’s 2011-12 ending general fund balance of $22,637,968 consisted of $3,211,533 in available reserves, being unassigned fund balances plus all amounts expressly reserved for economic uncertainties in the General Fund, which was 4.5% of expenditures. Based on the District’s Budget for 2012-13, the District anticipates an ending general fund
A-8
balance of $17,631,372, of which $3,543,063 consists of reserves for economic uncertainties and unassigned amounts.
District’s Steps to Address Reductions in State Education Spending
Due to the unprecedented cuts to revenue limit funds received from the State, the District has taken numerous actions to reduce its expenses, as presented in the income and expense statements and budgets presented above. The District has not transferred moneys to its Deferred Maintenance Fund for building repair for three consecutive fiscal years, though it hopes to again contribute in Fiscal Year 2012-13. The Board has also considered reductions in personnel numbers, increases to class sizes, the closing of Monument High School, restructuring of transportation, and a supplemental retirement program for District employees to reduce expenditures in the 2012-13 school year.
District Budget and Interim Financial Reporting
Budgeting the Interim Reporting Procedures. State law requires school districts to maintain a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts.
Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July 1 in each fiscal year. The District is under the jurisdiction of the San Bernardino County Superintendent of Schools (the "County Superintendent").
The County Superintendent must review and approve or disapprove the budget no later than August 15. The County Superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the County Superintendent no later than October 13. Pursuant to State law, the County Superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district's administration may submit budget revisions for governing board approval.
Subsequent to approval, the County Superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent will notify the district's governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) after also consulting with the district's board, develop and impose revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of a collective bargaining agreement
A-9
that was entered into prior to the date upon which the County Superintendent assumed authority.
A State law adopted in 1991 ("A.B. 1200") imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the County Superintendent (on December 15, for the period ended October 31, and by mid-March for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The County Superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years.
Under California law, any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the district, unless the applicable county superintendent of schools determines that the district’s repayment of indebtedness is probable.
District’s Budget Approval/Disapproval and Certification History. The District’s 2012-13 Budget was submitted to the County Superintendent prior to the July 1, 2012 deadline, and was “conditionally” approved. The County Superintendent reviewed the budget and asked that $457 per ADA be removed from the Revenue Limit of the Budget Year and two succeeding years and that no cost of living adjustment was to be applied to any program for the 2013-14 and 2014-15 school years. The Revised Budget was thereafter submitted and “approved” by the County.
There was a workshop on the revised budget at a Board Meeting on August 21, 2012, and the Board of Education adopted a revised Budget after a public hearing at the regularly scheduled Board meeting on September 4, 2012.
Prior to the 2012-13 Fiscal Year, each of the District’s adopted budgets had been approved by the County Superintendent and the District has received positive certifications on all of its interim reports.
Copies of the District’s budget, interim reports and certifications may be obtained upon request from the District Office at 5715 Utah Trail, Twentynine Palms, California 92277, Phone: (760) 367-9191. The District may impose charges for copying, mailing and handling.
A-10
General Long-Term Debt
General Obligation Bonds. On November 8, 2005, an election was held at which the requisite 55 percent of the voters in the District approved Measure O, which authorized the issuance and sale of $48,150,000 of general obligation bonds.
The outstanding general obligation bonds of the District are the following (excluding the Refunding Bonds being issued):
Issue Amount of Outstanding Final Date 2005 Authorization Original Principal 11/1/12 Maturity 4/25/2006 2005 Election, Series A* $10,000,000 $7,890,000 8/1/2030 06/12/2008 2005 Election, Series B 21,000,000 19,795,000 8/1/2038 4/11/2012 2005 Election, Series C 17,147,652 17,147,652 8/1/2042 Total $48,147,652 $44,832,652
*$7,580,000 principal amount of the outstanding 2005 Series A Bonds are being defeased with Refunding Bond proceeds.
Short Term Borrowing
The District does not currently have any short-term debt outstanding.
State Funding of Education and Revenue Limitations
Annual State apportionments of basic and equalization aid to school districts for general purposes are computed up to a revenue limit per unit of average daily attendance (“ADA”). Such apportionments will, generally speaking, amount to the difference between the District’s revenue limit and the District’s local property tax allocation. Revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among California school districts.
In the event that a school district’s property tax revenue exceeds its calculated revenue limit entitlement, that school district retains all of its property tax revenue, and State apportionments to that district are limited to the minimum “basic aid” amount of $120 per ADA set forth in the Constitution. Currently the State allocates basic aid funding to categorical entitlements that would have been received in any event. Such districts are commonly known as “Basic Aid Districts.” The District is not a Basic Aid District, but rather is a “Revenue Limit District,” which is described in the preceding paragraph.
A-11
A schedule of the District’s recent ADA is set forth below.
MORONGO UNIFIED SCHOOL DISTRICT AVERAGE DAILY ATTENDANCE Fiscal Years 2008-09 through 2012-13 (budgeted)
Change Fiscal Year P-2 ADA in ADA Percent Change 2008-09 9,047 -- -- 2009-10 8,859 (188) (2.1) 2010-11 8,570 (289) (3.3) 2011-12(1) 8,264 (306) (3.6) 2012-13(2) 8,055 (209) (2.5)
(1) Budgeted; The District is monitoring this figure, according to the First Interim Report, for possible reductions reflecting decreased 2011-12 enrollment. (2) Projected in 2012-13 Budget. Source: Morongo Unified School District.
California school districts receive a significant portion of their funding from State appropriations and as a result, decreases in State revenues may affect appropriations made by the Legislature to school districts.
Revenue Sources
Revenue Limit Sources. Since fiscal year 1973-74, California school districts have operated under general purpose revenue limits established by the State Legislature. In general, revenue limits are calculated for each school district by multiplying (1) the average daily attendance for such district by (2) a base revenue limit per unit of ADA. The revenue limit calculations are adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type.
Funding of the District's revenue limit is provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments will amount to the difference between the District's revenue limit and its local property tax revenues.
Beginning in 1978-79, Proposition 13 and its implementing legislation provided for each county to levy and collect all property taxes, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county.
Federal Revenues. The federal government provides funding for several District programs, including special education entitlements and grants, programs under No Child Left Behind, and other federal revenue.
Other State Revenues. As discussed above, the District receives State apportionment of basic and equalization aid in an amount equal to the difference between the District's revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives substantial other State revenues.
These other State revenues are primarily restricted revenues funding items such as home-to-school transportation, Economic Impact Aid, Special Education Transportation, and Class-Size Reduction.
A-12
The District receives State aid from the California State Lottery (the "Lottery"), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in October 1600 requires that 50% of the increase in lottery revenues over 1997-98 levels must be restricted to use on instructional materials. Lottery revenues generally comprise approximately 2% of general fund revenues.
Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as interest earnings, leases and rentals, and other local sources.
Investment of District Funds
In accordance with Government Code Section 53600 et seq., the San Bernardino County Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with California Government Code Sections 53601 et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code. For further information concerning the County investment policy and recent investment reports, access the County’s website at www.mytaxcollector.com under the heading “Treasurer.” The information contained in such website has not been reviewed by the District and is not incorporated in this Official Statement by reference.
Effect of State Budget on Revenues
Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts generally receive the majority of their operating revenues from various State sources. The primary source of funding for school districts is the revenue limit, which is a combination of State funds and local property taxes (see “—State Funding of Education and Revenue Limitations” above). State funds typically make up the majority of a district’s revenue limit. School districts also receive substantial funding from the State for various categorical programs.
The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS”), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process.
State Funding of Education and Recent State Budgets
General. The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55% of their operating revenues from various State sources. The primary source of funding for school districts is the revenue limit, which is a combination of State funds and local property taxes (see “– State Funding of Education and Revenue Limitations” above). State funds
A-13
typically make up the majority of a district’s revenue limit. School districts also receive substantial funding from the State for various categorical programs.
The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. Decreases in State revenues may significantly affect appropriations made by the legislature to school districts.
The following information concerning the State’s budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. None of the District, the County or the Financial Advisor is responsible for the information relating to the State’s budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer’s Office.
The Budget Process. The State’s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the “Governor’s Budget”). Under State law, the annual proposed Governor’s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor’s Budget, the Legislature takes up the proposal.
Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature.
Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (including for K-14 education) must be approved by a majority vote in each House of the Legislature, unless such appropriations require tax increases, in which case they must be approved by a two-thirds vote of each House of the Legislature, and be signed by the Governor. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution.
Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt.
Recent State Budgets
Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State’s website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference.
A-14
• The California State Treasurer Internet home page at www.treasurer.ca.gov, under the heading “Bond Information”, posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State.
• The California State Treasurer’s Office Internet home page at www.treasurer.ca.gov, under the heading “Financial Information”, posts the State’s audited financial statements. In addition, the Financial Information section includes the State’s Rule 15c2-12 filings for State bond issues. The Financial Information section also includes the Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation from the State’s most current Official Statement, which discusses the State budget and its impact on school districts.
• The California Department of Finance’s Internet home page at www.dof.ca.gov, under the heading “California Budget,” includes the text of proposed and adopted State Budgets.
• The State Legislative Analyst’s Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst’s Internet home page at www.lao.ca.gov under the heading “Subject Area – Budget (State).”
State IOUs and Deferrals of Education Funding. In recent years, fiscal stress and difficulties in achieving a balanced State budget have resulted in actions which include the State issuing IOUs (defined below) to its creditors, and the deferral of school funding.
On July 2, 2009, as a result of declines in State revenues commencing in fiscal years 2008-09, the State Controller began to issue registered warrants (or “IOUs”) for certain lower priority State obligations in lieu of warrants (checks) which could be immediately cashed. The registered warrants, the issuance of which did not require the consent of recipients, bore interest. With enactment of an amended budget in late July, 2009, the State was able to call all its outstanding registered warrants for redemption on September 4, 2009. The issuance of state registered warrants in 2009 was only the second time the State has issued state registered warrants to such types of state creditors since the 1930s.
Furthermore, commencing in fiscal year 2008-09, to better manage its cash flow in light of declining revenues, the State has enacted several statutes deferring amounts owed to public schools, until a later date in the fiscal year, or even into the following fiscal year, in order to more closely align the State’s revenues with its expenditures. This technique has been used several times through the enactment of budget bills in fiscal years 2008-2009 through 2011-12. Some of these statutory deferrals were made permanent, and others were implemented only for one fiscal year.
Fiscal stress and cash pressures currently facing the State may continue or become more difficult, and continuing declines in State tax receipts or other results of the current economic recession may materially adversely affect the financial condition of the State. The Department of Finance has projected that multi-billion dollar budget gaps will occur annually for several years in the future, although the 2012-13 Budget described below includes measures
A-15
that are intended to address these budgetary difficulties.
Information on State Economic Challenges, Prior Year State Budgets and Related Events. The State’s financial condition and budget policies affect communities, local public agencies and school districts throughout California. The State of California is experiencing significant financial and budgetary stress. Exacerbating the State’s challenges, as the State entered recession in 2008, annual revenues generally were less than annual expenses, creating a “structural” budget deficit. This structural deficit is due in part to overreliance on temporary budgetary remedies in prior State Budget years, including one-time revenues, internal borrowing, payment deferrals, accounting shifts and expenditure reduction proposals that have not materialized.
In recent years, the State Budget was also, repeatedly, not passed and signed in a timely manner. Frequently, school district budgets have been revised after the delivery of delayed State Budgets to reflect necessary changes in revenues and expenditures. Delays in the delivery of State budgets cause an element of uncertainty for local governments, such as school districts. Delayed payments from the State to the District, which are more common during periods in which the State faces economic challenges, also subject the District to additional risk.
In recent years, Governor Edmund G. Brown Jr. has employed a strategy of proposing revenue raising measures coupled with automatic expenditure and service cuts into his State budget packages, wherein cuts go into effect if the revenue raising measures are not approved by the State Legislature or State voters. The State’s 2011-12 Budget (the “2011-12 Budget”) relied on $4 billion of additional tax revenue, which when not realized, automatically triggered nearly $1 billion further cuts to universities, welfare, courts and schools (the “Trigger Cuts”). “Tier 1 Trigger Cuts” would be triggered if, by January 2012, State revenues fell short of projections by $1-2 billion. Tier 1 Trigger Cuts related to cuts in university, social services and library funding and would total approximately $600 million. “Tier 2 Trigger Cuts” would be triggered if, by January 2012, revenues were projected to fall short by more than $2 billion. Tier 2 Trigger Cuts related to K-12 revenue limit funding and home-to-school transportation and were to total approximately $1.9 billion.
On December 13, 2011, Governor Brown announced the State would fall $2.2 billion short of the revenue forecast contained in the 2011-12 Budget, and that $980 million in Trigger Cuts, comprised of all Tier 1 Trigger Cuts and a portion of Tier 2 Trigger Cuts, would be implemented. Effective January 1, 2012, Trigger Cuts to funding for University of California, California State University, community colleges, developmental services, local libraries and state-subsidized child care and K-12 school bus service funding, among others, became effective. Effective February 1, 2012, Trigger Cuts to general revenue limit funding for K-12 school districts totaling $79.6 million were implemented.
The 2011-12 Budget was also premised on $2.8 billion in deferrals to K-12 schools and community colleges and $1.7 billion to be directed from State redevelopment agency funds pursuant to ABx1 27. ABx1 27 was passed together with ABx1 26, which restricted redevelopment agency actions to create new debt and then dissolved them. On December 29, 2011, the State Supreme Court issued its decision in California Redevelopment Assoc. v. Matosantos, a case brought to determine the constitutionality of ABx1 26 and ABx1 27, ruling that ABx1 26 was constitutional and ABx1 27 was not. By February 1, 2012 all redevelopment agencies were to cease operations and dismantle, and no additional payments from communities with redevelopment agencies to fund school expenditures are thereafter
A-16
constitutionally permissible. Other challenges or delays relating to the implementation of these statutes cannot be predicted at this time.
Moreover, the 2011-12 Budget included decreases in Proposition 98 funding to $48.7 billion, including $32.8 billion from the State general fund, which reflected a decrease from the prior year of $1.1 billion. This decrease was a net figure reflective of all budgetary actions taken with respect to the State’s share of Proposition 98 funding, including increases in baseline revenues, redirection of certain sales tax revenues related to the realignment of public safety programs, and the rebenching of the Proposition 98 minimum funding guarantee. The 2011-12 Budget also made a significant, one-time modification to State budgeting requirements for school districts, requiring them to project the same level of revenue per student in 2011-12 as in 2010-11, as well as to maintain staffing and program levels commensurate with such level of funding. A related provision of the 2011-12 Budget provided that school districts would only be required to budget for the current year, and will not be required to demonstrate that they can meet their financial obligations for the subsequent two fiscal years (2012-13 and 2013-14).
Finally, the 2011-12 Budget contained the numerous significant measures with respect to K-12 education, including: (i) an additional apportionment deferral of $1.2 billion in education spending in order to maintain programmatic funding at the fiscal year 2010-11 level, (ii) a decrease of $62.3 million to part-day preschool spending to reflect a reduction of income eligibility levels to 70% of the State median Income and across-the-board reductions to provider contracts, (iii) $11 million in supplemental categorical funding to charter schools that begin operations between 2008-09 and 2011-12, (iv) $3.2 million of increased funding for clean technology and renewable energy job training, career technical education and the Dropout Prevention Program, each of which were designed to provide at-risk high school students with occupational training in areas such as conservation, renewable energy and pollution reduction, (v) a decrease of $180.4 million to child care and development programs, including reductions to license-exempt provider rates, reductions of income eligibility levels to 70% of the State median Income and across-the-board reductions to provider contracts, (vi) a decrease of $2.1 million to reflect elimination of funding for the California Longitudinal Teacher Integrated Data System (CALTIDES), a program that was intended to provide a central State information depository regarding the teaching workforce, and (vii) projected savings of $1.6 million through the elimination of the Office of the Secretary of Education.
