PRELIMINARY OFFICIAL STATEMENT DATED APRIL 6, 2021
NEW ISSUE - FULL BOOK-ENTRY RATING: Standard & Poor’s: “A+” See “RATING” herein. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described in this Official Statement, under existing law, interest on the Bonds is excluded from gross income for federal income tax purposes, and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. See “TAX MATTERS.”
$6,440,000* JOHN SWETT UNIFIED SCHOOL DISTRICT
ffer to buy nor shall there be any sale (Contra Costa County, California) 2021 Refunding General Obligation Bonds
Dated: Date of Delivery Due: August 1, as shown on inside cover. Cover Page. This cover page contains information for quick reference only. It is not a summary of all the provisions of the Bonds. Investors must read the entire official statement to obtain information essential in making an informed investment decision. Authority and Purpose. The captioned 2021 Refunding General Obligation Bonds (the “Bonds”) are being issued by the John Swett Unified School District (the “District”) pursuant to certain provisions of the California Government Code and a resolution of the Board of Trustees of the District adopted on March 10, 2021 (the “Bond Resolution”). The Bonds will be issued for the purpose of refunding on a current basis certain maturities of outstanding general obligation bonds of the District. See ities may not be sold nor may offers to buy be accepted prior to the time “THE REFINANCING PLAN” and “THE BONDS – Authority for Issuance” herein. Security. The Bonds are general obligations of the District. The Board of Supervisors of Contra Costa County has the power and is obligated to annually levy ad valorem property 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 Bonds. The District has other outstanding issues of general obligation bonds which are similarly payable from ad valorem taxes levied on parcels in the District and will be payable on a pro rata basis with the Bonds. See “SECURITY FOR THE BONDS.” Bond Insurance. The District has applied for municipal bond insurance for the Bonds, and accepting an insurance commitment, if any, will be at bidder's option pursuant to the terms of the Official Notice of Sale for the Bonds. Payments. Interest on the Bonds accrues from the date of delivery and is payable semiannually on February 1 and August 1 of each year, commencing August 1, 2021 by check, draft or wire mailed to the person in whose name the Bond is registered. Payments of principal and interest on the Bonds will be paid by U.S. Bank National Association, as paying nlawful prior to registration or qualification under the securities laws of such jurisdiction. such of laws securities the under qualification or registration to prior nlawful agent for the Bonds (the “Paying Agent”), to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See “THE BONDS – Description of the Bonds.” Redemption. The Bonds are not subject to optional redemption prior to maturity, but may, at bidder’s option, be subject to mandatory sinking fund redemption prior to maturity as described herein. See discussion of redemption under the heading “THE BONDS.” Book-Entry Only. The Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”). Purchasers will not receive physical certificates representing their interests in the Bonds. See “APPENDIX F – Book-Entry-Only System.”
MATURITY SCHEDULE (See inside front cover)
form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an o The Bonds will be sold and awarded pursuant to competitive public bids to be received on April 13, 2021, as set forth in an Official Notice of Sale with respect to the Bonds. The Bonds are offered when, as and if issued, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters also will be passed upon for the District by Jones Hall, A Professional Law Corporation, San Francisco, California, as Disclosure Counsel. It is anticipated that the Bonds in definitive form will be available for delivery to Cede & Co., as nominee of The Depository Trust Company, on or about May 4, 2021.
The date of this Official Statement is ______, 2021.
*Preliminary; subject to change. of these securities in any jurisdiction in which such offer solicitation or sale would be u be would sale or solicitation offer such which in jurisdiction any in securities these of This Preliminary Official This Statement Official Preliminary and the contained information herein are subject to completion or amendment. These secur the Official Statement is delivered in final
MATURITY SCHEDULE*
JOHN SWETT UNIFIED SCHOOL DISTRICT (Contra Costa County, California) 2021 Refunding General Obligation Bonds
Maturity Date Principal (August 1) Amount Interest Rate Yield Price CUSIP† 2021 $780,000 2022 715,000 2023 770,000 2024 830,000 2025 890,000 2026 955,000 2027 790,000 2028 710,000
*Preliminary; subject to change. Identification of Term Bonds subject to mandatory sinking fund redemption is at bidder’s option. † CUSIP Copyright 2021, CUSIP Global Services is a registered trademark of American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, which is managed on behalf of American Bankers Association by S&P Global Market Intelligence. Neither the District nor the Purchaser take any responsibility for the accuracy of the CUSIP data.
GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the District or the Purchaser. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Purchaser 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 Purchaser. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources 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 Purchaser. The following statement has been included in this Official Statement on behalf of the Purchaser of the Bonds: The Purchaser 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 Purchaser does not guarantee the accuracy or completeness of such information. Stabilization of and Changes to Offering Prices. The Purchaser may overallot or take other steps that stabilize or maintain the market prices of the Bonds at levels above that which might otherwise prevail in the open market. If commenced, the Purchaser may discontinue such market stabilization at any time. The Purchaser may offer and sell the 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 Purchaser. 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 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, 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 Bonds.
JOHN SWETT UNIFIED SCHOOL DISTRICT
BOARD OF TRUSTEES
Marina Ramos, President Stefanie Tavis, Board Clerk Deborah Brandon, Member Amarjit Kaur, Member Jerrold Parsons, Member
DISTRICT ADMINISTRATION
Charles Miller, Superintendent Susan Wheet, Business Manager
PROFESSIONAL SERVICES
FINANCIAL ADVISOR
Dale Scott & Company Inc. San Francisco, California
BOND COUNSEL AND DISCLOSURE COUNSEL
Jones Hall, A Professional Law Corporation San Francisco, California
BOND REGISTRAR, TRANSFER AGENT AND PAYING AGENT
U.S. Bank National Association San Francisco, California
VERIFICATION AGENT
Causey Demgen & Moore. P.C. Denver, Colorado
TABLE OF CONTENTS Page INTRODUCTION ...... 1 THE REFINANCING PLAN ...... 4 Purpose of Bonds ...... 4 The Refunded Bonds ...... 4 Escrow Fund Deposits ...... 4 SOURCES AND USES OF FUNDS ...... 5 THE BONDS ...... 6 Authority for Issuance ...... 6 Paying Agent ...... 6 Description of the Bonds ...... 6 Redemption ...... 7 No Optional Redemption ...... 7 Mandatory Sinking Fund Redemption ...... 7 Selection of Bonds for Redemption ...... 7 Notice of Redemption ...... 7 Registration, Transfer and Exchange of Bonds ...... 8 Defeasance ...... 8 Book-Entry-Only System ...... 9 SECURITY FOR THE BONDS ...... 10 Ad Valorem Taxes ...... 10 Debt Service Fund ...... 11 Not a County Obligation ...... 11 Disclosure Relating to COVID-19 Global Pandemic ...... 11 DEBT SERVICE SCHEDULE ...... 15 PROPERTY TAXATION ...... 17 Property Tax Collection Procedures ...... 17 Taxation of State-Assessed Utility Property ...... 18 Historic Assessed Valuations ...... 18 Assessed Valuation by Jurisdiction ...... 20 Assessed Valuation by Land Use ...... 20 Per Parcel Assessed Valuation of Single-Family Homes ...... 21 Reassessments and Appeals of Assessed Values ...... 21 Teeter Plan; Property Tax Collections ...... 22 Tax Rates ...... 23 Top Twenty Property Taxpayers ...... 24 Direct and Overlapping Debt Obligations ...... 25 CONTRA COSTA COUNTY INVESTMENT POOL ...... 27 CONTINUING DISCLOSURE ...... 27 VERIFICATION OF MATHEMATICAL ACCURACY ...... 27 CERTAIN LEGAL MATTERS ...... 28 Absence of Material Litigation ...... 28 Legal Opinion ...... 28 TAX MATTERS ...... 28 Tax Exemption ...... 28 Other Tax Considerations ...... 29 RATING ...... 30 COMPETITIVE SALE OF BONDS ...... 30 COMPENSATION OF PROFESSIONALS ...... 30 ADDITIONAL INFORMATION ...... 31 EXECUTION ...... 31
APPENDIX A - Audited Financial Statements of the District For Fiscal Year Ending June 30, 2020 ...... A-1 APPENDIX B - General and Financial Information About the District ...... B-1 APPENDIX C - Demographic Information About the City of Hercules and Contra Costa County ...... C-1 APPENDIX D - Form of Opinion of Bond Counsel ...... D-1 APPENDIX E - Form of Continuing Disclosure Certificate ...... E-1 APPENDIX F - Book-Entry Only System ...... F-1 APPENDIX G - Contra Costa County Investment Policy and Investment Report ...... G-1
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$6,440,000* JOHN SWETT UNIFIED SCHOOL DISTRICT (Contra Costa County, California) 2021 Refunding General Obligation Bonds
INTRODUCTION
This Official Statement, which includes the cover page and appendices hereto, provides information in connection with the sale and delivery of the general obligation bonds captioned above (the “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 Bonds to potential investors is made only by means of the entire Official Statement.
The District
The John Swett Unified School District (the “District”) is a K-12 school district serving students located in Contra Costa County (the “County”) in Northern California. The District is located in the East Bay and consists of an area of approximately 20 square miles composed of a portion of the city of Hercules, the unincorporated communities of Crockett, Rodeo and Port Costa, and adjacent unincorporated areas of Contra Costa County. The District is currently operating one elementary school (Rodeo Hills Elementary), one middle school (Carquinez Middle School), one high school (John Swett High School), and one continuation and alternative education center (Willow High School). Enrollment in the District in the 2020-21 school year is approximately 1,299 students. Total assessed value of properties in the District for fiscal year 2020-21 is $2,969,498,014. For more information regarding the District and its finances, see Appendix A and Appendix B attached hereto. See also Appendix C hereto for demographic and other information regarding the City of Hercules and the County.
Sources of Payment for the Bonds
The Bonds are general obligation bonds of the District payable from ad valorem property taxes. The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem property taxes for the payment of the 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 BONDS” and “PROPERTY TAXATION.”
Bond Insurance - Bidder’s Option
The District has applied for municipal bond insurance for the Bonds, and obtaining an insurance policy, if any, will be at bidder's option as described in the Official Notice of Sale.
*Preliminary; subject to change.
Purpose of Issue
The net proceeds of the Bonds will be used to refund on a current basis certain maturities of outstanding general obligation bonds of the District, as more particularly identified herein. See “THE REFINANCING PLAN” herein.
Authority for Issuance
The Bonds will be 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, commencing with Section 53550 of said Code (the “Refunding Bond Law”) and pursuant to a resolution adopted by the Board of Trustees of the District on March 10, 2021 (the “Bond Resolution”). See “THE BONDS - Authority for Issuance” herein.
Description of the Bonds
Generally. The Bonds are issued as current interest bonds which mature in the years and in the amounts as set forth on the inside cover page hereof. The Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the Bonds. See “THE BONDS – Description of the Bonds,” “– Book-Entry Only System” and “APPENDIX F – Book-Entry Only System.”
Redemption. The Bonds are not subject to optional redemption prior to maturity. The Bonds may be subject to mandatory sinking fund redemption at the option of the bidders. See discussion of redemption features under the heading “THE BONDS” herein.
Legal Matters
Issuance of the Bonds is subject to the approving opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, as 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 also serve as disclosure counsel to the District (“Disclosure Counsel”). See “APPENDIX D – Form of Opinion of Bond Counsel.”
Tax Matters
In the opinion of Bond Counsel, subject, however to certain qualifications described in this Official Statement, under existing law, interest on the Bonds is excluded from gross income for federal income tax purposes, and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. See “TAX MATTERS” and Appendix D hereto.
Offering and Delivery of the Bonds
The Bonds are offered when, as and if issued and received by the Purchaser, 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 May 4, 2021.
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Continuing Disclosure
The District has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. The form of the Continuing Disclosure Certificate is included in Appendix E hereto. See also “CONTINUING DISCLOSURE” herein.
COVID-19 Statement
The COVID-19 pandemic has resulted in a public health crisis that is fluid and unpredictable with financial and economic impacts that cannot be predicted. As such, investors are cautioned that the District cannot at this time predict the impacts that the COVID-19 pandemic may have on its enrollment, average daily attendance, operations and finances, property values in the District, and economic activity in the District, the State and the nation, among others. For more disclosure regarding the COVID-19 emergency, see “SECURITY FOR THE BONDS – Disclosure Relating to COVID-19 Global Pandemic” herein. See also references to COVID-19 in the sections herein entitled “PROPERTY TAXATION”, and in Appendix B under the heading “DISTRICT GENERAL INFORMATION” and “STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS.”
Other Information
This Official Statement speaks only as of its date, and the information contained in this Official Statement is subject to change. Copies of documents referred to in this Official Statement and information concerning the Bonds are available from the District from the Superintendent’s Office at 400 Parker Avenue, Rodeo, California, telephone (510) 245-4300. The District may impose a charge for copying, mailing and handling.