2012-13 State Budget
On June 15, 2012, the Legislature passed a $92 billion General Fund State Budget that closed the State’s then-remaining $15.7 billion deficit and rebuilt a $1 billion General Fund reserve. The 2012-13 State Budget relied on a plan to submit to the voters at a regular election on November 6, 2012 the Schools and Local Public Safety Protection Act, a $6.9 billion tax increase, known as Proposition 30 (the “Proposition 30”). Proposition 30, which obtained the requisite majority vote based on semi-official results obtained from the website of the California Secretary of State, enacts temporary increases on high-income earners by raising income taxes by up to three percent on earnings over $250,000 for seven years, and increases the State sales tax by one-quarter of one cent for four years. The 2012-13 Budget also contains reductions in expenditures from prior years spending totaling $8.1 billion, including reductions caused by elimination of the Healthy Families program and by reforms relating to the CalWORKs, Medi-Cal, Judiciary and Cal Grant programs. The 2012-13 Budget expects that $1.5 billion in savings will be generated as the result of the transfer of cash assets previously held by redevelopment agencies to cities, counties and special districts to fund core public services and to schools to offset State General Fund costs. An additional $1.9 billion in savings
A-17
will arise due to prepayment of the State’s Proposition 98 funding as required by a court settlement. Governor Brown signed the 2012-13 Budget on June 27, 2012.
The complete 2012-13 State Budget is available on the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated in this Official Statement by such reference. The information referred to above should not be relied upon in making an investment decision with respect to the Refunding Bonds.
The execution of the 2012-13 Budget may be affected by numerous factors, including but not limited to: (i) national, State and international economic conditions, (ii) litigation risk associated with proposed spending reductions, (iii) failure to generate expected savings as a result of the transfer of cash assets previously held by redevelopment agencies and (iv) other factors, all or any of which could cause the revenue and spending projections made in 2012-13 Budget to be unattainable. The District cannot predict the impact that the 2012-13 Budget, or subsequent budgets, will have on its own finances and operations. Additionally, the District cannot predict the accuracy of any projections made in the State’s 2012-13 Budget.
Uncertainty Regarding Future State Budgets. The District cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State’s current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the District has no control. The District cannot predict what impact any future budget proposals will have on the financial condition of the District. To the extent that the State budget process results in reduced revenues to the District, the District will be required to make adjustments to its budgets.
The State has not entered into any contractual commitment with the District, the County, or the Owners of the Refunding Bonds to provide State budget information to the District or the owners of the Refunding Bonds. Although it believes the State sources of information listed above are reliable, the District does not assume any responsibility for the accuracy of the State Budget information set forth or referred to in this Memorandum or incorporated herein. However, the Refunding Bonds are secured by ad valorem taxes levied and collected on taxable property in the District, without limit as to rate or amount, and are not secured by a pledge of revenues of the District or its general fund.
Legal Challenges to State Funding of Education
The application of Proposition 98 and other statutory regulations has been the subject of various legal challenges in recent years, and is likely to be further challenged in the future. For a discussion of how the provisions of Proposition 98 have been applied to school funding see “- State Funding of Education" and "-Recent State Budgets” above.
2010 Robles-Wong Litigation. On May 20, 2010, a plaintiff class of numerous current California public school students and several school districts, together with the California Congress of Parents, Teachers & Students, the Association of California School Administrators and the California School Boards Association filed suit in Alameda County Superior Court challenging the system of financing for public schools in California as unconstitutional. In Maya Robles-Wong, et al. v. State of California, plaintiffs seek declaratory and injunctive relief, including a permanent injunction compelling the State to abandon the existing system of public school finance. On July 16, 2010, the California Teachers’ Association filed a Complaint in
A-18
Intervention, making the same allegations and seeking the same declaratory and injunctive relief. On January 14, 2011, the court dismissed certain of the causes of action, including causes of action that alleged a constitutional right to a particular level of education funding and violations of equal protection of the law, based on certain State constitutional provisions. On July 26, 2011, the Superior Court rejected the plaintiff’s amended complaint as not stating an equal protection claim. On January 25, 2012, the plaintiffs filed an appeal in the 1st Appellate District. The District cannot predict the ultimate outcome of the Robles-Wong litigation. However, if successful, the lawsuit could result in changes to the implementation of school finance in the State of California.
2011 CSBA Litigation. The California School Boards Association, the Association of California School Administrators, the Los Angeles Unified School District, the San Francisco Unified School District and the Turlock Unified School District announced on August 28, 2011 that they were filing a lawsuit (the “CSBA Lawsuit”) in the Superior County of the City and County of San Francisco, seeking to restore more than $2 billion that had been designated to California public schools under Proposition 98, but was cut from the 2011-12 State Budget. The Superior Court has rejected the CSBA Lawsuit, however the plaintiffs may appeal the decision.
CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS
Principal of and interest on the Refunding Bonds are payable from the proceeds of an ad valorem tax levied by the County for the payment thereof. Articles XIIIA, XIIIB, XIIIC, and XIIID of the State Constitution, Propositions 62, 98, 111, 187 and 218, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the District to levy taxes for payment of the Refunding Bonds. The tax levied by the County for payment of the Refunding Bonds was approved by the District's voters in compliance with Article XIIIA and all applicable laws.
Article XIIIA of the California Constitution
Basic Property Tax Levy. On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness (which provided the authority for the issuance of the Refunded Bonds), and (iii) (as a result of an amendment to Article XIIIA approved by State voters on November 7, 2000) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean "the county assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real
A-19
property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment". This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.
Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways.
Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA.
Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979.
Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.
Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed 2% per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home’s taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the 2% inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year’s assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court. The petition has been denied by the California Supreme Court. As a result of this litigation, the “recapture” provision described above may continue to be employed in determining the full cash value of property for property tax purposes.
A-20
Unitary Property
Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions (“unitary property”). Under the State Constitution, such property is assessed by the State Board of Equalization (“SBE”) as part of a “going concern” rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year.
Constitutional Appropriations Limitation
Article XIIIB (“Article XIIIB”) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the 1986-87 fiscal year adjusted for the changes made from that fiscal year under the provisions of Article XIIIB, as amended.
The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues.
Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products.
Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years.
Article XIIIB also includes a requirement that 50% of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund under Section 8.5 of Article XVI of the State Constitution.
A-21
Article XIIIC and Article XIIID of the California Constitution
On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the “Right to Vote on Taxes Act.” Proposition 218 added to the California Constitution Articles XIIIC and XIIID (respectively, “Article XIIIC” and “Article XIIID”), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges.
According to the “Title and Summary” of Proposition 218 prepared by the California Attorney General, Proposition 218 limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Among other things, Article XIIIC establishes that every tax is either a “general tax” (imposed for general governmental purposes) or a “special tax” (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4.
On November 2, 2010, Proposition 26 was approved by State voters, which amended Article XIIIC to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.
Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development.
Proposition 218 does not affect the ad valorem property taxes to be levied by the County to pay debt service on the Refunding Bonds.
A-22
Proposition 62
A statutory initiative (“Proposition 62”) was adopted by the voters at the November 4, 1986, general election which (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the District be approved by a two- thirds vote of the governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988.
California appellate court cases have overturned the provisions of Proposition 62 pertaining to the imposition of taxes for general government purposes. However, the California Supreme Court upheld Proposition 62 in its decision on August 28, 1995, in Fresno County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court’s decision, such as what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. The District has not experienced any substantive adverse financial impact as a result of the passage of this initiative.
Proposition 98
On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, 1990. The Accountability Act changes State funding of public education below the university level and the operation of the State’s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as “K-14 school districts”) at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in 1986-87, and (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a one- year period.
The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K 14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article
A-23
XIIIB surplus. The maximum amount of excess tax revenues which could be transferred to K 14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act.
Proposition 111
On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the “Traffic Congestion Relief and Spending Limit Act of 1990” (“Proposition 111”) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation.
The most significant provisions of Proposition 111 are summarized as follows:
Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the “change in the cost of living” is now measured by the change in California per capita personal income. The definition of “change in population” specifies that a portion of the State’s spending limit is to be adjusted to reflect changes in school attendance.
Treatment of Excess Tax Revenues. “Excess” tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools’ minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts’ base expenditures for calculating their entitlement for State aid in the next year, and the State’s appropriations limit is not to be increased by this amount.
Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for “qualified capital outlay projects” as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, 1990. These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs.
Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year 1990-91. It is based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if Proposition 111 had been in effect.
School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of
A-24
State general fund revenues (the “first test”) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the “second test”). Under Proposition 111, schools will receive the greater of (1) the first test, (2) the second test, or (3) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capita personal income (the “third test”). Under the third test, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a “credit” to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth.
Proposition 1A and Proposition 22
On November 2, 2004, California voters approved Proposition 1A, which amended the State constitution to significantly reduce the State's authority over major local government revenue sources. Under Proposition 1A, the State cannot (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Under Proposition 1A, beginning, in 2008-09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amended the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights.
Proposition 22, a constitutional initiative entitled the “Local Taxpayer, Public Safety, and Transportation Protection Act of 2010,” approved on November 2, 2010, superseded many of the provisions of Proposition 1A. This initiative amends the State constitution to prohibit the legislature from diverting or shifting revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services. Under this proposition, the State is not allowed to take revenue derived from locally imposed taxes, such as hotel taxes, parcel taxes, utility taxes and sales taxes, and local public transit and transportation funds. Further, in the event that a local governmental agency sues the State alleging a violation of these provisions and wins, then the State must automatically appropriate the funds needed to pay that local government. This Proposition was intended to, among other things, stabilize local government revenue sources by restricting the State’s control over local property taxes. Proposition 22 did not prevent the California State Legislature from dissolving State redevelopment agencies pursuant to AB 1X26, as confirmed by the decision of the California Supreme Court decision in California Redevelopment Association v. Matosantos (2011).
Because Proposition 22 reduces the State’s authority to use or reallocate certain
A-25
revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget, such as reducing State spending or increasing State taxes, and school and college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State’s general fund.
Application of Constitutional and Statutory Provisions; Recent Lawsuit
The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 have been applied to school funding see “DISTRICT FINANCIAL INFORMATION - State Funding of Education and Recent State Budgets.” In addition, a lawsuit is pending against the State with respect to the existing system of public school finance. See “DISTRICT FINANCIAL INFORMATION - 2010 Legal Challenge to State Funding of Education.”
Future Initiatives
Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 98, 111 and 22 were each adopted as measures that qualified for the ballot under the State’s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District.
A-26
APPENDIX B
AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011
B-1
[THIS PAGE INTENTIONALLY LEFT BLANK]
MORONGO UNIFIED SCHOOL DISTRICT
ANNUAL FINANCIAL REPORT
JUNE 30, 2011
[THIS PAGE INTENTIONALLY LEFT BLANK]
MORONGO UNIFIED SCHOOL DISTRICT
TABLE OF CONTENTS JUNE 30, 2011
FINANCIAL SECTION Independent Auditors' Report 2 Managemenfs Discussion and Analysis 4 Basic Financial Statements Government-Wide Financial Statements Statement of Net Assets 12 Statement of Activities 13 Fund Financial Statements Governmental Funds - Balance Sheet 14 Reconciliation ofthe Governmental Funds Balance Sheet to the Statement ofNet Assets 15 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 16 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 17 Proprietary Fund - Statement of Net Assets 19 Proprietary Fund- Statement of Revenues, Expenses, and Changes in Net Assets 20 Proprietary Fund - Statement of Cash Flows 21 Fiduciary Funds - Statement of Net Assets 22 Notes to Financial Statements 23 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 49 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 50 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 52 Local Education Agency Organization Structure 54 Schedule of Average Daily Attendance 55 Schedule of Instructional Time 56 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 57 Schedule of Financial Trends and Analysis 58 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 59 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 60 Note to Supplementary Information 61 INDEPENDENT AUDITORS' REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Others Matters Based on an Audit of Financial Statements Performed in Accordance With Governmental Auditing Standards 64 Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133 . 66 Report on State Compliance 68 MORONGO UNIFIED SCHOOL DISTRICT
TABLE OF CONTENTS JUNE 30,2011
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors' Results 71 Financial Statement Findings 72 Federal Awards Findings and Questioned Costs 73 _State Awards Findings and Questioned Costs 74 Summary Schedule of Prior Audit Findings 75 FINANCIAL SECTION
1 Vavrinek, Trine, Day &Co., LLP VALUF fHE DIFFEREN Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
Governing Board Morongo Unified School District Twentynine Palms, California
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Morongo Unified School District (the District) as of and for the year ended June 30, 20 II, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits ofCalifornia K-12 Local Educational Agencies 2010-11, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Morongo Unified School District, as of June 30, 20II, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed in the Notes to the basic fmancial statements, the accompanying fmancial statements reflect certain changes required as a result of the implementation of GASB Statement No. 54 for the year ended June 30, 20 II.
As discussed in the Notes to the basic financial statements, the State of California continues to suffer the effects of a recessionruy economy, which directly impacts the funding requirements ofthe State of California to the K-I2 educational community.
In accordance with Government Auditing Standards, we have also issued our report dated November 23, 2011, on our consideration of the District's internal control over fmancial 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed iit accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results ofour audit.
2
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • SACRAMENTO The required supplementary infonnation, such as management's discussion and analysis on pages 4 through 11 and budgetary comparison and other postemployment infonnation on page 49 and SO, are not a required part of the basic financial statements, but are supplementary infonnation required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary infonnation. However, we did not audit the infonnation and express no opinion on it.
Our audit was conducted for the purpose of fonning opinions on the financial statements that collectively comprise the District's basic fmancial statements. The supplementary infonnation listed in the table of contents, including the Schedule of Expenditures of Federal Awards which is required by U.S. Office of Management and Budget Circular A-133, Audits ofState, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such infonnation has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Vo.vritt~~.k, 1;.;tle, O~a.j-t' c~.J L.t...P Rancho Cucamonga, California November 23, 2011
3 Board of Education Phyllis Swinnerton, President MORONGO Donna Munoz Ron Palmer UNIFIED SGIOOL DISTRICf Chris Proudfoot Ed Will
5715 Utah Trail (P.O. Box 1209), Twentynine Palms, CA 92277 (760) 367-9191 or (760)365-3394 Fax: (760) 367-7189
District Superintendent James Majchrzak
This section of Morongo Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial perfonnance during the fiscal year that ended on June 30,2011, with comparative infonnation from 2010. Please read it in conjunction with the District's fmancial statements, which immediately follow this section.
OVERVIEW OF THE FINANCIAL STATEMENTS
The Financial Statements
The financial statements presented herein include all of the activities of the Morongo Unified School District and its component units using the integrated approach in accordance with Governmental Accounting Standards Board (GASB) Statement No. 34.
The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities. These statements include all assets of the District as well as all liabilities (including long-tenn obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables and receivables.
The Fund Financial Statements include statements for each of the two categories of activities: governmental and fiduciary.
The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting.
The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting.
The Primary unit of the government is the Morongo Unified School District.
The Management Discussion and Analysis Statements are provided to assist our citizens, taxpayers and investors in reviewing the District's finances and to show the District's accountability for the money it receives.
+ Learning for Life +
4 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30,2011
FINANCIAL HIGHLIGHTS OF THE PAST YEAR
• The Morongo Unified School Districfs Government-Wide Statement ofNet Assets shows total net assets of $71,823,435, the result of assets of$112,469,690 minus liabilities of$40,646,255.