This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each of such documents, statutes and constitutional provisions.
The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.
END OF INTRODUCTION
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THE REFINANCING PLAN
Purpose of Bonds
The Bonds are being issued to refund on a current basis certain outstanding maturities of general obligation bonds of the District (together, the “Prior Bonds”) as follows:
• $8,990,000 principal amount of John Swett Unified School District (Contra Costa County, California) 2010 General Obligation Refunding Bonds (Bank Qualified) issued on October 14, 2010 (the “2010 Refunding Bonds”); and
• $1,824,583.20 original principal amount of John Swett Unified School District (Contra Costa County, California) General Obligation Bonds, 2008 Election, Series C-1 issued on September 15, 2011 (the “2008C Bonds”).
The Refunded Bonds
The bonds to be refunded (collectively, the “Refunded Bonds”) and the redemption dates and prices are identified on the following tables.
JOHN SWETT UNIFIED SCHOOL DISTRICT Identification of Refunded 2010 Refunding Bonds
Maturities to Principal Redemption Redemption be Refunded* CUSIP† Amount Date* Price 08/01/2021 478048 CM1 $675,000 06/04/2021 100.0% 08/01/2022 478048 CN9 735,000 06/04/2021 100.0 08/01/2023 478048 CP4 800,000 06/04/2021 100.0 08/01/2024 478048 CQ2 870,000 06/04/2021 100.0 08/01/2025 478048 CR0 940,000 06/04/2021 100.0 08/01/2026 478048 CS8 1,020,000 06/04/2021 100.0 Total - $5,040,000 - -
JOHN SWETT UNIFIED SCHOOL DISTRICT Identification of Refunded 2008C Bonds
Maturities to Principal Redemption Redemption be Refunded* CUSIP† Amount Date Price 08/01/2028-T 478048 CU3 $1,805,000 08/01/2021 100.0% Total - $1,805,000 - -
*Preliminary; subject to change. † CUSIP Copyright American Bankers Association. CUSIP data herein is provided by Standard & Poor’s CUSIP Service Bureau, a division of McGraw Hill Companies, Inc. Neither the District nor the Purchaser are responsible for the accuracy of such data.
Irrevocable Escrow Deposits
The net proceeds of the Bonds will be irrevocably deposited in escrow as follows: (a) with respect to the Refunded 2010 Refunding Bonds, a portion of the proceeds will be deposited with The Bank of New York Mellon Trust Company, N.A., in its capacity as paying agent for the 2010
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Refunding Bonds (the “2010 Paying Agent”), pursuant to Irrevocable Refunding Instructions filed by the District with the 2010 Paying Agent, and held in cash or invested and applied to the redemption of the Refunded 2010 Refunding Bonds on the date identified in the above applicable table, and (b) with respect to the Refunded 2008C Bonds, a portion of the proceeds will be deposited with U.S. Bank National Association, in its capacity as paying agent for the 2008C Bonds (the “2008C Paying Agent”), pursuant to Irrevocable Refunding Instructions filed by the District with the 2008C Paying Agent, and held in cash or invested and applied to the redemption of the Refunded 2008C Bonds on the date identified in the above applicable table.
The sufficiency of the deposits for those purposes will be verified by Causey Demgen & Moore, P.C., Denver, Colorado, certified public accountants (the “Verification Agent”). See “VERIFICATION OF MATHEMATICAL ACCURACY” herein. As a result of the deposit of funds described herein on the date of issuance of the Refunding Bonds, and assuming the accuracy of the Verification Agent’s computations, the Refunded Bonds will be legally defeased and will be payable solely from amounts held for that purpose, and will cease to be secured by ad valorem property taxes levied in the District.
The amounts irrevocable deposited with respect to the Refunded Bonds are pledged solely to the payment of the applicable series of Refunded Bonds. Said funds will not be available for the payment of debt service with respect to the Refunding Bonds.
SOURCES AND USES OF FUNDS
The estimated sources and uses of funds with respect to the Bonds are as follows:
Sources of Funds Principal Amount of Bonds Net Original Issue Premium Total Sources
Uses of Funds Deposit to 2010 Refunding Bond Escrow Fund Deposit to 2008C Bond Escrow Fund Costs of Issuance* Total Uses
*All estimated costs of issuance including, but not limited to, Purchaser’s discount, printing costs, and fees of Bond Counsel, Disclosure Counsel, the Financial Advisor, the Paying Agent, the Prior Paying Agents, bond insurance premium (if any), and the rating agency.
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THE BONDS
Authority for Issuance
The Bonds will be issued pursuant to the authority of the Refunding Bond Law and the Bond Resolution.
Paying Agent
U.S. Bank National Association, as paying agent, will act as the registrar, transfer agent, and paying agent for the Bonds (the “Paying Agent”). As long as DTC is the registered owner of the Bonds and DTC's book-entry method is used for the Bonds, the Paying Agent will send any notice of prepayment 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 prepayment of the Bonds called for prepayment or of any other action premised on such notice.
The Paying Agent, the District and the County have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership of interests in the Bonds.
Description of the Bonds
The Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co. as nominee for The Depository Trust Company (“DTC”). Purchasers will not receive physical certificates representing their interest in the Bonds. See "Book-Entry Only System" below and “APPENDIX F – Book-Entry Only System.”
Interest on the Bonds accrues from the date of original delivery (the “Dated Date”) and is payable semiannually on February 1 and August 1 of each year (each, an “Interest Payment Date”) commencing August 1, 2021. Each Bond will bear interest from the Interest Payment Date next preceding the date of registration and authentication thereof unless (i) it is registered and authenticated as of an Interest Payment Date, in which event it shall bear interest from such date, or (ii) it is registered and authenticated prior to an Interest Payment Date and after the close of business on the 15th day of the month preceding such Interest Payment Date (each, a “Record Date”), in which event it shall bear interest from such Interest Payment Date, or (iii) it is registered and authenticated prior to July 15, 2021, in which event it will bear interest from the date of original delivery; provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.
Interest on the Bonds, including the final interest payment upon maturity, is payable by check or draft of the Paying Agent mailed on the Interest Payment Date by first-class mail to 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 preceding 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 Bonds, by wire transfer.
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The Bonds will be issued in denominations of $5,000 principal amount or any integral multiple thereof. The Bonds mature on August 1 in the years and amounts set forth on the inside cover page hereof.
Redemption
No Optional Redemption. The Bonds are not subject to optional redemption prior to their respective stated maturities.
Mandatory Sinking Fund Redemption*. The Bonds maturing on August 1, 20__ (the “Term Bonds”), are subject to mandatory sinking fund redemption in part by lot, on August 1 of each year in accordance with the schedule set forth below. The Term Bonds so called for mandatory sinking fund redemption shall be redeemed at the principal amount of such Bonds to be redeemed, plus accrued but unpaid interest, without premium.
Term Bonds Maturing August 1, 20__
Redemption Date Sinking Fund (August 1) Redemption
Selection of Bonds for Redemption
Whenever less than all of the outstanding Bonds of any given maturity are called for redemption, the Paying Agent shall select the outstanding Bonds of such maturity to be redeemed by lot in any manner deemed fair by the Paying Agent. Redemption by lot shall be in such a manner as the Paying Agent may determine; provided, however, that the portion of any Bond to be redeemed in part will be in the principal amount of $5,000 or any integral multiple thereof.
Notice of Redemption
The Paying Agent is required to give notice of the redemption of the Bonds, at the expense of the District, at least 20 days but not more than 60 days prior to the date fixed for redemption, to the respective owners of any Bonds designated for redemption, at their addresses appearing on the Registration Books maintained by the Paying Agent. Such notice shall state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more maturities have been called for redemption, and shall require that such Bonds be then surrendered at the Office of the Paying Agent for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date.
*Designation of term bonds subject to mandatory sinking fund redemption is at bidder’s option.
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Registration, Transfer and Exchange of 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 Bonds.
If the book entry system is discontinued, the person in whose name a 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 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 in the Bond Resolution.
Bonds may be exchanged for Bonds of the same series, tenor, maturity and principal amount upon presentation and surrender at the principal corporate trust office of the Paying Agent in San Francisco, California. Any 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 Bonds, (ii) DTC determines to discontinue providing such services and no successor securities depository is named or (iii) DTC requests the District to deliver 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 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.
No exchanges of Bonds shall be required to be made (a) fifteen days prior to an Interest Payment Date or the date established by the Paying Agent for selection of Bonds for redemption or (b) with respect to a Bond after such Bond has been selected for redemption.
Defeasance
The Bonds may be paid by the District, in whole or in part, in any one or more of the following ways:
(a) by paying or causing to be paid the principal of and interest on such Bonds, as and when the same become due and payable;
(b) by irrevocably depositing, in trust, at or before maturity, money or securities in the necessary amount (as provided in the Bond Resolution) to pay such Bonds; or
(c) by delivering such Bonds to the Paying Agent for cancellation by it.
Whenever in a Bond Resolution it is provided or permitted that there be deposited with or held in trust by the Paying Agent money or securities in the necessary amount to pay any Bonds, the money or securities so to be deposited or held may be held by the Paying Agent or by any other fiduciary. Such money or securities may include money or securities held by the Paying Agent in the funds and accounts established under such Bond Resolution and will be:
(i) lawful money of the United States of America in an amount equal to the Principal Amount of such Bonds and all unpaid interest thereon to maturity; or
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(ii) Federal Securities (not callable by the issuer thereof prior to maturity) the principal of and interest on which when due, in the opinion of a certified public accountant delivered to the District, will provide money sufficient to pay the principal of and all unpaid interest to maturity on the Bonds to be paid, as such principal and interest become due.
Upon the deposit, in trust, at or before maturity, of money or securities in the necessary amount (as described above) to pay any outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), then all liability of the County and the District in respect of such Bond will cease and be completely discharged, except only that thereafter the owner thereof will be entitled only to payment of the principal of and interest on such Bond by the District, and the District will remain liable for such payment, but only out of such money or securities deposited with the Paying Agent for such payment.
As defined in the Bond Resolution, the term “Federal Securities” means United States Treasury notes, bonds, bills or certificates of indebtedness, or any other obligations the timely payment of which is directly or indirectly guaranteed by the faith and credit of the United States of America.
Book-Entry-Only System
The Bonds will be issued in fully registered form only and, when initially issued, will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Bonds. Purchasers of the Bonds will not receive physical certificates representing their beneficial ownership interests in the Bonds purchased. Payments of principal and interest on the Bonds will be paid by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Bonds. See “APPENDIX F – Book-Entry Only System” herein.
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SECURITY FOR THE BONDS
Ad Valorem Taxes
Bonds Payable from Ad Valorem Property Taxes. The Bonds are general obligations of the District, payable solely from ad valorem property taxes levied and collected by the County. The County is empowered and is obligated to annually levy ad valorem taxes for the payment of the 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). In no event is the District obligated to pay principal of and interest and redemption premium, if any, on the Bonds out of any funds or properties of the District other than ad valorem taxes levied upon all taxable property in the District; provided, however, nothing in the Bond Resolution prevents the District from making advances of its own moneys howsoever derived to any of the uses or purposes permitted by law.
Other Bonds Payable from Ad Valorem Property Taxes. The District has previously issued other general obligation bonds, which are payable from ad valorem taxes on a parity basis. In addition to the general obligation bonds issued by the District, there is other debt issued by entities with jurisdiction in the District, which is payable from ad valorem taxes levied on parcels in the District. See “PROPERTY TAXATION – Direct and Overlapping Debt” below.
Levy and Collection. The County will levy and collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of debt service. Such taxes, when collected, will be deposited into a debt service fund for the Bonds, which is maintained by the County and which is irrevocably pledged for the payment of principal of and interest on the Bonds when due.
District property taxes are assessed and collected by the County in the same manner and at the same time, and in the same installments as other ad valorem taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property. See “-Teeter Plan; Property Tax Collections” below.
Statutory Lien on Ad Valorem Tax Revenues. Pursuant to Senate Bill 222 effective January 1, 2016, voter approved general obligation bonds which are secured by ad valorem tax collections, including the Bonds, are secured by a statutory lien on all revenues received pursuant to the levy and collection of the property tax imposed to service those bonds. Said lien attaches automatically and is valid and binding from the time the bonds are executed and delivered. The lien is enforceable against the school district or community college district, its successors, transferees, and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for any further act.
Annual Tax Rates. The amount of the annual ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds. Fluctuations in the annual debt service on the Bonds and the assessed value of taxable property in the District may cause the annual tax rate to fluctuate.
Economic and other factors beyond the District’s control, such as economic recession, pandemic, deflation of property values, a relocation out of the District or financial difficulty or bankruptcy by one or more major property taxpayers, or the complete or partial destruction of
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taxable property caused by, among other eventualities, earthquake, flood, fire, drought or other natural disaster, could cause a reduction in the assessed value within the District and necessitate a corresponding increase in the annual tax rate. See “PROPERTY TAXATION – Assessed Valuations – Factors Relating to Increases/Decreases in Assessed Value.” See also below under the heading “--Disclosure Relating to COVID-19 Global Pandemic.”