• General revenues accounted for $58,993,657 in revenue or 66.9 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $29,141,902 or 33.1 percent oftotal revenues of$88,135,559.
• The District had $79,054,794 in expenses related to governmental activities; only $29,141,902 ofthese expenses was offset by program specific charges for services, grants or contributions. General revenues (primarily State revenue limit sources and property taxes) of$58,993,657 were adequate to provide for these programs.
• The General Fund reported a positive fund balance of $24,354,196.
REPORTING THE DISTRICT AS A WHOLE
The Statement ofNet Assets and the Statement ofActivities
The Statement ofNet Assets and the Statement ofActivities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.
These two statements report the District's net assets and changes in them. Net assets are the difference between assets and liabilities, one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. Other factors to consider are changes in the district's property tax base and the condition ofthe District's facilities.
The relationship between revenues and expenses are the District's operating results. Since the Board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation.
In the Statement ofNet Assets and the Statement ofActivities, we present the District activities as follows:
Governmental Activities- Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, as well as Federal, State, and local grants finance these activities.
5 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS .JUNE 30, 2011
REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS
Fund Financial Statements
The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Funds are required to be established by State law; however, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education.
Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at the year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other fmancial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the district's programs. The differences of results in the governmental fund financial statements to those in the government-wide fmancial statements are explained in a reconciliation following each governmental fund financial statement.
THE DISTRICT AS TRUSTEE
Reporting the District's Fiduciary Responsibilities
The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, scholarships, employee retiree benefits, and pensions. The District's fiduciary activities are reported in the Statements ofFiduciary Net Assets. We exclude these activities from the District's other fmancial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes.
6 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2011
THE DISTRICT AS A WHOLE
Net Assets
The District's net assets were $71,823,435 for the fiscal year ended June 30, 2011. Of this amount $23,548,012 was unrestricted. Restricted net assets are reported separately to show legal constraints from debt covenants and enabling legislation that limit the Board's ability to use those net assets for day-to-day operations. Our analysis below focuses on the net assets (Table 1) and change in net assets (Table 2) of the District's governmental activities.
Table 1
Governmental Activities 2011 2010 Assets Current and other assets $ 65,936,388 $55,561,525 Capital assets 46,533,302 46,494,805 Total Assets 112,469,690 102,056,330 Liabilities Current liabilities 11,424,220 9,623,592 Long-term obligations 29,222,035 29,690,068 Total Liabilities 40,646,255 39,313,660 Net Assets Invested in capital assets, net of related debt 30,472,162 25,713,805 Restricted 17,803,261 20,914,422 Unrestricted 23,548,012 16,114,443 Total Net Assets $71,823,435 $62,742,670
7 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2011
Changes in Net Assets
The change in total net assets is due to an increase in receivables, and buildings and improvements for modernization projects.
Table2
Governmental Activities 2011 2010 Revenues Program revenues: Charges for services $ 1,636,444 $ 1,971,751 Operating grants and contributions 21,764,349 21,376,710 Capital grants and contributions 5,741,109 4,063,993 General revenues: Federal and State aid not restricted to specific purposes 50,595,211 47,299,953 Property taxes 7,145,491 8,010,005 Other general revenues 1,252,955 1,440,678 Total Revenues 88,135,559 84,163,090 Expenses Instruction-related 53,585,520 56,000,489 Other pupil services 11,005,995 10,926,020 Administration 4,505,403 4,221,186 Maintenance and operations 8,117,084 8,616,180 Other 1,840,792 1,827,557 Total Expenses 79,054,794 81,591,432 Change in Net Assets $ 9,080,765 $ 2,571,658
Governmental Activities
As reported in the Statement ofActivities, the cost of all of our governmental activities this year was $79.1 million However, the amount that our taxpayers ultimately fmanced for these activities through local taxes was only $7.6 million because the cost was paid by those who benefited from the programs ($1.6 million) or by other governments and organizations who subsidized certain programs with grants and contributions ($27.5 million). We paid for the remaining "public benefit" portion of our governmental activities with $51.4 million in State funds and other revenues, like interest and general entitlements.
8 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2011
In Table 3, we have presented the net cost (total cost less revenues generated by the activities) of each of the District's largest functions- instruction-related activities, other pupil services, administration, maintenance and operations, and other activities. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this infonnation allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function.
Table3
Net Cost by Function 2011 2010 Instruction-related activities $ 32,771,646 $ 36,934,190 Other pupil-services 3,664,448 3,635,531 Administration 3,630,182 3,329,678 Maintenance and operations 8,103,227 8,566,087 Other activities 1,743,389 1,713,492 Total $49,912,892 $ 54,178,978
THE DISTRICT FUNDS
As the District completed this year, our governmental funds reported a combined fund balance of $54,131,362 which is an increase of$8,538,324 over last year.
Table4
Balances and Activity July 1, 2010 Revenues Expenditures June 30, 2011 General Fund $ 20,073,423 $ 75,728,230 $ 71,447,457 $24,354,196 Cafeteria Fund 445,101 4,034,350 3,985,517 493,934 Deferred Maintenance Fund 1,267,729 11,447 230,524 1,048,652 Building Fund 11,909,917 1,964,967 2,109,830 11,765,054 Capital Facilities Fund 9,554,500 787,089 16,480 10,325,109 County School Facilities Fund 340,514 5,741,109 1,862,507 4,219,116 Bond Interest and Redemption Fund 2,001,854 1,722,995 1,799,548 1,925,301 Total $45,593,038 $ 89,990,187 $81,451,863 $54,131,362
General Fund Budgetary Highlights
The District's budget is prepared in accordance with California law and is based on accounting for certain transactions on a basis of cash receipts, disbursements and encumbrances. The most significant budgeted fund is the General Fund.
9 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30,2011
The District begins the budget process in January of each year, to be completed by June 30. During the course of the fiscal year, the District revises its budget as it deals with changes in revenues and expenditures.
Revenues were $1,383,74lless than expected and expenditures were $7,670,506less than projected. The State of California had not finalized its budget at the time the original budget was adopted. Grant and entitlement amounts were not finalized until later in the year. Carryover amounts and ending balances are not determined until the books are finally closed.
Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 49.)
CAPITAL ASSETAND DEBTADMINISTRATION
Capital Assets (Net ofDepreciation)
At the end of fiscal year of20 11, the District had $46,533,302 invested in land, buildings, equipment, and construction in progress. Table 5 shows fiscal year 2010-2011 balances compared to fiscal year 2009-2010 balances.
TableS
Governmental Activities 2011 2010 Land $ 1,620,828 $ 1,620,828 Construction in progress 5,385,302 3,694,607 Buildings and improvements 37,560,173 39,234,160 Furniture and equipment 1,966,999 1,945,210 Total $ 46,533,302 $ 46,494,805
We present more detailed information about our capital assets in Note 4 to the financial statements.
Long-Term Obligations
At the end of this year, the District had $28,520,000 of general obligation bonds payable, $161,607 of premium on issuance, $448,450 in compensated absences payable, and $91,978 in net OPEB obligation.
10 MORONGO UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2011
SIGNIFICANT ACCOMPLISHMENTS OF FISCAL YEAR 2010-2011 ARE NOTED BELOW
The Morongo Unified School District would like to recognize the following employees. Their expertise, hard work and professionalism made the implementation of the integrated approach prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34 possible. They are responsible for the success of this year's report:
• Jeannette Dube • Sandi Pearce • Diana Vining • Marilyn Waters • Valerie Paulus
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES
In considering the District Budget for the 2011-2012 school year, the District Board and management used the following criteria:
The key assumptions in our revenue forecast are:
1. Decrease revenue limit income due to a decline in student enrollment, COLA and an increase in deficit. 2. No COLA for programs.
Expenditures are based on the following forecasts:
Staffing Ratio Enrollment Grades kindergarten through two 23:1 2,143 Grades three through six 30:1 2,692 Grades seven through twelve 29.9:1 3,671 Special education N/A 379
The major changes to expenditure items specifically addressed in the budget are:
1. Employee step and column increases, and no furlough days. 2. Moved ARRA funded teachers to the General Fund.
CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for money it receives. If you have questions about this report or need any additional financial information, contact David Price, Assistant Superintendent-Business Services, Morongo Unified School District, 5715 Utah Trail, P.O. Box 1209, Twentynine Palms, CA 92277 or david [email protected].
11 MORONGO UNIFIED SCHOOL DISTRICT
STATEMENT OF NET ASSETS JUNE 30, 2011
Governmental Activities ASSETS Deposits and investments $ 46,381,169 Receivables 18,669,582 Prepaid expenditures 616,275 Deferred cost on issuance 160,762 Stores inventories 108,600 Capital assets Land and construction in progress 7,006,130 Other capital assets 81,432,443 Less: Accumulated depreciation (41,905,271) Capital assets, net of accumulated depreciation 46,533,302 Total Assets 112,469,690
LIABU..ITIES Accounts payable 9,265,465 Claims liability 10,000 Interest payable 568,457 Deferred revenue 1,580,298 Current portion of long-term obligations 390,000 Noncurrent portion of long-term obligations 28,8.32,035 Total Liabilities 40,646,255
NET ASSETS Invested in capital assets, net of related debt 30,472,162 Restricted for: Debt service 1,356,844 Capital projects 13,688,812 Educational programs 2,263,671 . Other activities 493,934 Unrestricted 23,548,012 Total Net Assets $ 71,823,435
The accompanying notes are an integral part of these fmancial statements.
12 MORONGO UNIFffiD SCHOOL DISTRICT
STATEMENT OF ACTMTIES FOR THE YEAR ENDED JUNE 30, 2011
Net (Expenses) Revenues and Changes in Pr~ram Revenues Net Assets Charges for Operating Capital Services and Grants and Grants and Governmental Functions/Pr~rams Exeenses Sales Contributions Contributions Activities Governmental Activities: Instruction $ 45,273,582 $ 506,004 $ 12,668,653 $ 5,741,109 $ (26,357,816) Instruction-related activities: Supervision of instruction 2,325,673 70,936 1,484,491 (770,246) Instructional library, media and technology 640,534 3,496 34,103 {602,935) School site administration 5,345,731 305,082 (5,040,649) Pupil services: Home-to-school transportation 3,566,912 143,308 2,087,441 (1,336,163) Food services 3,999,459 764,314 3,175,059 (60,086) All other pupil services 3,439,624 1,171,425 (2,268, 199) Administration: Data processing 756,144 118,631 56,812 (580,701) All other administration 3,749,259 27,855 671,923 (3,049,481) Plant services 8,ll7,084 1,900 11,957 (8,103,227) Ancillary services 263,965 913 (263,052) Community services 121,076 86,5ll (34,565) Interest on long-term obligations 1,401,035 (1,401,035) Other outgo 54,716 9,979 ~44,737) Total Governmental Activities $ 79,054,794 $ 1,636,444 $ 21,764,349 $ 5,741,109 (49,912,892)
General revenues and subventions: Property taxes, levied for general purposes 5,475,406 Property taxes, levied for debt service 1,670,085 Taxes levied for other specific purposes 494,748 Federal and State aid not restricted to specific purposes 50,595,211 Interest and investment earnings 323,512 Miscellaneous 434,695 Subtotal, General Revenues 58,993,657 Change in Net Assets 9,080,765 Net Assets- Beginning 62,742,670 Net Assets - Ending $ 71,8231435
The accompanying notes are an integral part of these fmancial statements.
13 MORONGO UNIFIED SCHOOL DISTRICT
GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2011
Capital General Building Facilities Fund Fund Fund ASSETS Deposits and investments $ 15,026,312 $ 12,620,467 $ 9,946,419 Receivables 17,778,073 31,322 378,690 Due from other funds 831,842 Prepaid expenditures 616,275 Stores inventories 27,062 Total Assets $ 34,279,564 $ 12,651,789 $ 10,325,109 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 8,363,286 $ 882,991 $ Due to other funds 3,744 Deferred revenue 1,562,082 Total Liabilities 9,925,368 886,735 Fund Balances: Nonspendable 678,337 Restricted 2,263,671 11,765,054 10,325,109 Committed Assigned 4,835,167 Unassigned 16,577,021 Total Fund Balances 24,354,196 11,765,054 10,325,109 Total Liabilities and Fund Balances $ 34,279,564 $ 12,651,789 $ 10,325,109
The accompanying notes are an integral part of these fmancial statements.
14 Non-Major Total Governmental Governmental Funds Funds
$ 7,991,091 $ 45,584,289 479,876 18,667,961 831,842 616,275 81,538 108,600 $ 8,552,505 $ 65,808,967
$ 19,188 $ 9,265,465 828,098 831,842 18,216 1,580,298 865,502 11,677,605
81,588 759,925 6,556,763 30,910,597 1,048,652 1,048,652 4,835,167 16,577,021 7,687,003 54,131,362
$ 8,552,505 $ 65,808,967
14
[THIS PAGE INTENTIONALLY LEFT BLANK]
MORONGO UNIFIED SCHOOL DISTRICT
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30,2011
Total Fund Balance - Governmental Funds $ 54,131,362 Amounts Reported for Governmental Activities in the Statement of Net Assets are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is the following $ 88,438,573 Accumulated depreciation is the following (41,905,271) Net Capital Assets 46,533,302 Expenditures relating to issuance of debt of next fiscal year were recognized in modified accrual basis, but should not be recognized in accrual basis. 160,762 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (568,457) An internal service fund is used by the District's management to account for the costs of the property and liability insurance program to the individual funds. The assets and liabilities of the internal service fund are included with governmental activities. Internal service fund net assets are: 788,501 Long-term obligations at year-end consist of the following: General obligation bonds 28,520,000 Unamortized premium amo"!lnt on issuance 161,607 Compensated absences 448,450 Net OPEB obligation 91,978 Total Long-Term Obligations (29,222,035) Total Net Assets - Governmental Activities $ 71,823,435
The accompanying notes are an integral part of these financial statements.
15 MORONGO UNIFIED SCHOOL DISTRICT
GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2011
Capital General Building Facilities Fund Fund Fund REVENUES Revenue limit sources $ 46,891,191 $ $ Federal sources 9,861,360 Other State sources 17,776,847 Other local sources 1,160,109 102,460 787,089 Total Revenues 75,689,507 102,460 787,089 EXPENDITURES Current Instruction 43,710,984 Instruction-related activities: Supervision of instruction 2,315,265 Instructional library, media, and technology 593,777 School site administration 5,270,115 Pupil services: Home-to-school transportation 3,565,123 Food services 382 All other pupil services 3,439,624 Administration: Data processing 613,891 All other administration 3,574,673 6,650 Plant services 7,736,611 30,917 Facility acquisition and construction 146,760 2,078,913 9,830 Ancillary services 261,643 Community services 121,076 Other outgo 54,716 Debt service Principal 29,283 Interest and other 13,534 Total Expenditures 71,447,457 2,109,830 16,480 Excess (Deficiency) of Revenues Over Expenditures 4,242,050 p,007,370l 770,609 OTHER FINANCING SOURCES (USES) Transfers in 1,862,507 Other sources 38,723 Transfers out Net Financing Sources (Uses) 38,723 1,862,507 NET CHANGE IN FUND BALANCES 4,280,773 (144,863) 770,609
Fund Balances - Beginning 20,073 2423 11,909,917 9,554,500 Fund Balances - Ending $ 24,354,196 $ 11,765,054 $ 10,325,109
The accompanying notes are an integral part of these financial statements.