Debt Service Fund
The County will establish a “Debt Service Fund” for the Bonds, as a separate fund to be maintained distinct from all other funds of the County. All taxes levied by the County for the payment of the principal of and interest and premium (if any) on the Bonds will be deposited in the Debt Service Fund by the County promptly upon receipt. The Debt Service Fund is pledged for the payment of the principal of and interest and premium (if any) on the Bonds when and as the same become due. The County will transfer amounts in the Debt Service Fund to the Paying Agent to the extent necessary to pay the principal of and interest and premium (if any) on the Bonds as the same become due and payable. Funds on deposit in the Debt Service Fund are subject to a statutory lien pursuant to the provisions of Section 15251 of the California Education Code.
If, after payment in full of the Bonds, any amounts remain on deposit in the Debt Service Fund, the District shall transfer such amounts to other debt service funds of the District with respect to outstanding general obligation bonds of the District, if any, and if none, then to its general fund, to be applied solely in a manner which is consistent with the requirements of applicable state and federal tax law.
Not a County Obligation
The Bonds are payable solely from the proceeds of an ad valorem property tax levied and collected by the County, for the payment of principal of and interest on the Bonds. Although the County is obligated to collect the ad valorem tax for the payment of the Bonds, the Bonds are not a debt of the County.
Disclosure Relating to COVID-19 Global Pandemic
Background. The outbreak of COVID-19, a respiratory disease caused by a new strain of coronavirus (“COVID-19”), which was first detected in China and has spread to other countries, including the United States, was declared a pandemic by the World Health Organization, a national emergency by the President of the United States (the “President”) and a state of emergency by the Governor of the State (the “Governor”). There has been tremendous volatility in the markets in the United States and globally, resulting in the onset of a national and global recession.
Federal Response. The President’s declaration of a national emergency on March 13, 2020 made available more than $50 billion in federal resources to combat the spread of the virus. A multi-billion-dollar relief package was signed into law by the President on March 18, 2020, providing for Medicaid expansion, unemployment benefits and paid emergency leave during the crisis. In addition, the Federal Reserve lowered its benchmark interest rate to nearly zero, introduced a large bond-buying program and established emergency lending programs to banks and money market mutual funds.
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On March 27, 2020, the United States Congress passed a $2 trillion relief package, being the largest stimulus bill in history, referred to as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The package provided direct payments to taxpayers, jobless benefits, assistance to hospitals and healthcare systems, $367 billion for loans to small businesses, a $500 billion fund to assist distressed large businesses, including approximately $30 billion for emergency grants to educational institutions and local educational agencies. This funding allocation included approximately $13.5 billion in formula funding to make grants available to each state’s educational agency in order to facilitate K-12 schools’ responses to the COVID-19 pandemic.
On April 9, 2020, the Federal Reserve took actions aimed at providing up to $2.3 trillion in loans to support the national economy, including supplying liquidity to participating financial institutions in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), purchasing up to $600 billion in loans through the Main Street Lending Program and offering up to $500 billion in lending to states and municipalities.
On April 24, 2020, an additional $484 billion federal aid package was signed, providing additional funding for the PPP, the SBA disaster assistance loans and grant program, hospital grants and funding for a COVID-19 testing program.
On December 27, 2020, the President signed the Coronavirus Response and Relief Supplemental Appropriations Act (the “CRRSA Act”), an additional $900 billion federal relief package intended to follow and expand on provisions of the CARES Act. The second largest stimulus bill in history, the measure includes another round of direct stimulus payments to individuals and families, extends unemployment benefits, expands the PPP, and provides approximately $82 billion in supplemental aid to support the educational needs of states, school districts, and institutions of higher education, among other stimulus measures.
On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (the “ARP Act”), a $1.9 trillion economic stimulus plan will provide an additional round of stimulus checks to individuals and families, extend federal supplemental unemployment benefits, provide more funding for state and local governments, expand subsidies for healthcare insurance, and provide additional funding for COVID-19 testing, vaccination, and treatment, among several other provisions that will affect many industries, businesses and individuals. With respect to relief for educational agencies, grants of $125.8 billion will be provided to states to support statewide and local funding for elementary and secondary schools and public postsecondary institutions. Funding can be used for a number of education-related expenses, including inspecting and improving school facilities to ensure adequate air quality, providing mental health services, reducing class sizes, implementing social distancing guidelines, and purchasing personal protective equipment. At least 20 percent of the funding will have to be used to address learning loss, including through summer learning or enrichment, after-school programs, or extended-day or extended-year programs. States that receive the grants cannot reduce their spending levels on education as a proportion of their budgets during fiscal 2022 or 2023, compared with the average level from fiscal 2017 through 2019.
State Response. At the State level, on March 15, 2020, the Governor ordered the closing of California bars and nightclubs, the cancellation of gatherings of more than 250. On March 16, 2020, the State legislature passed $1.1 billion in general purpose spending authority providing emergency funds to respond to the pandemic. On March 19, 2020, the Governor issued a state- wide blanket shelter-in-place order, ordering all California residents to stay home except for
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certain essential purposes. The restrictions began to be rolled back in May 2020 in accordance with State and local guidelines.
On August 28, 2020, the Governor released a system entitled “Blueprint for a Safer California” (the “State Blueprint”) aimed at reducing the spread of COVID-19. The State Blueprint places the State’s 58 counties into four color-coded tiers – purple, red, orange, and yellow, in descending order of severity – generally based on test positivity and adjusted case rate in the county. Each tier imposes restrictions on certain activities to reduce the spread. Tier 1 (Purple) is the most restrictive. Counties can be assigned to a tier any day of the week.
On February 23, 2021, the Governor signed legislation providing $7.6 billion in State funding aimed at helping individuals and businesses that were not included in federal aid. It includes sending a $600 rebate to low-income, disables and undocumented persons when 2020 taxes are filed, $2 billion in grants to help small business, $35 million for food and diaper banks and $400 million in subsidies for childcare providers. It also reverses cuts made last summer to public universities and State courts when the State experienced a record-breaking budget deficit.
The COVID-19 outbreak is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak, the economic impacts and actions that may be taken by governmental authorities to contain the outbreak or to treat its impacts are uncertain and cannot be predicted. Additional information with respect to events surround the outbreak of COVID-19 and responses thereto can be found on State and local government websites, including but not limited to: the Governor’s office (http://www.gov.ca.gov) and the California Department of Public Health (https://covid19.ca.gov/). The District has not incorporated by reference the information on such websites, and the District does not assume any responsibility for the accuracy of the information on such websites.
Impacts of COVID-19 Pandemic on Global and Local Economies Cannot be Predicted; Potential Declines in State and Local Revenues. The COVID-19 public health emergency is altering the behavior of businesses and people in a manner that will have negative impacts on global and local economies, including the economy of the State. A substantial increase in unemployment and a decline in State revenues including derived from personal income tax receipts have occurred. The District cannot predict the short or long term impacts the COVID-19 emergency and the responses of federal, State or local governments thereto, will have on global, State-wide and local economies, which could impact District operations and finances, and local property values. For more detail regarding the State’s current budget, and related reports and outlooks, see Appendix B under the heading “STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS.”
In addition, the District cannot predict the legislative changes that might result as a result of the COVID-19 pandemic which could impact its operations and finances. In an attempt to mitigate the effects of the COVID-19 pandemic on State property taxpayers, on May 6, 2020, the Governor signed an executive order suspending penalties, costs or interest for the failure to pay secured or unsecured property taxes, or to pay a supplemental bill, before the date that such taxes become delinquent. See “PROPERTY TAXATION – Property Tax Collection Procedures – Waiver of State Laws Relating to Penalties for Non-Payment of Property Taxes.”
Impact of COVID-19 Pandemic on Education. The State’s and other local (if any) shelter-in-place orders suspended in-person classroom instruction throughout schools in the State from March 2020 through the end of the academic year. School districts in the State generally commenced the 2020-21 academic year in accordance with the Governor’s order of
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July 17, 2020 (Pandemic Plan for Learning and Safe Schools) and the State’s Blueprint. Under the State’s Blueprint, schools located in counties in Tier 2 or lower were permitted to have in- person instruction under certain conditions. In addition, K-6 schools could apply for and be granted a waiver and permitted to conduct in-person education based on satisfying certain required criteria.
On March 13, 2020, the Governor issued Executive Order N-26-20 Governor which established a streamlined process for school closures in response to COVID-19, providing for continued State funding to support distance learning or independent study, subsidized school meals to low-income students, and continuing payment for school district employees, among other measures. In addition, Senate Bill 117 (March 17, 2020) was approved and addressed attendance issues and instructional hour requirements, among other items, and effectively holds school districts harmless from funding losses that could result from these issues under the State’s education funding formulas. See Appendix B under the heading “DISTRICT FINANCIAL INFORMATION – Education Funding Generally.” In addition, federal funding to school districts was made available to most school districts under the CARES Act and the CRRSA Act.
On December 30, 2020, the Governor announced the Safe Schools for All Plan (“SSFA Plan”), a plan aimed at incentivizing schools to offer in-person learning. Some portions of the SSFA Plan went into effect immediately, however on March 4, 2021 the legislature passed and on March 5, 2021 the Governor signed Senate and Assembly Bill 86, reaching an agreement on a school reopening plan, with the stated intent that schools offer in-person instruction to the greatest extent possibly during the 2020-21 fiscal year. The plan provides schools with financial incentives totaling $2 billion to offer in-person instruction beginning on April 1 to students with extra needs or requiring special attention and, for students in some grades, depending on what tier their county is in under the State Blueprint. Funding is allocated based on LCFF funding. For districts not offering in-person instruction by April 1, funds decrease by one percent for each instructional day that schools are not open through May 15 (not including scheduled vacation days) and after May 15, eligibility ceases. Funds obtained must primarily be spent on purposes consistent with providing in-person instruction, including COVID-19 testing, cleaning, personal protective equipment, facility needs, staffing costs, and social and mental health supports provided in conjunction with in-person instruction. Districts must continue to offer distance learning options.
Information on the District’s response to the COVID-19 pandemic can be found in Appendix B under the heading “GENERAL INFORMATION - District’s Response to COVID-19 Emergency.”
Impacts of COVID-19 Emergency Uncertain. The possible impacts that the COVID-19 emergency might have on the District’s enrollment, attendance, finances, programs, credit ratings on its debt obligations, local property values and the economy in general are uncertain at this time. In addition, there may be unknown consequences of the COVID-19 emergency, which the District is unable to predict.
General Obligation Bonds Secured by Ad Valorem Property Tax Revenues. Notwithstanding the impacts the COVID-19 emergency may have on the economy in the State, the County and the District or on the District’s general purpose revenues, the Bonds described herein are voter-approved general obligations of the District payable solely from the levy and collection of ad valorem property taxes, unlimited as to rate or amount, and are not payable from the general fund of the District. The District cannot predict the impacts that the Coronavirus emergency might have on local property values or tax collections. See “SECURITY FOR THE
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BONDS – Ad Valorem Property Taxes” and “PROPERTY TAXATION – Teeter Plan; Property Tax Collections” herein.
DEBT SERVICE SCHEDULES
Debt Service for the Bonds. The following table shows the debt service schedules with respect to the Bonds, assuming no optional redemptions.
JOHN SWETT UNIFIED SCHOOL DISTRICT Bonds Debt Service Schedule
Bond Year Ending Bond Bond Total August 1 Principal Interest Debt Service 2021 2022 2023 2024 2025 2026 2027 2028 Total
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Combined Debt Service Schedule. In addition to the Bonds described herein, the District has issued other series of general obligation bonds and refunding bonds which are currently outstanding. The following table shows the combined debt service schedule for outstanding general obligation bonds and refunding bonds of the District, assuming no optional redemptions. See also Appendix B under the heading “DISTRICT FINANCIAL INFORMATION – Existing Debt Obligations” for additional information.
JOHN SWETT UNIFIED SCHOOL DISTRICT Combined Debt Service Schedule General Obligation Bonds*
Election of Election of Aggregate Period Ending Election of 2016 Bonds 2016 Bonds Refunding The Annual (August 1) 2008 Bonds (Measure P) (Measure Q) Bonds Bonds Debt Service 2021 $1,413,070.11 $1,481,968.75 $898,668.75 $1,287,750.00 2022 1,395,804.91 1,345,718.75 930,668.75 1,323,250.00 2023 1,370,602.94 1,380,218.75 971,618.75 1,369,750.00 2024 1,345,298.87 1,427,218.75 1,006,218.75 1,411,500.00 2025 1,319,888.85 1,465,968.75 1,045,218.75 1,453,500.00 2026 1,294,368.93 1,516,718.75 1,081,718.75 1,495,500.00 2027 1,044,275.00 1,563,718.75 1,120,718.75 442,250.00 2028 1,047,300.00 1,616,968.75 1,156,968.75 458,250.00 2029 - 1,665,418.75 1,185,468.75 472,500.00 2030 565,000.00 1,715,468.75 1,221,468.75 - 2031 580,000.00 1,772,418.75 1,254,468.75 - 2032 605,000.00 1,825,968.75 1,289,468.75 - 2033 625,000.00 1,885,118.75 1,331,218.75 - 2034 645,000.00 1,946,068.75 1,383,093.75 - 2035 - 2,013,718.75 1,432,625.00 - 2036 - 2,076,575.00 1,493,700.00 - 2037 - 2,139,787.50 1,630,850.00 - 2038 - 2,214,500.00 1,693,507.50 - 2039 - 2,295,237.50 1,755,915.00 - 2040 - 2,380,143.75 1,754,975.00 - 2041 - 2,460,325.00 1,821,150.00 - 2042 - 2,558,950.00 1,898,300.00 - 2043 - 2,656,900.00 1,970,900.00 - 2044 - 2,753,975.00 2,048,950.00 - 2045 - - 2,132,100.00 - TOTAL $13,250,609.61 $46,159,075.00 $35,509,960.00 $9,714,250.00
*Includes debt service on Refunded Bonds. See “THE REFINANCING PLAN.”
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PROPERTY TAXATION
Property Tax Collection Procedures
Generally. In California, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” The “secured roll” is that part of the assessment roll containing (1) state assessed public utilities’ property and (2) property the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property.
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 after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the county in which the property is located.
Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1. A bill enacted in 1983, Senate Bill 813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, Senate Bill 813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value.
Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) 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 judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder’s office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent.
Waiver of State Laws Relating to Penalties for Non-Payment of Property Taxes. In an attempt to mitigate the effects of the COVID-19 pandemic on State property taxpayers, on May 6, 2020, the Governor signed Executive Order N-61-20 (“Order N-61-20”). Under Order N-61-20, certain provisions of the State Revenue and Taxation Code are suspended until May 6, 2021 to the extent said provisions require a tax collector to impose penalties, costs or interest for the
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failure to pay secured or unsecured property taxes, or to pay a supplemental bill, before the date that such taxes become delinquent. Said penalties, costs and interest shall be cancelled under the conditions provided for in Order N-61-20, including if the property is residential real property occupied by the taxpayer or the real property qualifies as a small business under certain State laws, the taxes were not delinquent prior to March 4, 2020, the taxpayer files a claim for relief with the tax collector, and the taxpayer demonstrates economic hardship or other circumstances that have arisen due to the COVID-19 pandemic or due to a local, state, or federal governmental response to COVID-19.
Disclaimer Regarding Property Tax Collection Procedures. The property tax collection procedures described above are subject to amendment based on legislation or executive order, including Order N-61-20, which may be enacted by the State legislature or declared by the Governor from time to time. The District cannot predict the impact of Order N-61-20 on property tax revenues in the County or the District, whether future amendments or orders will occur, and what impact, if any, said future amendments or orders could have on the procedures relating to the levy and collection of property taxes, and related interest and penalties.
Taxation of State-Assessed Utility Property
The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization (“SBE”) and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as “unitary property”, a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State-assessed unitary and “operating nonunitary” property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county-wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year.
Historic 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, as described above. Assessed valuations are reported at 100% of the “full value” of the property, as defined in Article XIIIA of the California Constitution. For a discussion of how properties currently are assessed, see Appendix B under the heading “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS.”
Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions.
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The following table sets forth recent history of the assessed value in the District.
JOHN SWETT UNIFIED SCHOOL DISTRICT Assessed Valuations of All Taxable Property Fiscal Years 2005-06 to 2020-21
Fiscal Total Year Local Secured Utility Unsecured Valuation % Change 2005-06 $1,989,647,189 $2,239,280 $249,399,874 $2,241,286,343 -- 2006-07 2,091,723,981 2,060,084 240,124,543 2,333,908,608 4.1% 2007-08 2,310,230,409 867,483 214,765,263 2,525,863,155 8.2 2008-09 2,282,964,772 864,335 223,302,734 2,507,131,841 -(0.7) 2009-10 2,168,285,877 864,335 336,696,204 2,505,846,416 -(0.1) 2010-11 2,143,188,191 1,147,692 368,268,337 2,512,604,220 0.3 2011-12 2,481,337,814 1,147,692 437,597,586 2,920,083,092 16.2 2012-13 2,569,274,086 1,210,692 466,341,668 3,036,826,446 4.0 2013-14 2,440,036,162 1,210,692 406,876,669 2,848,123,523 (6.2) 2014-15 2,134,438,935 1,511,396 398,968,851 2,534,919,182 (11.0)* 2015-16 2,277,271,728 1,511,396 382,091,497 2,660,874,621 5.0 2016-17 2,315,766,378 1,511,396 369,334,688 2,686,612,462 1.0 2017-18 2,439,022,437 1,511,396 329,089,105 2,769,622,938 3.1 2018-19 2,623,470,267 1,450,434 315,445,193 2,940,365,894 6.2 2019-20 2,710,457,151 1,450,434 286,907,052 2,998,814,637 2.0 2020-21 2,691,480,570 1,450,434 276,567,010 2,969,498,014 (0.9)
*Reduction in total assessed valuation was primarily the result of the reassessment of property owned by Tosco Corporation. See “PROPERTY TAXATION - Top Twenty Property Taxpayers” below. Source: California Municipal Statistics, Inc.
Factors Relating to Increases/Decreases in Assessed Value. As indicated in the previous table, assessed valuations are subject to change in each year. Increases or decreases in assessed valuation result from a variety of factors including but not limited to general economic conditions, supply and demand for real property in the area, government regulations such as zoning, and man-made or natural disasters such as earthquakes, fires, floods and drought. Seismic activity is also a risk in the region where the District is located. Notable natural disasters in recent years include drought conditions throughout the State, which ended in 2017 due to record-level precipitation in late 2016 and early 2017, and wildfires in different regions of the State, and related flooding and mudslides. The most destructive of the recent wildfires, which have burned thousands of acres and destroyed thousands of homes and structures, have originated in wildlands adjacent to urban areas. In addition, according to the U.S. Drought Monitor, as of March 2021, parts of the State, including within the County, are experiencing moderate to extreme drought conditions. Although recent California wildfires have not occurred within District boundaries, the District cannot predict or make any representations regarding the effects that wildfires or any other type of natural or manmade disasters, including the COVID-19 pandemic (see next paragraph), and related conditions have or may have on the value of taxable property within the District, or to what extent the effects said disasters might have on economic activity in the District or throughout the State.
Currently the world is experiencing a global pandemic as a result of the outbreak of COVID-19 which could cause general marked declines in property values. For disclosure relating to the COVID-19 emergency, see also “SECURITY FOR THE BONDS – Disclosure Relating to COVID-19 Global Pandemic.”
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Assessed Valuation by Jurisdiction. The following table shows the assessed valuation of local secured property within the District by jurisdiction.
JOHN SWETT UNIFIED SCHOOL DISTRICT Assessed Valuations By Jurisdiction Fiscal Year 2020-21
Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in School District School District of Jurisdiction in School District City of Hercules $ 238,446,528 8.03% $4,140,056,466 5.76% Unincorporated Contra Costa County 2,731,051,486 91.97 $43,760,412,679 6.24% Total District $2,969,498,014 100.00%
Contra Costa County $2,969,498,014 100.00% $226,284,478,918 1.31%
Source: California Municipal Statistics, Inc.
Assessed Valuation by Land Use. The following table gives a distribution of taxable property located in the District by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use.
JOHN SWETT UNIFIED SCHOOL DISTRICT 2020-21 Assessed Valuation and Parcels by Land Use
2020-21 % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Rural $ 43,935,856 1.63% 77 1.52% Commercial 64,412,805 2.39 119 2.35 Vacant Commercial 17,879,817 0.66 31 0.61 Industrial 1,158,903,817 43.06 26 0.51 Vacant Industrial 33,708,688 1.25 32 0.63 Recreational 6,811,428 0.25 2 0.04 Government/Social/Institutional 47,418 0.00 185 3.65 Miscellaneous 1,514,203 0.06 106 2.09 Subtotal Non-Residential $1,327,214,032 49.31% 578 11.40%
Residential: Single Family Residence $1,175,397,937 43.67% 3,765 74.23% Condominium/Townhouse 46,857,547 1.74 216 4.26 Mobile Home 68,308 0.00 7 0.14 2-4 Residential Units 85,186,886 3.17 290 5.72 5+ Residential Units/Apartments 47,867,363 1.78 37 0.73 Vacant Residential 8,888,497 0.33 179 3.53 Subtotal Residential $1,364,266,538 50.69% 4,494 88.60%
Total $2,691,480,570 100.00% 5,072 100.00% ______(1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.
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Per Parcel Assessed Valuation of Single-Family Homes
The following table shows the assessed valuation of single-family homes in the District.
JOHN SWETT UNIFIED SCHOOL DISTRICT 2020-21 Per Parcel Assessed Valuation of Single-Family Homes
No. of 2020-21 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 3,765 $1,175,397,937 $312,191 $288,973
2020-21 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24,999 17 0.452% 0.452% $ 323,185 0.027% 0.027% $25,000 - $49,999 96 2.550 3.001 3,713,569 0.316 0.343 $50,000 - $74,999 152 4.037 7.039 9,692,931 0.825 1.168 $75,000 - $99,999 112 2.975 10.013 9,923,317 0.844 2.012 $100,000 - $124,999 126 3.347 13.360 14,023,623 1.193 3.205 $125,000 - $149,999 145 3.851 17.211 20,260,649 1.724 4.929 $150,000 - $174,999 170 4.515 21.726 27,691,309 2.356 7.285 $175,000 - $199,999 172 4.568 26.295 32,200,473 2.740 10.025 $200,000 - $224,999 202 5.365 31.660 43,194,821 3.675 13.700 $225,000 - $249,999 270 7.171 38.831 64,290,471 5.470 19.169 $250,000 - $274,999 268 7.118 45.950 70,168,207 5.970 25.139 $275,000 - $299,999 241 6.401 52.351 69,033,000 5.873 31.012 $300,000 - $324,999 204 5.418 57.769 63,536,086 5.405 36.418 $325,000 - $349,999 180 4.781 62.550 60,652,246 5.160 41.578 $350,000 - $374,999 156 4.143 66.693 56,415,995 4.800 46.377 $375,000 - $399,999 135 3.586 70.279 52,191,590 4.440 50.818 $400,000 - $424,999 144 3.825 74.104 59,370,285 5.051 55.869 $425,000 - $449,999 139 3.692 77.795 60,871,862 5.179 61.048 $450,000 - $474,999 129 3.426 81.222 59,532,377 5.065 66.113 $475,000 - $499,999 135 3.586 84.807 65,729,767 5.592 71.705 $500,000 and greater 572 15.193 100.000 332,582,174 28.295 100.000 3,765 100.000% $1,175,397,937 100.000% ______(1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.
Reassessments and Appeals of Assessed Values
There are general means by which assessed values can be reassessed or appealed 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 – Article XIIIA of the California Constitution” in Appendix B.
Under California law, property owners may apply for a Proposition 8 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.
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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, adjusted for inflation, 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.
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.
Proposition 8 reductions may also be unilaterally applied by the County Assessor. The District cannot predict the changes in assessed values that might result from pending or future appeals by taxpayers or by reductions initiated by the County Assessor. 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.
Teeter Plan; Property Tax Collections
The Board of Supervisors of the County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, each entity levying property taxes in the County may draw on the amount of uncollected secured taxes credited to its fund, in the same manner as if the amount credited had been collected. The District participates in the Teeter Plan, and thus receives 100% of secured property taxes levied in exchange for foregoing any interest and penalties collected on delinquent taxes. Currently, the County includes general obligation bond debt service in its Teeter Plan, which includes debt service levies for the Bonds.
So long as the Teeter Plan remains in effect, the District’s receipt of revenues with respect to the levy of ad valorem property taxes will not be dependent upon actual collections of the ad valorem property taxes by the County. However, under the statute creating the Teeter Plan, the Board of Supervisors can under certain circumstances terminate the Teeter Plan in part or in its entirety with respect to the entire County and, in addition, the Board of Supervisors can terminate the Teeter Plan with respect to the District if the delinquency rate for all ad valorem property taxes levied within the District in any year exceeds 3%. In the event that the Teeter Plan were terminated, the amount of the levy of ad valorem property taxes in the District would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District.
The District cannot predict the impact, if any, that changes or modifications to property tax collection procedures, including Order N-61-20 which waives the collection of certain penalties and interest on delinquent property taxes resulting from the COVID-19 pandemic, might have on the County’s Teeter Plan.