16 Non-Major Total Governmental Governmental Funds Funds
$ $ 46,891,191 2,982,891 12,844,251 5,985,762 23,762,609 2,541,248 4,590,906 11,509,901 88,088,957
43,710,984
2,315,265 . 593,777 5,270,115
3,565,123 3,891,389 3,891,771 3,439,624
613,891 85,075 3,666,398 220,456 7,987,984 19,121 2,254,624 261,643 121,076 54,716
425,000 454,283 1,374,548 1,388,082 6,015,589 79,589,356 5,494,312 8,499,601
1,862,507 38,723 {1,862,5072 {1,862,5072 {1,862,507~ 38,723 3,631,805 8,538,324 4,055,198 45,593,038 $ 7,687,003 $ 54,'131 ,362
16 MORONGO UNIFIED SCHOOL DISTRICT
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011
Total Net Change in Fund Balances- Governmental Funds $ 8,538,324 Amounts Reported for Governmental Activities in the Statement of Activities are Different Because:
Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities, those costs are shown in the Statement of Net Assets and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlays exceed depreciation in the period. Capital outlays $ 2,416,842 Depreciation expense (2,156,068) 260,774 Loss on disposal of capital assets is reported in the government-wide financial Statement of Net Assets, but is not recorded in the governmental funds. (222,277)
In the Statement of Activities, certain operating expenses - compensated absences (vacations) and special termination benefits (early retirement) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of fmancial resources used (essentially, the amounts actually paid). This year, special termination benefits used was more than amounts earned by $72,000. Vacation used was less than amounts earned by $11,843. 60,157
In the Statement of Activities, Other Postemployment Benefit Obligations (OPEB) are measured by an actuarially determined Annual Required Contribution (ARC). In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, amounts contributed toward the OPEB obligation were less than the ARC by $25,204. (25,204) Repayment of debt principal is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement ofNet Assets and does not affect the Statement of Activities. General obligation bonds 425,000
The accompanying notes are an integral part of these fmancial statements.
17 MORONGO UNIFIED SCHOOL DISTRICT
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTMTIES (Continued) FOR THE YEAR ENDED JUNE 30, 2011
Under the modified basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not nonnally paid with expendable available financial resources. In the Statement of Activities, however, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. Amortization of premiwn $ 8,080 Amortization of cost of issuance {8,038) Combined adjustment $ 42 Interest on long-tenn obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. 8,250 An internal service fund is used by the District's management to account for the costs of the self-insurance property and liability program. The net revenue of the internal service fund is reported with governmental activities. 35,699 Change in Net Assets of Governmental Activities $ 9,080,765
The accompanying notes are an integral part of these fmancial statements.
18 MORONGO UNIFIED SCHOOL DISTRICT
PROPRIETARY FUND STATEMENT OF NET ASSETS JUNE 30, 2011
Governmental Activities Internal Service Fund ASSETS Current Assets Deposits and investments $ 796,880 Receivables 1,621 Total Current Assets 798,501
LIABILITIES Current Liabilities Claim liabilities 10,000
NET ASSETS Unrestricted 788,501 Total Net Assets $ 788,501
The accompanying notes are an integral part of these financial statements.
19 MORONGO UNIFIED SCHOOL DISTRICT
PROPRIETARY FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011
Governmental Activities Internal Service Fund OPERATING REVENUES Charges for services $ Total Operating Revenues
OPERATING EXPENSES Credit for claims provision (27,820) Total Operating Expenses (27,820)
NON-OPERATING REVENUES Interest income 7,879 Total Non-operating Revenues 7,879
Change in Net Assets 35,699 Total Net Assets- Beginning 752,802 Total Net Assets - Ending $ 788,501
The accompanying notes are an integral part of these fmancial statements.
20 MORONGO UNIFIED SCHOOL DISTRICT
PROPRIETARY FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2011
Internal Service Fund Self-Insurance CASH FLOWS FROM OPERATING ACTMTIES Cash receipts from interfund services provided $ 28,502 Cash payments to other suppliers of goods or services (27,820) Net Cash Provided by Operating Activities 682
CASH FLOWS FROM INVESTING ACTMTIES Interest on investments 7,879
Net increase in cash and cash equivalents 8,561 Cash and cash equivalents - beginning 788,319 Cash and cash equivalents - ending $ 796,880
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTMTIES: Operating gain $ 27,820 Changes in assets and liabilities: Accounts receivable 682 Claims liability (27,820) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 682
The accompanying notes are an integral part of these fmancial statements.
21 MORONGO UNIFIED SCHOOL DISTRICT
FIDUCIARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2011
Agency Funds ASSETS Deposits and investments $ 310,881 Stores inventories 16,647 Total Assets $ 327,528
LIABILITIES Due to student groups $ 327,528
The accompanying notes are an integral part of these fmancial statements.
22 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Reporting Entity
The Morongo Unified School District (the District) was unified under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K-12 as mandated by the State and/or Federal agencies. The District operates eleven elementary schools, two middle schools, two comprehensive high schools, two continuation high schools, and an independent study program.
A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Morongo Unified School District, this includes general operations, food service, and student related activities of the District.
Basis of Presentation- Fund Accounting
The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary.
Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds:
Major Governmental Funds
General Fund The General Fund is the chief operating fund for all districts. It is used to account for and report all financial resources not accounted for and reported in another fund. ·
Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued.
Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in Government Code Sections 65970-65981 or to the items specified in agreements with the developer (Government Code Section 66006).
23 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS .JUNE 30, 2011
Non-Major Governmental Funds
Special Revenue Funds The Special Revenue funds are established to account for the proceeds of specific revenue sources that are restricted or committed to expenditures for the specific purpose (other than debt service or capital projects) of the individual funds.
Cafeteria Fund The Cafeteria Fund is used to account separately for federal, State, and local resources to operate the food service program (Education Code Sections 38090-38093) and is used only for those expenditures authorized by the governing board as necessruy for the operation of the District's food service program (Education Code Sections 38091 and 38100).
Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for State apportionments and the District's contributions for deferred maintenance purposes (Education Code Sections 17582-17587) and for items of maintenance approved by the State Allocation Board, except for State apportionments which, as a result of Senate Bi114 of the 2009-10 Third Extraordinary Session (SBX3 4), may be used for any educational purpose.
Capital Project Funds The Capital Project funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets (other than those financed by proprietary funds and trust funds).
County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section 17070.43 to receive apportionments from the 1998 State School Facilities Fund (Proposition lA), the 2002 State School Facilities Fund (Proposition 47), or the 2004 State School Facilities Fund (Proposition 55) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section 17070 et seq.).
Debt Service Funds The Debt Service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for principal and interest on long-term obligations.
Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a District (Education Code Sections 15125-15262).
Proprietary Funds Proprietary fund reporting focuses on the determination of operating income, changes in net assets, financial position, and cash flows. The District applies all GASB pronouncements, as well as the Financial Accounting Standards Board pmnouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. Proprietary funds are classified as enterprise or internal service. The District has the following proprietary fund:
Internal Service Fund Internal Service funds may be used to account for any activity for which services are provided to other funds of the District on a cost-reimbursement basis. The District operates a self-insurance property and liability fund that is accounted for in an internal service fund.
24 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
Fiduciary Funds Fiduciary fund reporting focuses on net assets and changes in net assets. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds.
Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The District's agency fund accounts for student body activities (ASB).
Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore, not available to support the District's own programs. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for $dent body activities (ASB).
Basis of Accounting - Measurement Focus
Government-Wide Financial Statements The government-wide statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared.
The government-wide statement of activities presents a comparison between direct expenses and program revenues for each governmental program, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities.
Net assets should be reported as restricted when constraints placed on net asset use aie either externally imposed by creditors (such as through debt covenants}, grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net assets restricted for other activities result from special revenue funds and the restrictions on their net asset use.
Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. The internal service fund is presented in a single column on the face of the proprietary fund statements.
25 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide statements are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identifY the relationship between the government-wide statements and the statements for the governmental funds on a 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.
Proprietary Funds Proprietmy funds are accounted for using a flow of economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the statement of net assets. The statement of changes in fund net assets presents increases (revenues) and decreases (expenses) in net total assets. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary fund.
Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting.
Revenues - Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means expected to be received within 90 days of fiscal year-end. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources.
Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.
Deferred Revenue Deferred revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifYing expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized.
Certain grants received before the eligibility requirements are met are recorded as deferred revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as deferred revenue.
26 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on long term obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements.
Cash and Cash Equivalents
The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the statement of cash flows.
Investments
Investments held at June 30, 2011, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost.
Prepaid Expenditures
Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period.
Stores Inventories
Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental type funds when used.
Capital Assets and Depreciation
The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of$5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred.
When purchased, such assets are recorded as expenditures in the governmental funds1and capitalized in the government-wide statement of net assets. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated.
Capital assets in the proprietary funds are capitalized in the fun in which they are utilized. The valuation basis for property fund capital assets is the same as those used for the capital assets of governmental funds.
27 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
Depreciation of capital assets is computed and recorded by the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements/ infrastructure, 5 to 50 years; equipment, 2 to 15 years.
Interfund Balances
On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables". These amounts are eliminated in the governmental activities of the statement of net assets.
Compensated Absences
Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net assets. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year-end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid.
Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, 1999. At retirement, each member will receive .004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is detennined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time.
Accrued Liabilities and Long-Term Obligations
All payables, accrued liabilities, and long-term obligations are reported in the government-wide and proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds.
However, claims and judgments, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Capital leases are recognized as liabilities in the governmental fund financial statements when due.
Deferred Issuance Costs, Premiums and Discounts
In the government-wide financi~il statements and in the proprietary fund type fmancial statements, long-terin obligations and other long-"term :obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method.
28 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
Fund Balances - Governmental Funds
As of June 30,2011, fund balances ofthe governmental funds are classified as follows:
Nonspendable -amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact.
Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments.
Committed- amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board.
Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or chief business officer/assistant superintendent of business services may assign amounts for specific purposes.
Unassigned- all other spendable amounts.
Spending Order Policy
When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions.
Minimum Fund Balance Policy
In fiscal year 2010-2011, the governing board adopted a minimum fund balance policy for the General Fund in order to protect the District against revenue shortfalls or unpredicted one-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than three percent of General Fund expenditures and other fmancing uses.
Net Assets
Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurired for purposes for which both restricted and unrestricted net assets are available. The government-wide finaneial statements report $17,803,261 of restricted net assets.
29 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
Operating Revenues and Expenses
Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the District, these revenues are transfers from the General Fund. Operating expenses are for claims paid. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.
Interfund Activity
Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements.
Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
Budgetary Data
The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.
The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For purposes of the budget, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.
Property Tax
Secured property taxes attach as an enforceable lien on property as of January I. Taxes are payable in two installments on November 15 and March 15 and become delinquent on December 10 and April10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of San Bernardino bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received.
30 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
Changes in Accounting Principles
In March 2009, the GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The objective of this Statement is to enhance the usefulness of fund balance infonnation by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds.
The initial distinction that is made in reporting fund balance information is identifying amounts that are considered nonspendable, such as fund balance associated with inventories. This Statement also provides for additional classification as restricted, committed, assigned, and unassigned based on the relative strength of the constraints that control how specific amounts can be spent.
The restricted fund balance category includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority. Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. Unassigned fund balance is the residual classification for the government's general fund and includes all spendable amountS not contained in the other classifications. In other funds, the unassigned classification should be used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed, or assigned. Governments are required to disclose information about the processes through which constraints are imposed on amounts in the committed and assigned classifications.
Governments also are required to classify and report amounts in the appropriate fund balance classifications by applying their accounting policies that determine whether restricted, committed, assigned, and unassigned amounts are considered to have been spent. Disclosure of the policies in the notes to the financial statements is required.
This Statement also provides guidance for classifying stabilization amounts on the face of the balance sheet and requires disclosure of certain information about stabilization arrangements in the notes to the financial statements. The definitions of the general fund, special revenue fund type, capital projects fund type, debt service fund type, and permanent fund type are clarified by the provisions in this Statement. Interpretations of certain terms within the definition of the special revenue fund type have been provided and, for some governments, those interpretations may affect the activities they choose to report in those funds. The capital projects fund type definition also was clarified for better alignment with the needs of preparers and users. Definitions of other governmental fund types also have been modified for clarity and consistency.
The District has implemented the provisions of this Statement for the year ended June 30, 2011.
31 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS .JUNE 30, 2011
New Accounting Pronouncements
In November 201 0, the GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus-an amendment ofGASB Statements No. 14 and No. 34. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements of GASB Statement No. 14, The Financial Reporting Entity, and the related financial reporting requirements of GASB Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis-for State and Local Governments, were amended to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements.
This Statement modifies certain requirements for inclusion of component units in the financial reporting entity. For organizations that previously were required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship also would need to be present between the primary government and that organization for it to be included in the reporting entity as a component unit. Further, for organizations that do not meet the financial accountability criteria for inclusion as component units but that, nevertheless, should be included because the primmy government's management determines that it would be misleading to exclude them, this Statement clarifies the manner in which that determination should be made and the types of relationships that generally should be considered in making the determination.
This Statement also amends the criteria for reporting component units as if they were part of the primmy government (that is, blending) in certain circumstances. For component units that currently are blended based on the "substantively the same governing body" criterion, it additionally requires that (I) the primmy government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primmy government have operational responsibility (as defmed in paragraph 8a) for the activities of the component unit. New criteria also are added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government. The blending provisions are amended to clarity that funds of a blended component unit have the same financial reporting requirements as a fund of the primmy government. Lastly, additional reporting guidance is provided for blending a component unit if the primmy government is a business-type activity that uses a single column presentation for financial reporting.
This Statement also clarifies the reporting of equity interests in legally separate organizations. It requires a primmy government to report its equity interest in a component unit as an asset. The provisions of this Statement are effective for financial statements for periods beginning after June 15,2012. Early implementation is encouraged.
NOTE 2- DEPOSITS AND INVESTMENTS
Policies and Practices
The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations.
32 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value ofthe District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis.
General Authorizations
Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below:
Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio In One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20%ofbase None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None
Summary of Deposits and Investments
Deposits and investments as of June 30, 2011, are classified in the accompanying financial statements as follows:
Governmental activities $46,381,169 Fiduciary funds 310,881 Total Deposits and Investments $ 46,692,050
33 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS .JUNE 30, 2011
Deposits and investments as of June 30, 2011, consist of the following:
Cash on hand and in banks $ l,l01,30I Cash in revolving 35,050 Investments 45,555,699 Total Deposits and Investments $ 46,692,050
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the county pool and having the pool purchase a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.
Specific Identification
Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuation is provided by the following schedule that shows the distribution of the District's investment by maturity:
Weighted-Average Fair Days to Investment Type Value Maturity County Pool $ 45,692,366 360
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by the California Government Code, the District's investment policy, or debt agreements, and the actual rating as of the year-end for each investment type.
Minimum Legal Rating Investment TyPe Rating June 30, 20 II Fair Value County Pool Not Required Not Required $ 45,692,366
34 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
Custodial Credit Risk- Deposits
This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. As of June 30,2011, the District's bank balance of$1,142,756 was exposed to custodial credit risk because $598,680 was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District.
NOTE 3- RECEIVABLES
Receivables at June 30, 2011, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full.
Capital Non-Major Internal Total General Building Facilities Governmental Service Governmental Fund Fund Fund Funds Fund Activities Federal Government Categorical aid $ 1,574,132 $ $ $ 426,774 $ $ 2,000,906 State Government Apportionment 11,378,205 11,378,205 Categorical aid 2,888,364 37,966 2,926,330 Lottery 628,279 628,279 Local Government Interest 43,232 24,282 20,251 10,478 1,621 99,864 Other Local Sources 1,265,861 7,040 358,439 4,658 1,635,998 Total $17'778,073 $31,322 $ 378,690 $ 479,876 $ 1,621 $ 18,669,582
35 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS .JUNE 30, 2011
NOTE 4- CAPITAL ASSETS
Capital asset activity for the fiscal year ended June 30, 20 II, was as follows:
Balance Balance Jul;t I, 2010 Additions Deductions June 30, 2011 Governmental Activities Capital Assets Not Being Depreciated Land $ 1,620,828 $ $ $ 1,620,828 Construction in process 3,694,607 2,255,024 564,329 5,385,302 Total Capital Assets Not Being Depreciated 5,315,435 2,255,024 564,329 7,006,130 Capital Assets Being Depreciated Land improvements 11,834,732 34,021 11,868,753 Buildings and improvements 61,650,872 11,077 61,661,949 Furniture and equipment 7,442,969 458,772 7,901,741 Total Capital Assets Being Depreciated 80,928,573 503,870 81,432,443 Less Accumulated Depreciation Land improvements 8,634,718 211,577 8,846,295 Buildings and improvements 25,616,726 1,507,508 27,124,234 Furniture and equipment 5,497,759 436,983 5,934,742 Total Accumulated Depreciation 39,749,203 2,156,068 41,905,271 Governmental Activities Capital Assets, Net $ 46,494,805 $ 602,826 $ 564,329 $ 46,533,302
Depreciation expense was charged to governmental functions as follows:
Governmental Activities Instruction $ 1,643,661 Supervision of instruction 7,477 Instructional library, media, and technology 46,757 School site administration 75,616 Home-to-school transportation 1,789 Food services 107,688 Ancillary services 2,322 Other general administration 67,502 Data processing 142,253 Plant services 61,003 Total Depreciation Expenses Governmental Activities $ 2,156,068
36 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
NOTE 5- INTERFUND TRANSACTIONS
Interfund Receivables/Payables (Due To/Due From)
Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. lnterfund receivable and payable balances at June 30,2011, between major and non-major governmental funds, non-major enterprise funds, internal service funds, and fiduciary funds are as follows:
Due From Non-Major Building Governmental Due To Fund Funds Total General Fund $ 3,744 $ 828,098 $ . 831,842
The balance of$828,098 is due to the General Fund from the Cafeteria (Non-Major) Fund for payroll and operating expenses. The balance of $3,744 is due to the General Fund from the Building Fund for reimbursement of costs.
Balances resulted from the time lag between the date that ( 1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made.
Operating Transfers lnterfund transfers for the year ended June 30,2011, consisted of the following:
Transfer From Non-Major Governmental Transfer To Funds Building Fund $ 1,862,507
The County School Facilities Fund transferred to the Building Fund for reimbursement of costs. $ 1,862,507
Inte'rfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them.
37 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
NOTE6-ACCOUNTSPAYABLE
Accounts payable at June 30,2011, consisted of the following:
Non-Major Total General Building Governmental Governmental Fund Fund Funds Activities Vendor payables $ 3,019,977 $ 16,675 $ 19,188 $ 3,055,840 State apportionment 458,045 458,045 Salaries and benefits 4,885,264 4,885,264 Construction 866,316 866,316 Total $ 8,363,286 $ 882,991 $ 19,188 $ 9,265,465
NOTE 7- DEFERRED REVENUE
Deferred revenue at June 30,2011, consists ofthe following:
Non-Major Total General Governmental Governmental Fund Funds Activities Federal financial assistance $ 1,555,363 $ $ 1,555,363 State categorical aid 3,336 3,336 Other local 3,383 18,216 21,599 Total $ 1,562,082 $ 18,216 $ 1,580,298
NOTE 8- LONG-TERM OBLIGATIONS
Summary
The changes in the District's long-term obligations during the year consisted of the following:
Balance Balance Due in
Jul~ I, 2010 Additions Deductions June 302 2011 One Year General obligation bonds payable $ 28,945,000 $ - $ 425,000 $ 28,520,000 $ 390,000 Premium on issuance 169,687 8,080 161,607 Supplemental Early Retirement Program 72,000 72,000 Accumulated vacation - net 436,607 11,843 448,450
Net OPEB obligation 66,774 133,870 1082666 91 2978 $ 2926902068 $ 1452713 $ 613,746 $ 29,2222035 $ 3902000
38 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
• Payments for bonds associated with General Obligation Bonds are made in the Bond Interest and Redemption Debt Service Fund.
• Payments for supplemental early retirement program are made in the General Fund.
• Payments for accumulated vacations and other postemployment benefits are typically liquidated in the fund for which the employee worked.
General Obligation Bonds
The general obligation bonded debt is as follows:
Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Date Date Rate Issue Jul;r 1, 2010 Issued Redeemed June 30, 2011 4/25/06 8/1/30 3.88%-7.00% $ 10,000,000 $ 8,165,000 $ $ 70,000 $ 8,095,000 6/12/08 8/1/38 4.00%- 5.25% 21,000,000 20,780,000 355,000 20,425,000 $31,000,000 $ 28,945,000 $ $ 425,000 $ 28,520,000
2005 Election, Series A General Obligation Bonds
During April 2006, the Morongo Unified School District issued the 2005 Election, Series A General Obligation Bonds in the amount of$10,000,000. The bonds contain an original issue premium of$202,007. The bonds were issued to finance certain capital projects of the District The bonds mature on August 1, 2030, and yield an interest rate of3.88 to 7.0 percent. At June 30, 2011, the principal balance outstanding was $8,095.000. Unamortized premium received on issuance amounted to $161,607.
Interest to Fiscal Year Princieal Maturity Total 2012 $ 90,000 $ 353,129 $ 443,129 2013 115,000 345,504 460,504 .,.. 2014 140,000 336,579 476,579 2015 170,000 325,729 495,729 2016 205,000 315,807 520,807 2017-2021 1,520,000 1,422,851 2,942,851 2022-2026 2,600,000 1,004,339 3,604,339 2027-2031 3,255,000 310,918 3,565,918 Total $ 8,095,000 $ 4,414,856 $ 12,509,856
39 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
2005 Election, Series B General Obligation Bonds
During June 2008, the Morongo Unified School District issued the 2005 Election, Series B General Obligation Bonds in the amount of$21,000,000. The bonds were issued to finance certain capital projects of the District. The bonds mature on August I, 2038, and yield an interest rate of 4.0 to 5.25 percent. At June 30, 201 I, the principal balance outstanding was $20,425,000.
Interest to Fiscal Year Princieai Maturity Total 2012 $ 300,000 $ 1,001,569 $ 1,301,569 2013 330,000 988,969 1,318,969 2014 175,000 978,869 1,153,869 2015 185,000 971,669 1,156,669 2016 195,000 964,069 1,159,069 2017-2021 1,005,000 4,701,429 5,706,429 2022-2026 1,810,000 4,423,346 6,233,346 2027-2031 3,680,000 3,846,700 7,526,700 2032-2036 7,975,00~ 2,349,163 10,324,163 2037-2039 4,770,000 301,613 5,071,613 Total $ 20,425,000 $ 20,527,396 $ 40,952,396
Accumulated Unpaid Employee Vacation
The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2011, amounted to $448,450.
Other Postemployment Benefits (OPEB) Obligation
The District's annual required contribution for the year ended June 30, 2011, was $130,531, and contributions made by the District during the year were $105,708. Interest on the net OPEB obligation and adjustments to the annual required contribution were $3,339 and ($2,958), respectively, which resulted in an increase to the net OPEB obligation of$25,204. As of June 30,2011, the net OPEB obligation was $91,978. See Note 11 for additional information regarding the OPEB obligation and the postemployment benefits plan.
40 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
NOTE 9- FUND BALANCES
Fund balances are composed of the following elements:
Capital Non-Major General Building Facilities Governmental Fund Fund Fund Funds Total Nonspendable Revolving cash $ 35,000 $ $ $ 50 $ 35,050 Stores inventories 27,062 81,538 108,600 Prepaid expenditures 616,275 616,275 Total Nonspendable 678,337 81,588 759,925 Restricted Legally restricted programs 2,263,671 412,346 2,676,017 Capital projects 11,765,054 10,325,109 4,219,116 26,309,279 Debt services 1,925,301 1,925,301 Total Restricted 2,263,671 11,765,054 10,325,109 6,556,763 30,910,597
Committed Deferred maintenance program 1,048,652 1,048,652
Assigned SCSEBA equity distribution 3,761 3,761 Interest payable 10,494 10,494 Program contigency 240,000 240,000 Health and welfare set aside 199,803 199,803 Site carryover 1,745,473 1,745,473 Other carryover 2,307,507 2,307,507 Other assignments 328,129 328,129 Total Assigned 4,835,167 4,835,167 Unassigned Economic uncertainties 2,113,000 2,113,000 Remaining unassigned 14,464,021 14,464,021 Total Unassigned 16,577,021 16,577,021 Total $ 24,354,196 $11,765,054 $10,325,109 $7,687,003 $54,131,362
41 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
NOTE 10- RISK FINANCING- CLAIMS
Description
The District risk financing activities for liability protection are recorded in the Internal Service Fund. The purpose of the fund is to administer the District's self-insured retention (deductible) portion of its liability insurance program.
The District participates in various public entity risk pools for health coverage and workers' compensation and property exposures (See Note 14- Participation in Public Entity Risk Pools).
Significant losses are covered by commercial insurance purchased from an independent insurance company and from the Schools Excess Liability Fund.
Claims Liabilities
The District records an estimated claims liability for liability claims filed against it. Claims liabilities are based on estimates of the ultimate cost of reported claims. An estimate for claims incurred, but not yet reported, which is deemed to be an immaterial amount has not been provided.
Unpaid Claims Liabilities
The fund establishes a liability for both reported and unreported events, which includes estimates of both future payments oflosses and related claim adjustment expenses. The following represent the changes in approximate aggregate liabilities for the District from July I, 2009 to June 30, 20 II:
Liability Balance, July I, 2009 $ 50,500 Claims and changes in estimates (11,259) Claims payments (I,42I) Liability Balance, June 30, 20IO 37,820 Claims and changes in estimates 10,000 Claims payments (37,820) Liability Balance, June 30, 20I1 $ 10,000
Assets available to pay claims at June 30, 2011 $ 798,501
42 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30,2011
NOTE 11- POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPED) OBLIGATION
Plan Description
The District does not provide a retiree benefit plan. However, because retiree contributions are based on average rates that include active employees, GASB Statement No. 45 requires that a valuation be done to reflect the implicit rate subsidy - i.e. the difference between the cost of retiree benefits and the rates charged retirees. There are currently 82 retirees receiving an implicit subsidy benefit through the District's benefits plan.
Contribution Information
The contribution requirements of retirees and the District are established and may be amended by the District and the Morongo Teachers Association (MTA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected "pay-as-you-go" financing requirements. For fiscal year 2010-2011, the actuarially determined amount contributed by the District as an implicit rate subsidy to current retirees was $105,708.
Annual OPED Cost and Net OPED Obligation
The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the plan:
Annual required contribution $ 130,531 Interest on net OPEB obligation , 3,339 Adjustment to annual required contribution (2,958) Annual OPEB cost (expense) 130,912 Contributions made (105,708) Increase in net OPEB obligation 25,204 Net OPEB obligation, beginning of year 66,774 Net OPEB obligation, end of year $ 91,978
Trend Information
Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows:
AnnualOPEB Actual Percentage NetOPEB Fiscal Year Cost Contribution Contributed Obli~tion 2009' $ 130,531 $ 97,239 74% $ 33,292 2010 130,721 97,239 74% 66,774 2011 130,912 105,708 74% 91,978
43 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS .JUNE 30, 2011
Funded Status and Funding Progress
A schedule of funding progress as ofthe most recent actuarial valuation is as follows:
Actuarial Accrued Liability Unfunded UAALasa Actuarial (AAL)- AAL Percentage of Valuation Actuarial Value Unprojected (UAAL) Funded Ratio Covered Covered Payroll Date of Assets (a) Unit Credit (b) (b-a) (a/ b) Payroll (c) ([b- aJ/ c) July I, 2008 $ - $ 1,254,251 $ 1,254,251 00/o $ 44,461,220 3%
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2008, actuarial valuation, the projected unit credit cost method was used. The actuarial assumptions included a five percent investment rate of return (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a combined equity and fixed income portfolio. Healthcare cost trend rates used was five percent up to an increase of seven percent. The cost trend rate used for the Dental and Vision programs was four percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at June 30, 2011, was 27 years. The actuarial value of assets was not determined in this actuarial valuation.
44 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
NOTE 12- EMPLOYEE RETIREMENT SYSTEMS
Qualified employees are covered under multiple-employer retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CaiSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS).
CaiSTRS
Plan Description
The District contributes to CalSTRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaiSTRS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. CaiSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CaiSTRS annual financial report may be obtained from CalSTRS, 7919 Folsom Blvd., Sacramento, California 95826.
Funding Policy
Active plan members are required to contribute 8.0 percent of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2010-2011 was 8.25 percent of annual payroll. The contribution requirements ofthe plan members are established by State statute. The District's contributions to CalSTRS for the fiscal years ending June 30, 2011, 2010, and 2009, were $2,712,933, $2,903,737, and $3,122,686, respectively, and equal100 percent of the required contributions for each year.
CaiPERS
Plan Description
The District contributes to the School Employer Pool under CalPERS, a cost-sharing multiple-employer public employee retirement system defmed benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95811.
45 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS .JUNE 30,2011
Funding Policy
Active plan members are required to contribute 7.0 percent of their sallll)' and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CaiPERS Board of Administration. The required employer contribution rate for fiscal year 20 I 0-20 II was I 0. 707 percent of covered payroll. The contribution requirements of the plan members are established by State statute. In addition, the District contributes a 2.3 percent buyout on behalf of its classified bargaining unit employees. The District's contributions to CaiPERS for the fiscal years ending June 30, 2011, 2010, and 2009, were $957,263, $860,426, and $846,I12, respectively, and equal100 percent of the required contributions for each year.
Public Agency Retirement System
The District also contributes to the Public Agency Retirement System (PARS), which is a defined contribution pension plan. A defmed contribution pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual's account are to be determined instead of specifYing the amount of benefits the individual is to receive. Under a defmed contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant's account, the returns earned on investments of those contributions, and forfeitures of other participants' benefits that may be allocated to such participant's account. As established by Federal law, all public sector employees who are not members of their employee's existing retirement system (CaiSTRS or CalPERS) must be covered by social security or an alternative plan. The District has elected to use PARS as its alternative plan. Contributions made by the District and an employee vest immediately. The District contributes 6.05 percent for its classified bargaining unit employees and 3.75 percent of all other employee's gross earnings. Classified employees are required to contribute 1.45 percent, while all other employees must contribute 3.75 percent of their gross earnings to the pension plan. During the year, the District's required and actual contributions amounted to $167,702.
On BehalfPayments
The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributiorls to CalSTRS in the amount of $1,415,079 (4.267 percent of annual payroll). Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budget amounts reported in the General Fund- Budgetary Comparison Schedule.
46 MORONGO UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Grants
The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, 2011.
Litigation
The District is not currently a party to any legal proceedings.
NOTE 14- PARTICIPATION IN PUBLIC ENTITY RISK POOLS
The District is a member of the Hi Desert and Inland Employee and Employer Trust(HDIEEn, Southern California Schools Employee Benefit Association (SCSEBA), Schools Excess Liability Fund (SELF), and Southern California Schools Risk Management (SCSRM) public entity risk pools. The District pays an annual premium to each entity for its health, vision and dental, excess liability, and workers' compensation coverage. The relationships between the District and the JPAs are such that the JPAs are not component units of the District for financial reporting purposes.
These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are generally available from the respective entities.