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Finally, the ability of the County to maintain the Teeter Plan may depend on its financial resources and may be affected by future property tax delinquencies. Property tax delinquencies may be impacted by economic and other factors beyond the District’s or the County’s control, including the ability or willingness of property owners to pay property taxes during an economic recession or depression. An economic recession or depression could be caused by many factors outside the control of the District, including high interest rates, reduced consumer confidence, reduced real wages or reduced economic activity as a result of the spread of COVID-19 or other outbreak of disease or natural or manmade disaster. See “SECURITY FOR THE BONDS – Disclosure Relating to the COVID-19 Global Pandemic.”
There can be no assurances that the County will continue the Teeter Plan in the future, or that the County will not discontinue the Teeter Plan or remove the District from the Teeter Plan in the future.
Tax Rates
The table below summarizes the total ad valorem tax rates levied by all taxing entities in Tax Rate Area 64-045 (a typical tax rate area in the District).
JOHN SWETT UNIFIED SCHOOL DISTRICT Typical Total Tax Rate per $100 of Assessed Valuation (TRA 64-045)* Fiscal Years 2016-17 Through 2020-21
2016-17 2017-18 2018-19 2019-20 2020-21 General Tax Rate $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 Bay Area Rapid Transit District .00800 .00840 .00700 .01200 .01390 East Bay Regional Park District .00320 .00210 .00210 .00940 .00140 John Swett Unified School District .08410 .14870 .14890 .14390 .14540 Contra Costa Community College District .01200 .01140 .01100 .01880 .01610 Total Tax Rate $1.10730 $1.17060 $1.16900 $1.18410 $1.17680 ______*2020-21 Assessed Value: $1,027,541,694 Source: California Municipal Statistics, Inc.
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Top Twenty Property Taxpayers
General. The top twenty taxpayers in the District with the greatest combined assessed valuation of taxable property, and the assessed valuations thereof, are shown below.
The more property (by assessed value) which is owned by a single taxpayer in the District, the greater amount of tax collections are exposed to weaknesses in the taxpayer’s financial situation and ability or willingness to pay property taxes. 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.
JOHN SWETT UNIFIED SCHOOL DISTRICT Largest 2020-21 Local Secured Taxpayers 2020-21 % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Phillips 66 Company Heavy Industrial $990,871,511 36.82% 2. Sugar Acquisition Corp. Heavy Industrial 130,993,519 4.87 3. Shore Terminals LLC Heavy Industrial 51,938,130 1.93 4. C S Land Inc. Vacant 46,938,843 1.74 5. Reliant-East Bay LP Apartments 21,112,560 0.78 6. Vacaville Mobile Home Park LLC Commercial 10,659,700 0.40 7. Rodeo Parker SC LLC Shopping Center 9,797,039 0.36 8. Madison MRH-1 Franklin LLC Golf Course 5,889,704 0.22 9. Asbury Graphite Inc. of CA Heavy Industrial 4,395,743 0.16 10. MCG-Rodeo LLC Apartments 3,201,938 0.12 11. Oak Hill Park Company Golf Course 3,163,941 0.12 12. Reza Fakurnejad, Trust Residential Properties 2,962,952 0.11 13. Ravinder S. Randhawa Residential Properties 2,956,424 0.11 14. John A. Demartini Ranch LLC Vacant 2,785,728 0.10 15. John F. Bessolo, Trustee Apartments 2,568,682 0.10 16. 701 San Pablo LLC Commercial 2,304,966 0.09 17. Aaron Edsinger, Trustee Vacant 2,304,797 0.09 18. High Tech Investments LLC Residential Properties 2,125,690 0.08 19. Jad San Pablo LLC Commercial 2,074,853 0.08 20. Convenience Retailers LLC Commercial 1,885,653 0.07 $1,300,932,373 48.34% ______(1) 2020-21 local secured assessed valuation: $2,691,480,570. Source: California Municipal Statistics, Inc.
Concentration; Top Secured Taxpayer. The top twenty secured taxpayers in the District account for over 48% of the District’s total secured assessed value. As previously described, concentration in a single or few landowners of large percentages of assessed value can result in greater risk of non-payment by secured property taxes of ad valorem property taxes which have been levied to repay bonds such as the Bonds described herein. Phillips 66 Company is the largest secured property taxpayer in the District, accounting for over 36% of the secured assessed valuation in 2020-21. Phillips 66 Company is a U.S. based petroleum refinery and marketing corporation. Its industrial facilities process crude oil into other products such as petroleum, gasoline and diesel fuel.
In the event of nonpayment of secured property taxes, the County will proceed against such property pursuant to the procedures described herein under the heading “-Property Tax
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Collection Proceedings,” which includes declaring the property tax delinquent, charging penalties and interest on delinquent taxes, and ultimately, if such taxes remain unpaid, such property becomes subject to sale by the County. Notwithstanding the foregoing, the County is under a statutory duty to levy sufficient taxes to provide for the payment of the Bonds. In addition, as describe herein under the heading “-Teeter Plan; Property Tax Collections,” the County has adopted the Teeter Plan which includes the payment of the full amount of ad valorem property taxes to participating entities, notwithstanding delinquencies.
Direct and Overlapping Debt Obligations
Set forth in the following table is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc., included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith.
The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of 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.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Bonded Debt Dated as of March 1, 2021
2020-21 Assessed Valuation:$2,969,498,014
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/21 Bay Area Rapid Transit District 0.347% $ 6,495,458 Contra Costa Community College District 1.317 7,853,600 John Swett Unified School District 100.000 68,036,174(1) West Contra Costa Healthcare District Parcel Tax Obligations 6.110 3,070,153 East Bay Regional Park District 0.555 743,978 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $86,199,363
OVERLAPPING GENERAL FUND DEBT: Contra Costa County General Fund Obligations 1.312% $3,050,199 Contra Costa County Pension Obligation Bonds 1.312 1,124,253 City of Hercules Certificates of Participation 5.759 794,454 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $4,968,906 Less: Contra Costa County supported obligations 1,212,664 TOTAL NET OVERLAPPING GENERAL FUND DEBT $3,756,242
OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $10,129,013
GROSS COMBINED TOTAL DEBT $101,297,282 (2) NET COMBINED TOTAL DEBT $100,084,618
Ratios to 2020-21 Assessed Valuation: Direct Debt ($68,036,174) 2.29% Total Direct and Overlapping Tax and Assessment Debt ...... 2.90% Gross Combined Total Debt ...... 3.41% Net Combined Total Debt ...... 3.37%
Ratio to Redevelopment Incremental Valuation ($352,243,927): Total Overlapping Tax Increment Debt ...... 2.88% ______(1) Excludes the Bonds. (2) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc.
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CONTRA COSTA COUNTY INVESTMENT POOL
Under the California Education Code, the District is required to pay all monies received from any source into the Contra Costa County Treasury to be held on behalf of the District. Therefore, the District’s funds, including monies on deposit in the District’s building funds and debt service funds, are held by the County Auditor-Controller. The County’s current investment policy and most recent available investment report are shown in Appendix G.
CONTINUING DISCLOSURE
The District will execute a Continuing Disclosure Certificate in connection with the issuance of the Bonds in the form attached hereto as Appendix E. The District has covenanted therein, for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District (an “Annual Report”) to the Municipal Securities Rulemaking Board not later than nine months after the end of the District’s fiscal year (which currently would be March 31), commencing March 31, 2022 with the report for the 2020- 21 Fiscal Year, and to provide notices of the occurrence of certain enumerated events. Such notices will be filed by the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in an Annual Report or the notices of enumerated events is set forth in “APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Purchaser of the Bonds in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”).
The District has entered into continuing disclosure undertakings under the Rule in connection with bonds previously issued by the District and by the California Qualified School Construction Joint Powers Authority with respect to bonds secured by bonds of the District. A review of the District’s undertakings and filings effective in the previous five years has been undertaken, and no material instances of noncompliance have been identified.
In order to assist it in complying with its disclosure undertakings, the District has engaged Dale Scott & Company, Inc., its financial advisor (the “Financial Advisor”), to serve as its dissemination agent with respect to its each of its disclosure undertakings, including the Continuing Disclosure Certificate to be executed in connection with the Bonds.
Neither the County nor any other entity other than the District has any obligation or liability with respect to the performance of the District’s duties regarding continuing disclosure.
VERIFICATION OF MATHEMATICAL ACCURACY
The Verification Agent, upon delivery of the 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 Bonds and other funds available to pay, when due, the principal of and interest on 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 Bonds considered by Bond Counsel in connection with the opinion rendered by Bond Counsel that the Bonds are not “arbitrage bonds” within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the “Tax Code”).
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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.
CERTAIN LEGAL MATTERS
Absence of Material Litigation
No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect, executed by an authorized officer of the District, will be furnished to the Purchaser at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District's ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District's ability to issue and repay the Bonds.
The District is subject to lawsuits and claims that arise in the regular course of administering a public school district. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under known lawsuits and claims will not materially affect the financial position or operations of the District. The District cannot predict what allegations, claims or lawsuits may arise in the future, including that may arise as a result of the COVID-19 pandemic.
Legal Opinion
The proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality by Bond Counsel. The opinion of Bond Counsel with respect to the Bonds will be delivered in substantially the form attached hereto as Appendix D. Certain legal matters will also be passed upon for the District by Disclosure Counsel.
TAX MATTERS
Tax Exemption
Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax.
The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The District has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.
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Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium is disregarded.
Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public.
Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds.
California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.
Form of Opinion. A copy of the proposed form of the opinion of Bond Counsel is attached hereto as Appendix D.
Other Tax Considerations
Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above, including any opinion regarding federal tax consequences arising with respect to the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on the Bonds.
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In addition, future legislation, if enacted into law, or clarification of the Tax Code may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent owners of the Bonds from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Tax Code may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion.
RATING
Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) has assigned a rating of “A+” to the Bonds. The District has provided certain additional information and materials to S&P (some of which does not appear in this Official Statement to the extent it is not material to making an investment decision in the Bonds). Such rating reflects only the view of S&P and an explanation of the significance of such rating and outlook may be obtained only from S&P. There is no assurance that any credit ratings given to the Bonds will be maintained for any period of time or that the rating may not be lowered or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds.
COMPETITIVE SALE OF BONDS
The Bonds were sold following a competitive bidding process and were awarded to the purchaser identified in the following paragraph, whose proposal represented the lowest true interest cost for the Bonds as determined in accordance with the Official Notice of Sale. The following is the purchase prices for the Bonds:
Purchase Price for the Bonds. ______, the Purchaser, has agreed to purchase the Bonds at a price of $______, which is equal to the initial principal amount of the Bonds of $______plus a net original issue premium of $______, less a purchaser’s discount of $______.
The Purchaser intends to offer the Bonds to the public at the offering prices set forth on the inside cover page of this Official Statement. The Purchaser may offer and sell to certain dealers and others at a price lower than the offering prices stated on the inside cover page hereof. The offering price may be changed from time to time by the Bond Purchaser.
COMPENSATION OF PROFESSIONALS
Payment of the fees and expenses of Bond Counsel, Disclosure Counsel and the Financial Advisor, is contingent upon issuance of the Bonds.
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ADDITIONAL INFORMATION
The discussions herein about 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 such documents. Copies of these documents mentioned are available from the District and following delivery of the Bonds will be on file at the offices of the Paying Agent in San Francisco, California.
References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District.
Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the Purchaser or Owners of any of the Bonds.
EXECUTION
The execution and delivery of this Official Statement have been duly authorized by the District.
JOHN SWETT UNIFIED SCHOOL DISTRICT
By: Superintendent
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APPENDIX A
AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDING JUNE 30, 2020
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JOHN SWETT UNIFIED SCHOOL DISTRICT
CONTRA COSTA COUNTY
AUDIT REPORT
For the Fiscal Year Ended June 30, 2020
JOHN SWETT UNIFIED SCHOOL DISTRICT For the Fiscal Year Ended June 30, 2020 Table of Contents
FINANCIAL SECTION Page
Independent Auditors' Report ...... 1 Management's Discussion and Analysis ...... 3 Basic Financial Statements: District-wide Financial Statements: Statement of Net Position ...... 12 Statement of Activities ...... 13 Governmental Funds Financial Statements: Balance Sheet ...... 14 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ...... 15 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 Fiduciary Funds Financial Statement: Statement of Fiduciary Net Position ...... 18 Notes to Financial Statements ...... 19
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule – General Fund ...... 54 Schedule of Proportionate Share of the Net Pension Liability ...... 55 Schedule of Pension Contributions ...... 56 Schedule of Changes in the District’s Total OPEB Liability and Related Ratios ...... 57 Notes to the Required Supplementary Information ...... 58
SUPPLEMENTARY INFORMATION
Local Educational Agency Organization Structure ...... 59 Schedule of Average Daily Attendance ...... 60 Schedule of Instructional Time ...... 61 Schedule of Financial Trends and Analysis ...... 62 Reconciliation of Annual Financial and Budget Report with Audited Financial Statements ...... 63 Schedule of Expenditures of Federal Awards ...... 64 Note to the Supplementary Information ...... 65
JOHN SWETT UNIFIED SCHOOL DISTRICT For the Fiscal Year Ended June 30, 2020 Table of Contents
OTHER INDEPENDENT AUDITORS' REPORTS Page
Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ...... 66 Independent Auditors' Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance ...... 68 Independent Auditors' Report on State Compliance ...... 70
FINDINGS AND QUESTIONED COSTS
Schedule of Audit Findings and Questioned Costs: Summary of Auditors' Results ...... 72 Current Year Audit Findings and Questioned Costs ...... 73 Summary Schedule of Prior Audit Findings ...... 76 Management Letter ...... 78
Financial Section
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INDEPENDENT AUDITORS' REPORT
Governing Board John Swett Unified School District Rodeo, California
Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of John Swett Unified School District, as of and for the fiscal year ended June 30, 2020, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the 2019-20 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of John Swett Unified School District, as of June 30, 2020, and the respective changes in financial position for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America.
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Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information, schedule of proportionate share of the net pension liability, schedule of pension contributions, schedule of changes in the District’s total OPEB liability and related ratios, and the notes to the required supplementary information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The supplementary information on pages 60 to 63 and the schedule of expenditures of federal awards on page 64 are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. The information on page 59 has not been subjected to the auditing procedures applied in the audit of the basic financial statements and accordingly, we do not express an opinion or provide any assurance on it.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 5, 2021, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance.
Murrieta, California January 5, 2021
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
This discussion and analysis of John Swett Unified School District's financial performance provides an overview of the District's financial activities for the fiscal year ended June 30, 2020. Please read it in conjunction with the District's financial statements, which immediately follow this section.
FINANCIAL HIGHLIGHTS
The District's overall financial status declined from last year, as the net position decreased by 10.2% to $13.8 million. Total governmental revenues were $24.1 million, about $1.6 million less than expenses. The total cost of basic programs was $25.7 million. Because a portion of these costs were paid for with charges, fees, and intergovernmental aid, the net cost that required taxpayer funding was only $22.4 million. Second period average daily attendance (grades K-8) decreased by 13, or about 1% Governmental funds decreased by $17.8 million, or 30.7%., primarily due to spending on modernization. Reserves for the General Fund increased by $35,846, or 5.5%. Revenues were $18.6 million and expenditures were $19.2 million.
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report consists of three parts – management discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District:
The first two statements are District-wide financial statements that provide both short-term and long-term information about the District's overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District's operations in more detail than the District-wide statements. . The governmental funds statements tell how basic services like regular and special education were financed in the short term as well as what remains for future spending.
Figure A-1. Organization of John Swett Unified School District's Annual Financial Report The financial statements also include notes that explain some of the information in the statements and Management's Basic Required provide more detailed data. Figure A- Discussion and Financial Supplementary 1 shows how the various parts of this Analysis Information Information annual report are arranged and related to one another. District-wide Fund Notes to Financial Financial Financial Statements Statements Statements
SUMMARY DETAIL
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
OVERVIEW OF THE FINANCIAL STATEMENTS (continued)
The remainder of this overview section of management's discussion and analysis highlights the structure and contents of each of the statements.
District-Wide Statements The District-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all of the District's assets and liabilities. All of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid.
The two District-wide statements report the District's net position and how it has changed. Net position – the difference between the District's assets and deferred outflows of resources and liabilities and deferred inflows of resources – is one way to measure the District's financial health, or position.
Over time, increases and decreases in the District's net position are an indicator of whether its financial position is improving or deteriorating, respectively.
To assess the overall health of the District, you need to consider additional nonfinancial factors such as changes in the District's demographics and the condition of school buildings and other facilities.
In the District-wide financial statements, the District's activities are categorized as Governmental Activities. Most of the District's basic services are included here, such as regular and special education, transportation, and administration. Property taxes and state aid finance most of these activities.
Fund Financial Statements The fund financial statements provide more detailed information about the District's most significant funds – not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs:
Some funds are required by State law and by bond covenants.
The District establishes other funds to control and manage money for particular purposes (like repaying its long-term debt) or to show that is properly using certain revenues.
The District has two kinds of funds:
Governmental funds –Most of the District's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional long-term focus of the District-wide statements, we provide additional information on a separate reconciliation page that explains the relationship (or differences) between them.
Fiduciary funds – The District is the trustee, or fiduciary, for assets that belong to others. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District's fiduciary activities are reported in a separate Statement of Fiduciary Net Position. We exclude these activities from the District-wide financial statements because the District cannot use these assets to finance its operations. 4
JOHN SWETT UNIFIED SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE
Net Position. The District's combined net position was lower on June 30, 2020, than it was the year before – decreasing 10.2% to $13.8 million (See Table A-1).
Table A-1: Statement of Net Position Variance Governmental Activities Increase 2020 2019 (Decrease) Assets Current assets$ 43,309,331 $ 60,199,377 $ (16,890,046) Capital assets 67,807,643 52,529,136 15,278,507 Total assets 111,116,974 112,728,513 (1,611,539) Deferred outflows of resources 6,307,751 4,693,581 1,614,170 Liabilities Current liabilities 4,250,191 3,185,278 1,064,913 Long-term liabilities 80,091,802 81,194,547 (1,102,745) Net pension liability 15,454,384 16,747,295 (1,292,911) Total liabilities 99,796,377 101,127,120 (1,330,743) Deferred inflows of resources 3,829,142 934,037 2,895,105 Net position Net investment in capital assets 23,343,388 22,750,605 592,783 Restricted 7,838,736 8,159,966 (321,230) Unrestricted (17,382,918) (15,549,634) (1,833,284) Total net position $ 13,799,206 $ 15,360,937 $ (1,561,731)
Changes in net position, governmental activities. The District's total revenues increased slightly by 0.3% to $24.1 million (See Table A-2). The increase is due primarily to program revenues which were offset by decreases in general revenues.
The total cost of all programs and services increased 8.6% to $25.7 million. The District's expenses are predominantly related to educating and caring for students, 59.7%. The purely administrative activities of the District accounted for just 9.3% of total costs. A significant contributor to the increase in costs was from instructional and plant service costs.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (continued)
Table A-2: Statement of Activities Variance Governmental Activities Increase 2020 2019 (Decrease) Revenues Program Revenues: Charges for services$ 51,657 $ 107,743 $ (56,086) Operating grants and contributions 3,244,516 3,037,038 207,478 General Revenues: Federal and state aid not restricted 6,553,481 6,591,077 (37,596) Property taxes 13,724,642 13,744,632 (19,990) Other general revenues 567,323 584,082 (16,759) Total Revenues 24,141,619 24,064,572 77,047 Expenses Instruction-related 13,501,903 12,231,710 1,270,193 Pupil services 1,845,633 1,800,198 45,435 Administration 2,400,143 2,260,722 139,421 Plant services 2,512,355 2,028,377 483,978 All other activities 5,443,316 5,344,599 98,717 Total Expenses 25,703,350 23,665,606 2,037,744 Increase (decrease) in net position$ (1,561,731) $ 398,966 $ (1,960,697)
Net Position $ 13,799,206 $ 15,360,937
FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS
The financial performance of the District as a whole is reflected in its governmental funds as well. As the District completed this year, its governmental funds reported a combined fund balance of $40.2 million, which is below last year's ending fund balance of $58.0 million. The primary cause of the decreased fund balance is expenditures of nearly $18 million from the Building Fund for bond measure projects “P” and “Q”.
Table A-3: The District's Fund Balances
Fund Balances Other Sources July 1, 2019 Revenues Expenditures and (Uses) June 30, 2020 Fund General Fund$ 4,651,897 $ 18,608,477 $ 19,212,308 $ - $ 4,048,066 Cafeteria Fund 227,289 580,736 661,250 - 146,775 Special Reserve Fund for Postemployment Benefits 448,987 7,858 - - 456,845 Building Fund 46,000,466 695,296 17,921,728 - 28,774,034 Capital Facilities Fund 142,217 20,821 - - 163,038 Special Reserve Fund for Capital Outlay 2,313,350 228,364 79,368 - 2,462,346 Bond Interest and Redemption Fund 4,234,591 4,805,600 4,908,145 - 4,132,046 $ 58,018,797 $ 24,947,152 $ 42,782,799 $ - $ 40,183,150
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS (continued)
General Fund Budgetary Highlights Over the course of the year, the District revised the annual operating budget several times. The major budget amendments fall into these categories:
. Revenues – decreased by $0.3 million primarily to reflect federal and state budget actions. . Salaries and benefits costs – decreased $0.2 million due to revisions to benefits costs. . Other non-capital expenses – increased by nearly $1.0 million to reflect revised operational cost estimates.
While the District's final budget for the General Fund anticipated that expenditures would exceed revenues by about $1.6 million, the actual results for the year show that expenditures exceeded revenues by roughly $0.6 million. Actual revenues were $0.8 million more than anticipated, and expenditures were $0.3 million more than budgeted.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets By the end of 2019-20 the District had invested $17.9 million in new capital assets, related to facility improvement projects. (More detailed information about capital assets can be found in Note 5 to the financial statements). Total depreciation expense for the year was $2.6 million.
Table A-4: Capital Assets at Year End, Net of Depreciation Variance Governmental Activities Increase 2020 2019 (Decrease) Land$ 1,821,227 $ 1,821,227 $ - Construction in progress 26,206,892 8,285,164 17,921,728 Land Improvements 1,778,656 1,993,258 (214,602) Buildings & Improvements 37,840,565 40,257,114 (2,416,549) Equipment 160,303 172,373 (12,070) Total $ 67,807,643 $ 52,529,136 $ 15,278,507
Long-Term Debt At year-end the District had approximately $80.1 million of long-term debt other than pensions as shown in Table A-5. (More detailed information about the District's long-term liabilities is presented in Note 6 to the financial statements).
Table A-5: Outstanding Long-Term Debt at Year-End Variance Governmental Activities Increase 2020 2019 (Decrease) General obligation bonds$ 73,787,716 $ 76,244,370 $ (2,456,654) Compensated absences 38,166 31,937 6,229 Other postemployment benefits 6,265,920 4,918,240 1,347,680 Total $ 80,091,802 $ 81,194,547 $ (1,102,745)
Net pension liability decreased during the year by $1.3 million.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FACTORS BEARING ON THE DISTRICT'S FUTURE
The State Legislature passed a final budget package on June 26, 2020. The final budget package assumed that $2 billion in federal funds would be forthcoming and took the Governor’s approach in the May Revision to make other spending reductions contingent on other federal money. In addition, relative to the June 15 initial package, the final package made several changes, including increasing school deferrals by $3.5 billion (assuming no federal money is forthcoming), increasing revenue assumptions by more than $1 billion, and eliminating the plan to reinstate General Fund payment deferrals. The Governor signed the 2020‑21 Budget Act and related budget legislation on June 29, 2020.
Proposition 98
Proposition 98 Establishes Minimum Funding Level for Schools and Community Colleges This minimum funding requirement is commonly called the minimum guarantee. The state calculates the minimum guarantee by comparing three main formulas or “tests”. Each test takes into account certain inputs, such as state General Fund revenue, per capita personal income, and K-12 student attendance. The state can choose to fund at the minimum guarantee or any level above it. It also can suspend the guarantee with a two-thirds vote of each house of the Legislature, allowing the state to provide less funding than the formulas require that year. The state meets the guarantee through a combination of state General Fund and local property tax revenue.
Minimum Funding Requirement Down Significantly in 2019-20 and 2020-21 Estimates of the minimum guarantee under the June 2020 budget plan have dropped significantly compared with June 2019 estimates. For 2019-20, the minimum requirement is down $3.4 billion (4.2 percent). For 2020-21, the minimum requirement is down $6.8 billion (8.7 percent) from the revised 2019-20 level and $10.2 billion (12.5 percent) from the 2019-20 level estimated in June 2019. These drops mainly reflect reductions in state General Fund revenue. Test 1 remains operative in both years, with the drop in the General Fund portion of the guarantee equal to nearly 40 percent of the drop in revenues. The local property tax portion of the guarantee, by contrast, grows slowly from 2019-20 to 2020-21.
Budget Plan Implements Significant Payment Deferrals In both 2019‑20 and 2020‑21, the budget plan reduces school and community college funding to the lower minimum requirement. It implements these reductions primarily by deferring $12.5 billion in payments. (When the state defers payments from one fiscal year to the next, the state can reduce spending while allowing school districts to maintain programs by borrowing or using cash reserves.) Of the $12.5 billion, $11 billion applies to K-12 schools and $1.5 billion applies to community colleges. Although the budget plan authorized the Department of Finance to rescind up to $6.6 billion of the deferrals if the state received additional federal funding by October 15, 2020, Congress did not approve any additional funds prior to this deadline.