During the year ended June 30,2011, the District made payments of$17,670,270, $315,011, and $1,038,066, to HDIEET/SCSEBA, SELF, and SCSRM, respectively.
NOTE 15- FISCAL ISSUES RELATING TO BUDGET REDUCTIONS
The State of California continues to suffer the effects of a recessionary economy. California school districts are reliant on the State of California to appropriate the funding necessary to continue the level of educational services expected by the State constituency. With the implementation of education trailer bil~ Senate Bill 16 of the 2009-2010 Fourth Extraordinary Session (SBX4 16) (Chapter 23, Statutes of2009), and Assembly Bill1610 (AB 1610) (Chapter 724, Statutes of2010), approximately 28 percent of current year appropriations have now been deferred to a subsequent period, creating significant cash flow management issues for districts in addition to requiring substantial budget reductions, ultimately impacting the ability of Californi~ school districts to meet their goals for educational services.
47 ..
REQUIRED SUPPLEMENTARY INFORMATION
48 MORONGO UNIFIED SCHOOL DISTRICT
GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2011
Variances- Positive (Negative) Actual Final (GAAP Basis) to Actual REVENUES Revenue limit sources $ 46,891,191 $ 90,108 Federal sources 9,861,360 (2, 750,365) Other state sources 17,776,847 1,281,305 Other local sources 1,160,109 (4,789) Total Revenues 1 75,689,507 (1,383,741) EXPENDITURES Current Certificated salaries 33,163,326 434,884 Classified salaries 10,597,237 130,295 Employee benefits 14,181,352 (902,488) Books and supplies 3,788,888 2,600,399 Services and operating expenditures 9,579,931 5,524,595 Other outgo 93,906 (115,450) Debt service Principal 29,283 (2,083) Interest 13,534 354 Total Expenditures 1 71,447,457 7,670,506
Excess (Deficiency) of Revenues Over Expenditures 4,242,050 6,286,765 .;.. OTHER FINANCING SOURCES (USES) Other sources 38,723 38,723 NET CHANGE IN FUND BALANCE 4,280,773 6,325,488 Fund Balance - Beginning 20,073,423 Fund Balance - Ending $ 24,354,196 $ 6,325,488
1 On behalf payments of$1,415,079 are included in the actual revenues and expenditures, but have not been included in the budgeted amounts.
49 MORONGO UNIFIED SCHOOL DISTRICT
SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPED) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2011
Actuarial Accrued Liability Unfunded UAALasa Actuarial Actuarial (AAL)- AAL Funded Percentage of Valuation Value of Unprojected (UAAL) Ratio Covered Covered Payroll Date Assets ~a) Unit Credit ~b) (b- a~ (a I b) Palroll (c) ([b- a) I c) July 1, 2008 $ $ 1,254,251 $1,254,251 0% $ 44,461,220 3%
50
[THIS PAGE INTENTIONALLY LEFT BLANK]
SUPPLEMENTARY INFORMATION
51 MORONGO UNIFIED SCHOOL DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2011
Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Program Grantor/Program Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Carl D. Perkins Vocational and Technical Education Act of 1998 Secondary Education (Section 131) 84.048 14894 $ 77,927 Tech Prep (Section 203) 84.243 14899 7,822 Passed through San Bernardino County Special Education Local Plan Area: Individuals with Disabilities Act (IDEA) Special Education (IDEA) Cluster Basic Local Assistance Entitlement, Part B, Section 611 84.027 13379 1,714,423 Basic Local Assistance ARRA, Part B, Section 611 84.391 15003 49,633 Preschool Grants, Part B, Section 619 (Age 3-4-5) 84.173 13430 94,181 Preschool Grants ARRA, Part B, Section 619 84.392 15000 8,125 Preschool Local Entitlement, Part B, Section 611 (Age 3-4-5) 84.027A 13682 169,523 Preschool Local Entitlement ARRA, Part B, Section 611 84.391 15002 41,209 Total Special Education (IDEA) Cluster 2,077,094 Special Education (IDEA) Early Intervention Grants 84.181 23761 25,232 Passed through California Department of Rehabilitation: Workability II, Transitions Partnership 84.158 10006 105,701 Maintenance and Operations (Public Law 81-874) 84.041 10015 2,546,097 No Child Left Behind Act (NCLB) Title I, Part A Cluster Title I, Part A - Basic Grants Low Income and Neglected 84.010 14329 2,379,251 Total Title I, Part A Cluster 2,379,251 ARRA - State Fiscal Stabilization Fund (SFSF) 84.394 25008 2,098,648 Education Jobs Fund (SB 847) 84.410 25152 752,185 Title I, Part G: Advanced Placement (AP) Test Fee Reimbursement Program 84.330 14831 1,513 Title II, Part A - Cluster Title II, Part A - Improving Teacher Quality Local Grants 84.367 14341 584,734 Title II, Part A - Administrator Training 84.367 14344 18,000 Total Title II, Part A Cluster 602,734 Education Technology State Grants Cluster Title II, Part D - Enhancing Education Through Technology 84.318 14344 22,520 NCLB: ARRA Title II, Part D, Enhancing Education Through Technology (EEIT) Fonnula Grants 84.386 15019 46,391 Total Education Technology State Grants Cluster 68,911
See accompanying note to supplementary infonnation.
52 MORONGO UNIFIED SCHOOL DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR THE YEAR ENDED JUNE 30, 2011
Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Program Grantor/Program Number Number Expenditures U.S. DEPARTMENT OF EDUCATION (CONTINUED) Title III - Limited English Proficient (LEP) Student Program 84.365 14346 $ 29,106 Title IV, Part A - Safe and Drug Free Schools and Communities, Formula Grants 84.186 14347 14,373 Title X, McKinney-Vento Homeless Children Assistance Grants 84.196 14332 41,848 ARRA Title X, McKinney-Vento Homeless Assistance 84.387 15007 35,853 Total Education ofHomless Children and Youth Cluster 77,701 Total U.S. Department of Education 10,864,295
U.S. DEPARTMENT OF AGRICULTURE Passed through California Department of Education (CDE): Child Nutrition Cluster Basic School Breakfast Program 10.553 13390 1,808 Especially Needy Breakfast 10.553 13526 555,962 National School Lunch Program 10.555 13524 2,141,790 Meal Supplement 10.555 13396 33,324 Food Distribution 10.555 13524 250,007 Total Child Nutrition Cluster 2,982,891 Total U.S. Departinent of Agriculture 2,982,891
U.S. DEPARTMENT OF DEFENSE Department of Defense Education Activity 12.030 [1] 544,043 Total U.S. Department of Defense 544,043
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES ..;... Passed through California Department of Health Services: Medicaid Cluster Medi-Cal Billing Option 93.778 10013 129,002 Total U.S. Department of Health and Human Services 129,002 Total Federal Programs $ 14,520,231
[1] Direct-funded; no PCA number
See accompanying note to supplementary information.
53 MORONGO UNIFIED SCHOOL DISTRICT
LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2011
ORGANIZATION
The Morongo Unified School District was established in 1958, and consists of an area comprising approximately 1,358 square miles. The District operates eleven elementary schools, two middle schools, two comprehensive high schools, two continuation high schools, and an independent study program.
GOVERNING BOARD
MEMBER OFFICE TERM EXPIRES
Phyllis Swinnerton President 2012
Ed Will Clerk 2012
Donna Munoz Member 2014
Ron Palmer Member 2012
Chris Proudfoot Member 2014
ADMINISTRATION
James Majchrzak Superintendent
David Price Assistant Superintendent, Business Services
Tom Baumgarten Assistant Superintendent, Instructional Services
Doug Weller Assistant Superintendent, Human Resources
See accompanying note to supplementary information.
54 MORONGO UNIFIED SCHOOL DISTRICT
SCHEDULE OF AVERAGE DAILY ATIENDANCE FOR THE YEAR ENDED JUNE 30, 2011
Second Period Annual Report Re~rt ELEMENTARY Kindergarten 675 672 First through third 2,144 2,134 Fourth through eighth 3,112 3,093 Home and hospital 6 7 Special education 255 257 Total Elementary 6,192 6,163 SECONDARY Regular classes 2,054 2,022 Continuation education 177 172 Home and hospital 6 6 Special education 141 139 Total Secondary 2,378 2,339 Total K-12 8,570 8,502
See accompanying note to supplementary infonnation.
55 MORONGO UNIFIED SCHOOL DISTRICT
SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2011
Reduced Reduced 1982-83 1982-83 1986-87 1986-87 2010-11 Number of Days Actual Actual Minutes Minutes Actual Traditional Multitrack Grade Level Minutes Minutes Requirement Requirement Minutes Calendar Calendar Status Kindergarten 31,500 30,625 36,000 35,000 36,000 180 N/A Complied Grades 1-3 47,780 46,453 50,400 49,000 Grade I 52,065 180 N/A Complied Grade2 52,065 180 N/A Complied Grade3 52,065 180 N/A Complied Grades4 -6 52,543 51,083 54,000 52,500 Grade4 54,275 180 N/A Complied Grade 5 54,275 180 N/A Complied Grade6 54,275 180 N/A Complied Grades7- 8 52,543 51,083 54,000 52,500 Grade7 64,980 180 N/A Complied Grade 8 64,980 180 N/A Complied Grades 9- 12 61,687 59,973 64,800 63,000 Grade 9 64,884 180 N/A Complied Grade 10 64,884 180 N/A Complied Grade 11 64,884 180 N/A Complied Grade 12 64,884 180 N/A Complied
See accompanying note to supplementary information.
56 MORONGO UNIFIED SCHOOL DISTRICI'
RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011
There were no adjustments to the Unaudited Actual Financial Report, which required reconciliation to the audited financial statements at June 30, 2011.
See accompanying note to supplementary information.
57 MORONGO UNIFIED SCHOOL DISTRICT
SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2011
(Dollar amounts in thousands) (Budget) 2012 1 2011 2010 2009 GENERAL FUND Revenues and other sources $ 70,129 $ 75,727 $ 73,781 $ 81,355 Expenditures 71,953 71,447 73,525 79,432 Other uses and transfers out 398 Total Expenditures and Other Uses 71,953 . 71,447 73,525 79,830 INCREASE (DECREASE) IN FUND BALANCE $ (1,824) $ 4,280 $ 256 $ 1,525 ENDING FUND BALANCE $ 22,530 $ 24,354 $ 20,074 $ 19,818 2 AVAILABLE RESERVES $ 14,608 $ 16,577 $ 2,562 $ 2,497 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTG03 20.3% 23.7% 3.6% 3.2% LONG-TERM OBLIGATIONS N/A $ 29,222 $ 27,690 $ 29,960 K-12AVERAGE DAILY ATTENDANCE AT P-2 8,335 8,570 8,859 9,047
The General Fund balance has increased by $4,536,000 over the past two years. The fiscal year 2011-2012 budget projects decrease of$1,824,000 (7.49 percent). For a district this size, the State recommends available reserves of at least three percent oftotal General Fund expenditures, transfers out, and other uses (total outgo).
The District has incurred operating surpluses in each of the past three years but anticipates incurring an operating deficit during the 2011-2012 fiscal year. Total long-term obligations have decreased by $738,000 over the past two years.
Average daily attendance has decreased by 477 over the past two years. An additional decline of235 ADA is anticipated during fiscal year 2011-2012.
1 Budget 20 12 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. 3 On behalf payments of$1,415,079, $1,512,719, and $1,733,218 have been excluded from the calculation of available reserves for the fiscal years ending June 30, 2011, 2010, and 2009, respeclively.
See accompanying note to supplementary information.
58 MORONGO UNIFIED SCHOOL DISTRICT
NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET .JUNE 30,2011
Deferred County School Bond Interest Non-Major Cafeteria Maintenance Facilities and Redemption Governmental Fund Fund Fund Fund Funds ASSETS Deposits and investments $ 790,470 $ 1,064,439 $ 4,210,881 $ 1,925,301 $ 7,991,091 Receivables 469,398 2,243 8,235 479,876 Stores inventories 81,538 81,538 Total Assets $ 1,341,406 $ 1,066,682 $ 4,219,116 $ 1,925,301 $ 8,552,505
LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 1,158 $ 18,030 $ $ $ 19,188 Due to other funds 828,098 828,098 Deferred revenue 18,216 18,216 Total Liabilities 847,472 18,030 865,502 Fund Balances: Nonspendable 81,588 81,588 Restricted 412,346 4,219,116 1,925,301 6,556,763 Committed 1,048,652 1,048,652 Total Fund Balances 493,934 1,048,652 4,219,116 1,925,301 7,687,003 Total Liabilities and Fund Balances $ 1,341,406 $ 1,066,682 $ 4,219,116 $ 1,925,301 $ 8,552,505
See accompanying note to supplementary information.
59 MORONGO UNIFIED SCHOOL DISTRICT
NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2011
County Deferred School Cafeteria Maintenance Facilities Fund Fund Fund REVENUES Federal sources $ 2,982,891 $ $ Other State sources 237,636 5,712,669 Other local sources 813,823 11,447 28,440 Total Revenues 4,034,350 11,447 5,741,109 EXPENDITURES Current Pupil services: Food services 3,891,389 Administration: All other administration 85,075 Plant services 9,053 211,403 Facility acquisition and construction 19,121 Debt service Principal Interest and other Total Expenditures 3,985,517 230,524 Excess (Deficiency) of Revenues Over Expenditures 48,833 (219,077) 5,741,109
OTHER FINANCING SOURCES (USES) {1,862,507) Transfers out .,.. Net Financing Sources (Uses) {1,862,507) NET CHANGE IN FUND BALANCES 48,833 (219,077) 3,878,602 Fund Balances - Beginning 445,101 1,267,729 340,514 Fund Balances - Ending $ 493,934 $ 1,048,652 $ 4,219,116
See accompanying note to supplementary information.
60 Bond Interest and Non-Major Redemption Governmental Fund Funds
$ $ 2,982,891 35,457 5,985,762 1,687,538 2,541,248 1,722,995 11,509,901
3,891,389
85,075 220,456 19,121
425,000 425,000 1,374,548 1,374,548 1,799,548 6,015,589
---~(7_6~,5_53-'-) ___5:;_,49_4.:....,,3_12_
(1,862,507) ,;... (1,862,507) (76,553) 3,631,805 2,001,854 4,055,198 $ 1,925,301 $ 7,687,003
60 MORONGO UNIFIED SCHOOL DISTRICT
NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2011
NOTE 1 -PURPOSE OF SCHEDULES
Schedule of Expenditures of Federal Awards
The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity ofthe District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements.
The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts consist primarily of ARRA State Fiscal Stabilization Funds (SFSF), funds that in the previous period were recorded as revenues but were unspent. These unspent balances have been expended in the current period.
CFDA Number Amount Description: Total Federal Revenues from the Statement of Revenues, Expenditures, and Changes in Fund Balances: $ 12,844,251 ARRA State Fiscal Stabilization Funds (SFSF) 84.394 1,675,980 Total Schedule of Expenditures of Federal Awards $ 14,520,23 I
Subrecipients
Of the Federal expenditures presented in the schedule, the District provided Federal awards to subrecipients as follows:
Federal Grantor/Pass-Through CFDA Amount Provided to Grantor/Program Number Subreci~ients Title IT, Part A- Improving Teacher Quality Local Grants 84.367 $ 15,399 Title IT, Part D- Enhancing Education Through Technology (EETT), Formula Grants 84.318 151 $ 15,550
Local Education Agency Organization Structure
This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration.
61 MORONGO UNIFIED SCHOOL DISTRICT
NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2011
Sehedule of Average Daily Attendance
Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs.
Schedule of Instructional Time
The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46200 through 46206.
Districts must maintain their instructional minutes at either the 1982-83 actual minutes or the 1986-87 requirement, whichever is greater, as required by Education Code Section 46201.
Reconciliation of Annual Financial and Budget Report With Audited Financial Statements
This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements.
Schedule of Financial Trends and Analysis
This schedule discloses the District's fmancial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the Districfs ability to continue as a going concern for a reasonable period of time.
Non-Major Governmental Funds- Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances
The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances.
62 INDEPENDENT AUDITORS' REPORTS
63 Vavrinek, Trine, Day &Co., llP VALUE THE DIFFEREN Certified Public Accountants
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATIERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDlTING STANDARDS
Governing Board Morongo Unified School District Twentynine Palms, California
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund infonnation of Morongo Unified School District as of and for the year ended June 30, 20 II, which collectively comprise Morongo Unified School District's basic financial statements and have issued our report thereon dated November 23, 20 II. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
The management of Morongo Unified School District is responsible for establishing and maintaining effective internal control over financial reporting.
In planning and perfonning our audit, we considered Morongo Unified School District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the fmancial statements, but not for the purpose of expressing an opinion on the effectiveness of the Morongo Unified School District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Morongo Unified School District's internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the nonnal course of perfonning their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or 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.
Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies. or material weaknesses. We did not identify any deficiencies in internal control over fmancial reporting that we consider to be material weaknesses, as defined above.
64
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • LAGUNA HILLS • PALO ALTO · • PLEASANTON • RANCHO CUCAMONGA • SACRAMENTO Compliance and Other Matters
As part of obtaining reasonable assurance about whether Morongo Unified School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the governing board, management, the California Department of Education, the State Controller's Office, Federal awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. ·
Vo..vrin~rk, -r,.; ,e~ Oq~ .rCo.l LLP Rancho Cucamonga, California November 23, 2011
65 Vavrinek, Trine, Day &Co., LLP VALUE THE DIFFEREN Certified Public Accountants
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133
Governing Board Morongo Unified School District Twentynine Palms, California
Compliance
We have audited Morongo Unified School District's compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of Morongo Unified School District's major Federal programs for the year ended June 30, 2011. Morongo Unified School District's major Federal programs are identified in the summazy of auditors' results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of Morongo Unified School District's management. Our responsibility is to express an opinion on Morongo Unified School District's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United · States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perfonn 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 Morongo Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Morongo Unified School District's compliance with those requirements.
In our opinion, Morongo Unified School District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2011.
66
8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
FRESNO • lAGUNA HillS • PAlO AlTO • PLEASANTON • RANCHO CUCAMONGA • SACRAMENTO Internal Control Over Compliance
The management of Morongo Unified School District is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered Morongo Unified School District's internal control over compliance with the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Morongo Unified School District's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or 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.
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 that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.
This report is intended solely for the information and use of the governing board, management, the California Department of Education, the State Controller's Office, Federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Vo.vr:nt. k, trine~ Do.~ cl' Co.1 L.l.P Rancho Cucamonga, California November 23, 2011
67 Vavrinek, Trine, Day &Co., LLP VALUE THE DIFFEREN Certified Public Accountants
INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE
Governing Board Morongo Unified School District Twentynine Palms, California
We have audited Morongo Unified School District's compliance with the requirements as identified in the Standards and Procedures for Audit ofCalifornia K-12 Local Educational Agencies 2010-11 applicable to Morongo Unified School District's government programs as noted below for the year ended June 30, 2011. Compliance with the requirements referred to above is the responsibility of Morongo Unified School District's management Our responsibility is to express an opinion on Morongo Unified School District's compliance based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Standards and Procedures for Audits ofCalifornia K-12 Local Educational Agencies 2010-11 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Morongo Unified School District's compliance with those requirements and performing such other Procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of Morongo Unified School District's compliance with those requirements.
In our opinion, Morongo Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 2011.
In connection with the audit referred to above, we selected and tested transactions and records to determine the Morongo Unified School District's compliance with the State laws and regulations applicable to the following items:
Procedures in Procedures Audit Guide Performed Attendance Accounting: Attendance reporting 8 Yes Kindergarten continuance 3 Yes Independent study 23 Yes Continuation education 10 Yes Instructional Time: School districts 6 Yes County offices of education 3 Not Applicable
68
8270 Aspen Street Rancho Cucamonga, CA 91730 Te1:.909.466.4410 Fax: 909.466.4431 www.vtdcpa.com
·FRFSNO • 1 Al.IINA HillS • PAl 0 ALTO • PLEASANTON • ·RANCHO ClJCAMONl.A • SACRAMFNTO Procedures in Procedures Audit Guide Perfonned Instructional Materials: General requirements 8 Yes Ratios of Administrative Employees to Teachers l Yes Classroom Teacher Salaries 1 Yes Early retirement incentive 4 Not Applicable Gann limit calculation 1 Yes School Accountability Report Card 3 Yes Public hearing requirement - receipt of funds Yes Class Size Reduction Program (including in Charter Schools): General requirements 7 Yes Option one classes 3 Yes Option two classes 4 Not Applicable District or charter schools with only one school serving K-3 4 Not Applicable After School Education and Safety Program: General requirements 4 Yes After school 4 Yes Before school 5 Yes Charter Schools: Contemporaneous records of attendance 1 Not Applicable Mode of instruction 1 Not Applicable Non classroom-based instruction/independent study 15 Not Applicable Determination of funding for non classroom-based instruction 3 Not Applicable Annual instruction minutes classroom based 3 Not Applicable
This report is intended solely for the infonnation and use of the governing board, management, the California Department of Education, the State Controller's Office, the California Department of Finance, Federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Vo.vr-:(')e.k 1 Triru~ 1 01:\~ ...- CD,1 LLP Rancho Cucamonga, California November 23, 2011
69 SCHEDULE OF FINDINGS AND QUESTIONED COSTS
70 MORONGO UNIFIED SCHOOL DISTRICT
SUMMARY OF AUDITORS' RESULTS FOR THE YEAR ENDED JUNE 30, 2011
FINANCIAL STATEMENTS Type of auditors' report issued: Unqualified Internal control over financial reporting: Material weakness identified? No Significant deficiency identified? None reported Noncompliance material to financial statements noted? No
FEDERAL AWARDS Internal control over major programs: Material weakness( es) identified? No Significant deficiency(ies) identified? None reported Type of auditors' report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section .510(a) ofOMB Circular A-133? No
Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 84.394 ARRA - State Fiscal Stabilization Fund (SFSF) 84.410 Education Jobs Fund (SB 847) 84.367 Title II, Part A - Cluster Impact Aid - Maintenance and Operations 84.041 (Public Law 81-874) 12.030 Department of Defense Education Activity 93.778 Medi-Cal Billing Option
Dollar threshold used to distinguish between Type A and Type B programs: $ 435,607 Auditee qualified as low-risk auditee? Yes
STATE AWARDS Type of auditors' report issued on compliance for programs: Unqualified
71 MORONGO UNIFIED SCHOOL DISTRICT
FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2011
None reported.
72 MORONGO UNIFIED SCHOOL DISTRICT
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2011
None reported.
73 MORONGO UNIFIED SCHOOL DISTRICT
STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2011
None reported.
74 MORONGO UNIFIED SCHOOL DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2011
Except as specified in previous sections of this report, summarized below is the current status of all audit findings reported in the prior year's schedule of financial statement findings.
State Awards Findings
2010-1 40000
AFTER SCHOOL EDUCATION AND SAFETY PROGRAM- LATE ARRIVAL POLICY
Criteria or Specific Requirements
Under the requirements set forth by the State for the After School Education and Safety Program, the District is required to have an established policy regarding reasonable late daily arrival of pupils to the program.
Condition
The District currently does not have an established policy regarding reasonable late daily arrival of pupils to the program.
Questioned Costs
None identified.
Context
The condition identified was determined based on testing of attendance records obtained from sample sites/locations as part of our review of the District's attendance report for this program. It appears that the condition identified is currently a systematic problem.
Effect
Provisions of the program did not identify specific fmancial or other consequences that the District would face as a result of the condition identified.
Cause
Per inquiry with District personnel, it appears that the condition identified has materialized as a result of the lack of understanding before school program requirements as set forth by the State.
75 MORONGO UNIFIED SCHOOL DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2011
Recommendation
The District should adopt a policy for late arrival consistent with the guidelines of the program. The policy should address at least the following for the regular or supplemental program:
• Attendance expectations and requirements • Consequences for unauthorized instances of or unacceptable pattern of late arrival • Individuals authorized to request late arrival and sign in pupils • List of authorized/unauthorized reasons for late arrival • Procedures to obtain an excused late arrival • Notification procedures parents/guardians can use to inform staff of a pupil's anticipated late arrival • Sign-in procedures for late arriving pupils
Current Status
Implemented.
2010-2 40000
AFTER SCHOOL EDUCATION AND SAFETY PROGRAM -ATTENDANCE
Criteria or Specific Requirements
Under the requirements set forth by the State for the After School Education and Safety Program, the District is required to report the number of students served under the program. All students reported as being served to the State must be supported by written records that document pupil participation and summarized written records should be used to report the number of students served to the State.
Condition
The District is currently reporting inaccurate number of students served by the program to the State. In performing· procedures over the after school education and safety program, we noted that sign in out sheets are not being accurately filled out. Specifically, for the month of June 2010 there were sign in-out sheets that had times and signatures, but the dates on the sheet did not correspond with the dates on the attendance summary used to prepare the information sent to the State. This has created instances where attendance claimed for a given student for the month appears to differ from what the sign in-out sheets support. Testing for the Joshua Tree Kid's Club detenilined that the discrepancy between the reported number of students served and the totals arising from the supporting documentation were 13 days for the before s<;hool program (District reported 154 days, days per audit 167) and three days for the after school program (District reported 190 days, days per audit 187).
Questioned Costs
None identified.
76 MORONGO UNIFIED SCHOOL DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2011
Context
The condition identified was determined based on testing of attendance records obtained from sample sites/locations as part of our review of the District's attendance report for this program. It appears that the condition identified is currently a systematic problem.
Effect
Provisions of the program did not identify specific financial or other consequences that the District would face as a result of the condition identified.
The reported number of students served by the After School Safety and Education Program is not supported by written records that document pupil participation.
Cause
Per inquiry with District personnel, it appears that the condition identified has materialized as a result of the lack of independent review being performed to ensure the accuracy of the attendance summaries when compared to the sign in-out sheets.
Recommendation
The District should implement an independent review process where attendance reports required by the After School Education and Safety Program are reviewed by an administrator other than the person preparing the report and compared to the actual sign in-out sheets. This would potentially assist in the detection of manual errors.
Current Status
Implemented.
2010-3 40000
AFTER SCHOOL EDUCATION AND SAFETY PROGRAM -EARLY RELEASE
Criteria or Specific Requirements
Under the requirements set forth by the State for the After School Education and Safety Program, the District is required to have an established policy regarding reasonable early release of pupils from the program. All students reported as being released early from the program must be supported by written records that document the reasons for the early release of the pupil.
77 MORONGO UNIFIED SCHOOL DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2011
Condition
The District is currently reporting inaccumte number of students served by the progmm to the State. In perfonning procedures related to the after school program component it was noted that there were instances when a student was signed out early from the progmm but documentation showing that the student was signed out in accordance with the early release policy of the progmm was not evident.
Questioned Costs
None identified.
Context
The condition identified was detennined based on testing of attendance records obtained from sample sites/locations as part of our review of the District's attendance report for this progmm. It appears that the condition identified is currently a systematic problem.
Effect
Provisions of the progmm did not identify specific financial or other consequences that the District would face as a result of the condition identified.
The reported number of students served by the After School Safety and Education Progmm is not supported by written records that document pupil participation in accordance with the early release policy adopted by the District.
Cause
Per inquiry with District personnel, it appears that the condition identified has materialized as a result of the lack of independent review being perfonned to ensure the accuracy of the report for students who are being released early from the program.
Recommendation
The District should implement an independent review process where attendance reports required by the After School Education and Safety Program are reviewed to ensure that all necessary documentation regarding the early release of pupils from the program has been documented. This would potentially assist in the detection of manual errors.
Current Status
Implemented.
78
[THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX C
GENERAL INFORMATION ABOUT THE CITY OF TWENTYNINE PALMS AND SAN BERNARDINO COUNTY
The Refunding Bonds are not a debt of the City of Twentynine Palms (the “City”) or the County of San Bernardino (the “County”). The County, including its Board of Supervisors, officers, officials, agents and other employees, are required, only to the extent required by law, to: (i) levy and collect ad valorem taxes for payment of the Refunding Bonds in accordance with the law; and (ii) transmit the proceeds of such taxes to the paying agent for the payment of the principal of and interest on the Refunding Bonds at the time such payment is due.
General
The District provides educational services to the residents of the City of Twentynine Palms (the “City”) and the incorporated Town of Yucca Valley, as well as certain surrounding unincorporated areas in the County of San Bernardino.
The County. San Bernardino County (the “County”) was created from portions of Los Angeles, San Diego, and Mariposa counties in 1853 (in its original form, Mariposa County was the largest in area of the original 27 counties, even larger than the present-day San Bernardino).
Bordering Riverside to the north, in area San Bernardino County is the largest county in the United States, encompassing over 20,000 square miles. About 90 percent of San Bernardino is desert; the remainder consists of the San Bernardino Mountains and the San Bernardino Valley. Popular attractions in the area include the San Bernardino National Forest, Joshua Tree National Monument, Death Valley National Monument, and the East Mojave Scenic Area. Riverside and San Bernardino counties comprise what is commonly known as the Inland Empire, one of the fastest growing metropolitan regions in the nation.
The City. The City is located in the Mojave Desert, between the City of Los Angeles and the Colorado River. The City has a total area of approximately 59.1 square miles, and has grown from a population of 11,000 to more that 24,000. The Marine Corps Air Ground Combat Center Twentynine Palms was founded in 1952.
C-1
Population
Prior to incorporation, the area generally within the corporate boundaries of the City experienced a rapid growth in population. Population figures for the City, the County and the State for the last five years are shown in the following table.
CITY OF TWENTYNINE PALMS and COUNTY OF SAN BERNARDINO Population Estimates
City of County of State of Year Twentynine Palms San Bernardino California 2008 25,996 2,009,594 36,704,375 2009 25,745 2,019,432 36,966,713 2010 25,027 2,033,141 37,223,900 2011 25,193 2,046,619 37,427,946 2012 25,713 2,063,919 37,678,563
Source: State Department of Finance estimates (as of January 1)
C-2
Employment
The City is included in the Riverside–San Bernardino–Ontario Metropolitan Statistical Area ("MSA"). The unemployment rate in the Riverside-San Bernardino-Ontario MSA was 12.3% in August 2012, down from a revised 12.7% in July 2012, and below the year-ago estimate of 13.9%. This compares with an unadjusted unemployment rate of 10.4% for California and 8.2% for the nation during the same period. The unemployment rate was 12.7% in Riverside County, and 11.8% in San Bernardino County.
The following table summarizes the civilian labor force, employment and unemployment in the County for the calendar years 2007 through 2011. These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the City.