Makes a Few Other Spending Adjustments In addition to the deferrals, the budget plan makes a few other adjustments to school and community college funding. Most notably, it does not provide the 2.31 percent statutory cost-of-living adjustment for school and community college programs in 2020‑21. The budget plan also uses $833 million in one-time funds to cover costs for the K-12 Local Control Funding Formula (LCFF) and community college apportionments in 2019‑20 and 2020‑21. These one-time funds consist of $426 million in unspent prior-year funds and a $407 million settle-up payment. In addition, the budget plan withdraws the entire $377 million the state deposited into the Proposition 98 Reserve in the fall of 2019. (Formulas in the State Constitution govern Proposition 98 Reserve deposits and withdrawals.) Finally, the budget plan obtains $240 million in savings ($110 million in 2019‑20 and $130 million in 2020‑21) from eliminating unallocated State Preschool slots.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management’s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FACTORS BEARING ON THE DISTRICT’S FUTURE (continued)
Proposition 98 (continued)
Creates Supplemental Obligation to Increase Funding Beginning in 2021‑22 This obligation has two parts. First, it requires the state to make temporary payments on top of the Proposition 98 guarantee beginning in 2021‑22. Each payment will equal 1.5 percent of annual General Fund revenue. The state can allocate these payments for any school or community college purpose. Payments will continue until the state has paid $12.4 billion—the amount of funding schools and community colleges could have received under Proposition 98 if state revenues had continued to grow. (Technically, the obligation equals the total difference between the Test 1 and Test 2 funding levels in 2019‑20 and 2020‑21.) Second, the obligation requires the state to increase the minimum share of General Fund revenue allocated to schools and community colleges from 38 percent to 40 percent on an ongoing basis. This increase is set to phase in over the 2022‑23 and 2023‑24 fiscal years.
K-12 Education
Proposition 98 Funding Decreases 12 Percent The budget package includes $62.5 billion in Proposition 98 funding for K-12 education in 2020‑21—$8.7 billion (12.2 percent) less than the 2019‑20 Budget Act level.
Defers $11 Billion in K-12 Payments, Allows Exemptions in Limited Circumstances The state distributes funding for LCFF and special education following a monthly payment schedule established in law. The budget plan modifies this schedule in 2019‑20 to defer $1.9 billion in payments to the following fiscal year. In 2020‑21, the budget plan maintains these deferrals and adopts $9.1 billion in additional deferrals. Under the modified schedule, portions of the payments otherwise scheduled for the months of February through June will be paid over the July through November period. The total amount deferred equates to about 16 percent of all state and local funding schools receive for LCFF and special education, or 24 percent of the General Fund allocated for these programs. If a district or charter school can demonstrate it would be unable to meet its financial obligations because of the deferrals, and has exhausted all other sources of internal and external borrowing, it can apply for an exemption. The law allows the Department of Finance, State Controller, and State Treasurer to authorize up to $300 million in deferral exemptions per month. If these exemption requests exceed the funding available, the earliest applications will be approved first.
Addresses Historically Low-Funded Special Education Regions Most state special education funding is provided to Special Education Local Plan Areas (SELPAs) based on total student attendance within the area. (Most SELPAs are regional collaborations of neighboring districts, county offices of education [COEs], and charter schools, though some consist of only a single large district.) Each SELPA receives a unique per-student rate linked to certain historical factors. In 2019‑20, these per-student rates varied from $557 to more than $900. The budget provides $545 million to bring low-funded SELPAs to a new rate of $625 per student. This rate is roughly equivalent to the 93rd percentile of current rates.
Allocates $6.4 Billion in One-Time Federal Funding The budget package allocates $6.4 billion in one-time federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding for K-12 education. The majority of funding ($4.8 billion) is provided for learning loss mitigation. The budget also includes $1.5 billion that can be used for a variety of activities and is distributed based on counts of low-income and disadvantaged children. The remaining funds are used to provide higher reimbursement rates for some school meals, create a competitive grant program for implementing the community schools model, and cover state costs of allocating and overseeing how CARES Act funds are spent.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management’s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FACTORS BEARING ON THE DISTRICT’S FUTURE (continued)
K-12 Education (continued)
Funds Learning Loss Mitigation Activities The budget package provides $5.3 billion in one-time funding for activities mitigating learning loss due to coronavirus disease 2019 (COVID-19) school closures. This amount consists of $4.4 billion from the federal Coronavirus Relief Fund, $540 million Proposition 98 General Fund, and $355 million from the federal Governor’s Emergency Education Relief Fund. Allocations from the Coronavirus Relief Fund can be used to cover eligible costs incurred between March 1, 2020 and December 30, 2020, while the remainder of the funding covers costs incurred between March 13, 2020 and September 30, 2022. Allowable activities include expanding learning supports, increasing instructional time, offering additional academic services (such as diagnostic assessments and devices and connectivity for distance learning), and addressing other barriers to learning (such as mental health services, professional development for teachers and parents, and student meals). Of this funding, $2.9 billion is to be allocated based on LCFF supplemental and concentration grants, $1.5 billion based on the number of students with disabilities, and $980 million based on total LCFF allocation.
Funds Schools Based on 2019‑20 Attendance Levels, Allows Growth Under Certain Conditions For funding purposes, the state ordinarily credits school districts with their average daily attendance in the current or prior year, whichever is higher. Charter schools and COEs are funded according to their attendance in the current year only. In 2020‑21, however, the state will not collect average daily attendance data. Instead, districts, charter schools, and COEs will be funded according to their 2019‑20 attendance levels unless they had previously budgeted for attendance growth. Any attendance growth for a district or charter school is limited to the lower of its (1) previously projected increase in enrollment or attendance, as documented in its budget, or (2) actual increase in enrollment from October 2019 to October 2020. (For this calculation, enrollment numbers are converted to an equivalent amount of average daily attendance by adjusting them for the statewide average absence rate.) The trailer legislation also allows a few other attendance-related adjustments. Most notably, if a charter school closes during the 2020‑21 school year, the attendance it previously generated will be credited to its sponsoring school district.
Modifies Instructional Requirements to Allow for Distance Learning The budget package suspends requirements for annual instructional minutes for 2020‑21 to provide additional flexibility to schools and allows minimum instructional day requirements be met through a combination of in-person instruction and distance learning. The budget package also sets expectations for distance learning. Among other specified activities, distance learning must be substantially equivalent to in-person instruction; include daily live interaction between teachers and students; and provide appropriate supports to students with disabilities, English learners, and other student subgroups.
Includes Additional Fiscal Flexibility in a Few Areas Budget trailer legislation includes several changes to provide more spending flexibility for school districts:
For the purposes of calculating minimum routine maintenance deposits, excludes one-time funding for state pension payments on behalf of school districts, learning loss mitigation funds, and federal Elementary and Secondary School Emergency Relief funds. Typically, school districts receiving funding from the state’s School Facility Program are required to establish a restricted account for routine maintenance of school facilities and deposit 3 percent of the district’s annual expenditures.
Allows for proceeds from the sale or lease of surplus property purchased entirely with local funds to be used for one-time general fund purposes through 2023‑24.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Management’s Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2020
FACTORS BEARING ON THE DISTRICT'S FUTURE (continued)
K-12 Education (continued)
Includes Additional Fiscal Flexibility in a Few Areas (continued)
For the purpose of spending restricted lottery revenues, permanently expands the definition of instructional materials to also include laptop computers and devices that provide internet access. Schools and community colleges receive about $450 million in lottery revenues annually that must be spent on instructional materials.
Allows the California Department of Education (CDE) to waive several programmatic requirements for the After School Education and Safety program.
Repurposes Prior Pension Payment to Reduce District Costs Over the Next Two Years School district pension costs have been rising relatively quickly over the past several years. To help mitigate future cost increases, the 2019‑20 budget plan included $2.3 billion non-Proposition 98 General Fund to make a supplemental pension payment on behalf of schools and community colleges. Of this amount, $1.6 billion was for the California State Teachers’ Retirement System and $660 million was for the California Public Employees’ Retirement System. (Nearly all school employees are covered by one of these two pension systems.) At the time, the state estimated that the supplemental payment could reduce district pension costs by roughly 0.3 percent of annual pay over the next few decades. The 2020‑21 budget plan repurposes this payment to reduce pension costs by a larger amount over the next two years. Specifically, districts will receive cost savings of approximately 2.2 percent of pay in 2020‑21 and 2021‑22, but will not experience savings over the following decades.
All of these factors were considered in preparing the John Swett Unified School District budget for the 2020-21 fiscal year.
CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District's finances and to demonstrate the District's accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the District’s Business Office at (510) 245-4300.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Statement of Net Position June 30, 2020
Total Governmental Activities ASSETS Deposits and investments$ 42,146,018 Accounts receivable 1,163,313 Non-depreciable assets 28,028,119 Depreciable assets 74,341,761 Less accumulated depreciation (34,562,237) Total assets 111,116,974
DEFERRED OUTFLOWS OF RESOURCES Deferred amounts on refunding 228,618 Deferred outflows related to OPEB 1,307,780 Deferred outflows related to pensions 4,771,353 Total deferred outflows of resources 6,307,751
LIABILITIES Accounts payable 4,201,161 Unearned revenue 49,030 Long-term liabilities: Portion due or payable within one year 2,669,514 Portion due or payable after one year 77,422,288 Net pension liability 15,454,384 Total liabilities 99,796,377
DEFERRED INFLOWS OF RESOURCES Deferred inflows related to OPEB 300,715 Deferred inflows related to pensions 3,528,427 Total deferred inflows of resources 3,829,142
NET POSITION Net investment in capital assets 23,343,388 Restricted for: Capital projects 2,625,384 Debt service 4,132,046 Categorical programs 1,081,306 Unrestricted (17,382,918)
Total net position $ 13,799,206
The notes to financial statements are an integral part of this statement. 12
JOHN SWETT UNIFIED SCHOOL DISTRICT Statement of Activities For the Fiscal Year Ended June 30, 2020
Program Revenues Net (Expense) Operating Revenue and Charges for Grants and Changes in Functions/Programs Expenses Services Contributions Net Position Governmental Activities Instructional Services: Instruction$ 11,991,147 $ 101 $ 1,544,889 $ (10,446,157) Instruction-Related Services: Supervision of instruction 244,166 1 62,929 (181,236) Instructional library, media and technology 187,942 - - (187,942) School site administration 1,078,648 21 9,179 (1,069,448) Pupil Support Services: Home-to-school transportation 295,894 - 2,317 (293,577) Food services 714,041 33,368 549,590 (131,083) All other pupil services 835,698 - 153,634 (682,064) General Administration Services: Data processing services 367,255 - 154 (367,101) Other general administration 2,032,888 - 69,903 (1,962,985) Plant Services 2,512,355 150 753,749 (1,758,456) Ancillary Services 111,396 - 137 (111,259) Community services 47,275 - - (47,275) Interest on Long-term Debt 2,611,424 - - (2,611,424) Other Outgo 30,000 18,016 98,035 86,051 Depreciation (Unallocated) 2,643,221 - - (2,643,221) Total Governmental Activities$ 25,703,350 $ 51,657 $ 3,244,516 (22,407,177)
General Revenues: Property taxes 13,724,642 Federal and state aid not restricted to specific purpose 6,553,481 Interest and investment earnings 182,263 Transfers 37,208 Miscellaneous 347,852
Total general revenues 20,845,446
Change in net position (1,561,731)
Net position - July 1, 2019 15,360,937
Net position - June 30, 2020$ 13,799,206
The notes to financial statements are an integral part of this statement. 13
JOHN SWETT UNIFIED SCHOOL DISTRICT Balance Sheet – Governmental Funds June 30, 2020
Non-Major Total General Building Bond Interest and Governmental Governmental Fund Fund Redemption Fund Funds Funds ASSETS Deposits and investments$ 3,723,900 $ 31,569,754 $ 4,132,046 $ 2,720,318 $ 42,146,018 Accounts receivable 1,092,392 - - 70,921 1,163,313 Total Assets$ 4,816,292 $ 31,569,754 $ 4,132,046 $ 2,791,239 $ 43,309,331
LIABILITIES AND FUND BALANCES
Liabilities Accounts payable$ 262,351 $ 2,795,720 $ - $ 19,080 $ 3,077,151 Unearned revenue 49,030 - - - 49,030 Total Liabilities 311,381 2,795,720 - 19,080 3,126,181
Fund Balances Nonspendable 10,000 - - - 10,000 Restricted 934,531 28,774,034 4,132,046 2,772,159 36,612,770 Assigned 2,877,686 - - - 2,877,686 Unassigned 682,694 - - - 682,694 Total Fund Balances 4,504,911 28,774,034 4,132,046 2,772,159 40,183,150
Total Liabilities and Fund Balances$ 4,816,292 $ 31,569,754 $ 4,132,046 $ 2,791,239 $ 43,309,331
The notes to financial statements are an integral part of this statement. 14
JOHN SWETT UNIFIED SCHOOL DISTRICT Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2020
Total fund balances - governmental funds $ 40,183,150
Amounts reported for governmental activities in the statement of net position are different because capital assets used for governmental activities are not financial resources and therefore are not reported as assets in governmental funds. The cost of the assets is $102,369,880 and the accumulated depreciation is ($39,779,524). 67,807,643
In governmental funds, interest on long-term debt is not recognized until the period in which it matures andis paid. In the government-wide statement of activities, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was: (1,124,010)
In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consist of:
General obligation bonds payable 73,787,716 Compensated absences 38,166 Other postemployment benefits 6,265,920 Total: (80,091,802)
The net pension liability is not due and payable in the current reporting period, and therefore is not reported as a liability in the fund financial statements. (15,454,384)
In governmental funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the statement of net position, deferred outflows and inflows of resources relating to pensions are reported.