RIVERSIDE–SAN BERNARDINO–ONTARIO METROPOLITAN STATISTICAL AREA Civilian Labor Force, Employment and Unemployment (Annual Averages)
2007 2008 2009 2010 2011 Civilian Labor Force (1) 1,767,600 1,774,800 1,774,900 1,769,500 1,799,000 Employment 1,665,100 1,628,900 1,540,700 1,513,300 1,557,800 Unemployment 102,600 145,900 234,200 256,200 241,200 Unemployment Rate 5.8% 8.2% 13.2% 14.5% 13.4% Wage and Salary Employment: (2) Agriculture 16,400 15,900 14,900 14,800 14,900 Mining and Logging 1,300 1,200 1,100 1,000 1,000 Construction 112,500 90,700 67,900 59,500 58,700 Manufacturing 118,500 106,900 88,800 84,600 85,800 Wholesale Trade 56,800 54,100 48,900 48,800 49,400 Retail Trade 175,600 168,600 156,200 154,600 157,200 Transportation, Warehousing, Utilities 69,500 70,200 66,800 66,500 68,500 Information 15,400 14,900 15,100 15,900 15,000 Finance and Insurance 30,300 27,400 26,000 25,500 15,000 Real Estate and Rental and Leasing 19,500 18,700 16,600 15,500 14,200 Professional and Business Services 145,200 137,700 124,300 121,500 25,000 Educational and Health Services 127,200 131,800 133,600 133,800 126,100 Leisure and Hospitality 132,600 131,000 123,800 122,100 124,300 Other Services 41,200 40,800 37,300 37,500 39,300 Federal Government 19,400 19,600 20,600 22,700 21,200 State Government 28,700 29,600 29,800 29,200 29,100 Local Government 177,200 180,700 178,100 172,400 177,000 Total, All Industries (3) 1,287,300 1,239,700 1,149,700 1,126,000 1,144,600
(1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department.
C-3
Major Employers
The following table shows the major employers in the County as of October 2012, listed in alphabetical order.
COUNTY OF SAN BERNARDINO Major Employers As of October 2012 (Listed Alphabetically)
Employer Name Location Industry Arrowhead Regional Medical Ctr Colton Hospitals Big Bear Mountain Resorts Big Bear Lake Resorts Bnsf Railroad Co San Bernardino Railroads California State-San Brnrdn San Bernardino Schools-Universities & Colleges Academic Colton Joint Unified School Dist Colton Schools Desert Valley Hospital Victorville Hospitals Environmental Systems Research Redlands Computer-Software Developers FEDEX Ground Bloomington Delivery Service Kaiser Permanente Pathology Fontana Hospitals Loma Linda University Children Loma Linda Hospitals Loma Linda University Med Ctr Loma Linda Hospitals Mountain High Ski Resort Wrightwood Skiing Centers & Resorts Ontario Intl AIRPORT-ONT Ontario Airports Redlands Community Hospital Redlands Hospitals San Antonio Community Hospital Upland Hospitals San Bernardino Cnty School Supt San Bernardino Schools San Bernardino Community Hospital San Bernardino Hospitals San Bernardino County Sheriff San Bernardino Police Departments San Manuel Band of Mission San Bernardino Casinos San Manuel Indian Bingo/Casino Highland Government Offices- Authorities/Commissions Snow Summit Mountain Resort Big Bear Lake Skiing Centers & Resorts Snowline Joint Unified School Phelan Schools Transportation Department San Bernardino State Government- Transportation Programs VA Medical Ctr-Loma Linda Loma Linda Hospitals YRC Freight Bloomington Trucking-Motor Freight Arrowhead Regional Medical Ctr Colton Hospitals Big Bear Mountain Resorts Big Bear Lake Resorts
Source: California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database.
C-4
Commercial Activity
In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, retail stores data for 2009 and 2010 is not comparable to that of prior years.
A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during the first two quarters of calendar year 2011 in the City were reported to be $55,788,000, a 11.35% increase over the total taxable sales of $50,101,000 reported during the first two quarters of calendar year 2010. Annual figures are not yet available for 2011.
CITY OF TWENTYNINE PALMS Taxable Transactions (Figures in Thousands)
Retail Stores Total All Outlets Number Number Calendar of Permits Taxable of Permits Taxable Year on August 1 Transactions on August 1 Transactions 2006 173 78,011 306 87,274 2007 172 75,700 304 85,750 2008 164 84,492 294 92,590 2009(1) 210 85,912 300 96,619 2010(1) 221 88,659 312 99,725
(1) Not comparable to prior years. “Retail” category now includes “Food Services.” Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).
A summary of historic taxable sales within the County during the past five years in which data is available is shown in the following table. Total taxable sales during the first two quarters of calendar year 2011 in the County were reported to be $13,093,189,000, a 9.3% increase over the total taxable sales of $11,877,776,000 reported during the first two quarters of calendar year 2010. Annual figures are not yet available for 2011.
COUNTY OF SAN BERNARDINO Taxable Transactions Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Retail Stores Total All Outlets Number Number Calendar of Permits Taxable of Permits Taxable Year on August 1 Transactions on August 1 Transactions 2006 24,755 22,130,160 46,528 31,309,905 2007 24,407 21,335,824 47,810 30,450,731 2008 25,076 19,065,786 48,994 27,777,703 2009(1) 31,676 16,330,138 45,062 23,652,433 2010(1) 34,068 17,308,880 47,562 24,687,862
(1) Not comparable to prior years. “Retail” category now includes “Food Services.” Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).
C-5
Construction Activity
Provided below are the building permits and valuations for the City and the County for calendar years 2007 through 2011.
CITY OF TWENTYNINE PALMS Total Building Permit Valuations (Valuations in Thousands)
2007 2008 2009 2010 2011 Permit Valuation New Single-family $9,936.2 $2,849.7 $3,728.2 $5,242.4 $3,433.2 New Multi-family 1,159.2 0.0 0.0 0.0 82.7 Res. Alterations/Additions 1,402.5 1,330.0 839.5 2,362.6 1,402.0 Total Residential $12,497.8 $4,179.7 $4,567.6 $7,604.90.0 $4,917.9 New Commercial 671.5 5,238.4 0.0 0.0 0.0 New Industrial 0.0 0.0 0.0 1,014.3 0.0 New Other 556.6 755.0 260.9 534.1 0.0 Com. Alterations/Additions 117.6 501.7 856.0 1,548.3 934.5 Total Nonresidential $1,345.7 $6,495.1 $1,117.0 $3,123.7 $934.5
New Dwelling Units Single Family 99 27 36 47 32 Multiple Family 24 0 0 0 2 TOTAL 123 27 36 47 34
Source: Construction Industry Research Board, Building Permit Summary.
COUNTY OF SAN BERNARDINO Total Building Permit Valuations (Valuations in Thousands)
2007 2008 2009 2010 2011 Permit Valuation New Single-family $1,263,350.5 $383,615.0 $279,993.7 $233,404.1 $232,698.4 New Multi-family 155,820.1 102,257.4 96,741.5 61,080.8 49,011.4 Res. Alterations/Additions 128,336.1 86,585.0 62,858.9 62,731.0 99,082.5 Total Residential $1,547,506.7 $572,457.3 $439,594.1 $357,215.9 $380,792.3 New Commercial 569,354.4 310,847.8 70,373.4 39,380.8 67,146.5 New Industrial 350,521.0 92,200.4 34,028.5 21,853.6 50,629.8 New Other 190,362.6 100,797.4 72,127.6 62,614.4 6,404.5 Com. Alterations/Additions 255,984.2 234,970.0 156,292.0 129,150.1 197,960.7 Total Nonresidential $1,366,222.3 $738,815.6 $332,821.5 $252,998.9 $322,141.5
New Dwelling Units Single Family 6,239 1,981 1,441 1,198 1,075 Multiple Family 1,765 1,201 1,054 649 409 TOTAL 8,004 3,182 2,495 1,847 1,484
Source: Construction Industry Research Board, Building Permit Summary.
C-6
Effective Buying Income
“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.”
The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2007 through 2011.
City of Twentynine Palms; County of San Bernardino Effective Buying Income As of January 1, 2007 through 2011
Median Total Effective Household Buying Income Effective Year Area (000’s Omitted) Buying Income 2007 City of Twentynine Palms $234,480 $34,186 County of San Bernardino 33,455,520 44,276 California 814,894,438 48,203 United States 6,300,794,040 41,792 2008 City of Twentynine Palms $245,988 $34,621 County of San Bernardino 34,745,023 45,814 California 832,531,445 48,952 United States 6,443,994,426 42,303 2009 City of Twentynine Palms $255,567 $34,137 County of San Bernardino 34,899,738 45,690 California 844,823,319 49,736 United States 6,571,536,768 43,252 2010 City of Twentynine Palms $230,098 $31,945 County of San Bernardino 32,115,644 43,018 California 801,393,028 47,177 United States 6,365,020,076 41,368 2011 City of Twentynine Palms $252,090 $32,088 County of San Bernardino 32,969,928 42,818 California 814,578,458 47,062 United States 6,438,704,663 41,253
Source: The Nielsen Company (US), Inc.
C-7
[THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX D
PROPOSED FORM OF OPINION OF BOND COUNSEL
Upon delivery of the Refunding Bonds, Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel to the Morongo Unified School District, proposes to render their final approving opinion with respect to the Refunding Bonds in substantially the following form:
Board of Education of the Morongo Unified School district P.O. Box 1209 5715 Utah Trail Twentynine Palms, CA 92277
Re: $7,935,000 Morongo Unified School District 2012 General Obligation Refunding Bonds Final Opinion ______
Ladies and Gentlemen:
We have acted as Bond Counsel for the Morongo Unified School District (“District”) in connection with the proceedings for the issuance and sale by the District of $7,935,000 principal amount of Morongo Unified School District 2012 General Obligation Refunding Bonds (“Bonds”). The Bonds are being issued pursuant to the Resolution of Issuance of the Board of Education of the District, adopted on October 16, 2012 (Resolution No. 13-06) (“Bond Resolution”), the provisions of the California Constitution, in accordance with the statutory authority set forth in Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code and related California law. The Bonds are being issued to refund certain outstanding general obligation bonds of the District and to pay costs of issuance of the Bonds.
As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings in connection with the issuance of the Bonds. In this connection, we have also examined such certificates of public officials and officers of the District, the County of San Bernardino (“County”) and the purchaser of the Bonds, including certificates as to factual matters, including, but not limited to the Tax Certificate, as we have deemed necessary to render this opinion.
Attention is called to the fact the we have not been requested to examine, and have not examined, any documents or information relating to the District or the County other than the record of proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof, which has been, or may be, supplied to any purchaser of the Bonds.
D-1
We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement) and we express no opinion relating thereto (excepting only matters set forth as our opinion in the Official Statement).
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their execution and delivery, and we disclaim any obligation to update this letter. As to questions of fact material to our opinions, we have relied upon the documents and matters referred to above, and we have not undertaken by independent investigation to verify the authenticity of signatures or the accuracy of the factual matters represented, warranted or certified therein. Furthermore, we have assumed compliance with all covenants contained in the Bond Resolution and in certain other documents, including, without limitation, covenants compliance with which is necessary to assure that future actions or events will not cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of original issuance of the Bonds.
The Bond Resolution and other related documents refer to certain requirements and procedures which may be changed and certain actions which may be taken, in circumstances and subject to terms and conditions set forth in such documents, upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to the effect on any Bond or the effect on interest thereon if any such change is made or action is taken upon the advice or approval of counsel other than ourselves.
Based on the foregoing, we are of the following opinions:
1. The Bonds are valid and binding general obligations of the District.
2. All taxable property in the territory of the District is subject to ad valorem taxation without limitation as to rate or amount (except as to certain classes of personal property which is taxable at limited rates) to pay the Bonds. The County is required by law to include in its annual tax levy the principal and interest coming due on the Bonds to the extent necessary funds are not provided from other sources.
3. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is exempt from State of California personal income taxes. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations; although, it should be noted that, with respect to corporations, such interest will be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. We express no opinion regarding other tax consequences arising with respect to the Bonds.
D-2
It is understood that 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 exercise of judicial discretion in appropriate cases.
Very truly yours,
D-3
[THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIFICATE
$7,935,000 MORONGO UNIFIED SCHOOL DISTRICT (San Bernardino County, California) 2012 General Obligation Refunding Bonds
CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Morongo Unified School District (the “District”) in connection with the issuance of $7,935,000 aggregate principal amount of Morongo Unified School District School District (County of San Bernardino, California) 2012 General Obligation Refunding Bonds (the “Bonds”). The Bonds are being issued under a Resolution adopted by the Board of Education of the District on October 16, 2012 (the “Bond Resolution”). The District covenants and agrees as follows:
Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Refunding Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).
Section 2. Definitions. In addition to the definitions set forth above and in the Bond Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Annual Report Date” means the date not later than nine months (currently March 31) after the end of each fiscal year of the District (currently June 30th).
“Dissemination Agent” means, initially, Isom Advisors, A Division of Urban Futures, Inc. or any successor Dissemination Agent designated in writing by the District and which has filed with the District and the Paying Agent a written acceptance of such designation.
“Listed Events” means any of the events listed in Section 5(a).
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule.
“Official Statement” means the final official statement executed by the District in connection with the issuance of the Bonds.
E-1
“Paying Agent” means The Bank of New York Mellon Trust Company, N.A., or any successor thereto.
“Participating Underwriter” means the original Underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.
“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
Section 3. Provision of Annual Reports.
(a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2013, with the report for the 2011-12 fiscal year, provide to the MSRB in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder.
(b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A, with a copy to the Paying Agent and Participating Underwriter.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
E-2
Section 4. Content of Annual Reports. The District’s Annual Report shall contain or incorporate by reference the following:
(a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the District for the preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement:
(i) A summary of the District’s approved annual budget for the then- current fiscal year;
(ii) Assessed value of taxable property in the District as shown on the most recent equalized assessment roll;
(iii) Property tax levies, collections and delinquencies for the District for the most recently completed fiscal year; and
(iv) Top ten property owners in the District for the then-current fiscal year, as measured by secured assessed valuation, the amount of their respective taxable value, and their percentage of total secured assessed value, if material.
(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the District shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.
(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB’s internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events.
(a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds:
(1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties.
E-3
(4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District. (13) The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.
(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Resolution.
(c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier “material” with respect to certain notices, determinations or other events affecting the tax status of the Bonds. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Whenever the District obtains knowledge of the occurrence of any of these Listed Events, the District will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the District will cause a notice to be filed as set forth in paragraph (b) above.
(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States
E-4
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 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 an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).
Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the District. Any Dissemination Agent may resign by providing 30 days’ written notice to the District and the Paying Agent.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Bond Resolution for amendments to the Bond Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.
E-5
If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c).
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Bond Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent.
(a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent will have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
(b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
E-6
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Date: November 29, 2012 MORONGO UNIFIED SCHOOL DISTRICT
By: Superintendent ACCEPTANCE OF DUTIES AS DISSEMINATION AGENT
ISOM ADVISORS, A Divisions of Urban Futures, Inc.
By: Authorized Officer
E-7
EXHIBIT A
NOTICE OF FAILURE TO FILE ANNUAL REPORT
Name of Obligor: Morongo Unified School District
Name of Bond Issue: $7,935,000 aggregate principal amount of Morongo Unified School District (County of San Bernardino, California) 2012 General Obligation Refunding Bonds Date of Issuance: November 29, 2012
NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 26 of the resolution adopted by the Board of Education of the District authorizing the issuance of the Bonds. The District anticipates that the Annual Report will be filed by ______.
Dated:
ISOM ADVISORS, A Division of Urban Futures, Inc., as Dissemination Agent
By: Authorized Officer Cc: Morongo Unified School District
E-8
APPENDIX F
DTC AND THE BOOK-ENTRY SYSTEM
The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the District nor the Paying Agent take any responsibility for the information contained in this Section.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) Bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.
DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of the Bonds. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned
F-1
by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non- U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of 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 Certificate (“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 Bonds 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 nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as
F-2
possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from District or Paying Agent on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, Paying Agent, or District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of District or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to District or Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered.
The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof.
F-3
[THIS PAGE INTENTIONALLY LEFT BLANK]