Deferred outflows of resources relating to pensions 4,771,353 Deferred inflows of resources relating to pensions (3,528,427) Net: 1,242,926
In governmental funds, deferred outflows and inflows of resources related to other postemployment benefits (OPEB) are not reported because they are applicable to future periods. In the statement of net position, deferred outflows related to OPEB are reported. Deferred outflows of resources relating to OPEB 1,307,780 Deferred inflows of resources relating to OPEB (300,715) Net: 1,007,065
Deferred amounts on refunding represent amounts paid to an escrow agent in excess of the outstanding debt at the time of the payment for refunded bonds which have been defeased. In government-wide statements it is recognized as a deferred outflow of resources. The remaining deferred amounts on refunding at the end of the period were: 228,618
Total net position - governmental activities $ 13,799,206
The notes to financial statements are an integral part of this statement. 15
JOHN SWETT UNIFIED SCHOOL DISTRICT Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds For the Fiscal Year Ended June 30, 2020
Non-Major Total General Building Bond Interest and Governmental Governmental Fund Fund Redemption Fund Funds Funds REVENUES LCFF sources$ 14,950,110 $ - $ - $ - $ 14,950,110 Federal sources 750,842 - - 508,042 1,258,884 Other state sources 1,793,487 - 24,561 37,104 1,855,152 Other local sources 1,121,896 695,296 4,781,039 284,775 6,883,006
Total Revenues 18,616,335 695,296 4,805,600 829,921 24,947,152 EXPENDITURES Current: Instructional Services: Instruction 12,318,076 - - - 12,318,076 Instruction-Related Services: Supervision of instruction 242,775 - - - 242,775 Instructional library, media and technology 167,663 - - - 167,663 School site administration 1,082,747 - - - 1,082,747 Pupil Support Services: Home-to-school transportation 295,894 - - - 295,894 Food services 28,634 - - 658,815 687,449 All other pupil services 801,379 - - - 801,379 General Administration Services: Data processing services 338,877 - - - 338,877 Other general administration 1,440,090 - - - 1,440,090 Plant services 2,310,407 - - 81,803 2,392,210 Ancillary services 112,833 - - - 112,833 Community services 42,933 - - - 42,933 Capital Outlay - 17,921,728 - - 17,921,728 Intergovernmental transfers 30,000 - - - 30,000 Debt Service: Principal - - 2,337,782 - 2,337,782 Interest - - 2,570,363 - 2,570,363 Total Expenditures 19,212,308 17,921,728 4,908,145 740,618 42,782,799
Excess (Deficiency) of Revenues Over (Under) Expenditures (595,973) (17,226,432) (102,545) 89,303 (17,835,647)
Net Change in Fund Balances (595,973) (17,226,432) (102,545) 89,303 (17,835,647)
Fund Balances, July 1, 2019 5,100,884 46,000,466 4,234,591 2,682,856 58,018,797
Fund Balances, June 30, 2020$ 4,504,911 $ 28,774,034 $ 4,132,046 $ 2,772,159 $ 40,183,150
The notes to financial statements are an integral part of this statement. 16
JOHN SWETT UNIFIED SCHOOL DISTRICT Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities For the Fiscal Year Ended June 30, 2020
Total net change in fund balances - governmental funds $ (17,835,647)
Amounts reported for governmental activities in the statement of activities are different because:
Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is:
Expenditures for capital outlay 17,921,728 Depreciation expense (2,643,221) 15,278,507
In governmental funds, repayments of long-term debt and refundings are reported as expenditures. In the government-wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were: 2,337,782
In governmental funds, OPEB costs are recognized when employer contributions are made. In the statement of activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: (508,887)
In governmental funds, if debt is issued at a premium or discount, the premium is recognized as an Other Financing Source in the period it is incurred. In the government-wide statements, the premium or discount is amortized as interest over the life of the debt. Amortization of premiums and discounts for the period is: 202,926
In governmental funds, pension costs are recognized when employer contributions are made. In the statement of activities, pension costs are recognized on the accrual basis. This year, the difference between accrual-basis pension costs and actual employer contributions was: (788,713)
In governmental funds, accreted interest on capital appreciation bonds is not recorded as an expenditure from current resources. In the government-wide statement of activities, however, this is recorded as interest expense for the period. (84,054)
In governmental funds, interest on long-term debt is recognized in the period that it becomes due. In the government-wide statement of activities, it is recognized in the period that it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was: (119,312)
In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). (6,229)
The amounts paidtotherefundedbond escrow agent in excess of the refunded bond at the time of payment are recorded as deferred amounts on refunding and are amortized over the life of the liability. The amount recognized as deferred amounts in the current year, less amortized amounts, was: (38,104)
Change in net position of governmental activities $ (1,561,731)
The notes to financial statements are an integral part of this statement. 17
JOHN SWETT UNIFIED SCHOOL DISTRICT Statement of Fiduciary Net Position June 30, 2020
Agency Funds Student Body Funds ASSETS Cash$ 142,189
Total Assets$ 142,189 LIABILITIES Due to student groups$ 142,189
Total Liabilities$ 142,189
The notes to financial statements are an integral part of this statement. 18
JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
John Swett Unified School District (the "District") accounts for its financial transactions in accordance with the policies and procedures of the California Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The following is a summary of the more significant policies:
A. Reporting Entity 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, and agencies that are not legally separate from the District. For the District, this includes general operations, food service, and student-related activities of the District.
Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. The District has identified no organizations which are required to be reported as component units.
B. Basis of Presentation, Basis of Accounting
1. Basis of Presentation
District-Wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the primary government (the “District”). These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) 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, including all taxes, are presented as general revenues.
Fund Financial Statements The fund financial statements provide information about the District's funds, including its fiduciary funds. Separate statements for each fund category - governmental and fiduciary - are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
B. Basis of Presentation, Basis of Accounting (continued)
1. Basis of Presentation (continued)
Major Governmental Funds The District maintains the following major governmental funds:
General Fund: This is the chief operating fund for the District. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund.
Special Reserve Fund for Postemployment Benefits: This fund may be used pursuant to Education Code Section 42840 to account for amounts the District has earmarked for the future cost of postemployment benefits but has not contributed irrevocably to a separate trust for the postemployment benefit plan. Amounts accumulated in this fund must be transferred back to the General Fund for expenditure (Education Code Section 42842). Because this fund does not meet the definition of a special revenue fund under GASB 54, it is reported in these statements as part of the General Fund.
Building Fund: This 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.
Bond Interest and Redemption Fund: This fund is used for the repayment of bonds issued for the District (Education Code sections 15125-15262).
Non-Major Governmental Funds The District maintains the following non-major governmental funds:
Special Revenue Funds: Special revenue funds are established to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to the financing of particular activities, that compose a substantial portion of the inflows of the fund, and that are reasonably expected to continue. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund.
Cafeteria Fund: This fund is used to account separately for federal, state, and local resources to operate the food service program (Education Code sections 38090 and 38093).
Capital Projects Funds: Capital projects funds are established to account for financial resources to be used for the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds).
Capital Facilities Fund: This fund is used to primarily account separately for moneys received from fees levied on development projects as a condition of approval (Education Code sections 17620-17626 and Government Code Section 65995 et seq.).
Special Reserve Fund for Capital Outlay Projects: This fund exists primarily to provide for the accumulation of general fund moneys for capital outlay purposes (Education Code Section 42840). This fund may also be used to account for any other revenues specifically for capital projects that are not restricted to funds 21, 25, 30, 35, or 49.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
B. Basis of Presentation, Basis of Accounting (continued)
1. Basis of Presentation (continued)
Fiduciary Funds Fiduciary funds are used to account for assets held in a trustee or agent capacity for others that cannot be used to support the District’s own programs. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held. The District maintains the following fiduciary funds:
Agency Funds: The District maintains a separate agency fund for each school that operates an Associated Student Body (ASB) Fund, whether it is organized or not.
2. Measurement Focus, Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resource or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements.
The District-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities for the current period. For this purpose, the District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.
As a general rule the effect of interfund activity has been eliminated from the District-wide financial statements. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.
The agency fund has no measurement focus and utilizes the accrual basis of accounting for reporting its assets and liabilities.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
B. Basis of Presentation, Basis of Accounting (continued)
3. 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. Generally, available is defined as collectible within 60 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources.
Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.
C. 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 budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.
D. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June 30.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position
1. Cash and Cash Equivalents The District considers cash and cash equivalents to be cash on hand and demand deposits. In addition, because the Treasury Pool is sufficiently liquid to permit withdrawal of cash at any time without prior notice or penalty, equity in the pool is also deemed to be a cash equivalent.
2. Inventories Inventories are valued at cost using the first-in/first-out (FIFO) method. The costs of governmental fund- type inventories are recorded as expenditures when consumed rather than when purchased.
3. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement are reported at acquisition value rather than fair value. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets’ lives are not capitalized.
Capital assets are depreciated using the straight-line method over the following estimated useful lives:
Description Estimated Lives Buildings and Improvements 25-50 years Furniture and Equipment 15-50 years Vehicles 5-20 years
4. Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then.
In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time.
5. Compensated Absences The liability for compensated absences reported in the District-wide statements consists of unpaid, accumulated vacation leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position (continued)
6. Postemployment Benefits Other Than Pensions (OPEB) For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the District Plan and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by the Plans. For this purpose, the Plans recognize benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value, except for money market investments and participating interest-earning investment contracts that have a maturity at the time of purchase of one year or less, which are reported at cost.
7. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District's California State Teachers Retirement System (CalSTRS) and California Public Employees' Retirement System (CalPERS) plans and addition to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CalSTRS and CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
8. Fund Balances The fund balance for Governmental Funds is reported in classifications based on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent.
Nonspendable: Fund balance is reported as nonspendable when the resources cannot be spent because they are either in a nonspendable form or legally or contractually required to be maintained intact. Resources in nonspendable form include inventories and prepaid assets.
Restricted: Fund balance is reported as restricted when the constraints placed on the use of resources are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or imposed by law through constitutional provision or by enabling legislation.
Committed: The District's highest decision-making level of authority rests with the District's Board. Fund balance is reported as committed when the Board passes a resolution that places specified constraints on how resources may be used. The Board can modify or rescind a commitment of resources through passage of a new resolution.
Assigned: Resources that are constrained by the District's intent to use them for a specific purpose, but are neither restricted nor committed, are reported as assigned fund balance. Intent may be expressed by either the Board, committees (such as budget or finance), or officials to which the Board has delegated authority.
Unassigned: Unassigned fund balance represents fund balance that has not been restricted, committed, or assigned and may be utilized by the District for any purpose. When expenditures are incurred, and both restricted and unrestricted resources are available, it is the District's policy to use restricted resources first, then unrestricted resources in the order of committed, assigned, and then unassigned, as they are needed.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position (continued)
9. Net Position Net position is classified into three components: net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows:
Net investment in capital assets - This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of net investment in capital assets. Rather, that portion of the debt is included in the same net position component as the unspent proceeds.
Restricted - This component of net position consists of constraints placed on net position use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation.
Unrestricted net position - This component of net position consists of net position that does not meet the definition of "net investment in capital assets" or "restricted".
When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed.
F. Minimum Fund Balance Policy During the 2012-13 fiscal year, pursuant to GASB Statement No. 54, the District adopted a minimum fund balance policy for the General Fund in order to protect the District against revenue shortfalls or unpredicted expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than three percent of total General Fund expenditures and other financing uses.
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.
G. Property Tax Calendar The County is responsible for the assessment, collection, and apportionment of property taxes for all jurisdictions including the schools and special districts within the County. The Board of Supervisors levies property taxes as of September 1 on property values assessed on July 1. Secured property tax payments are due in two equal installments. The first is generally due November 1 and is delinquent with penalties on December 10, and the second is generally due on February 1 and is delinquent with penalties on April 10. Secured property taxes become a lien on the property on January 1.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
H. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reported period. Actual results could differ from those estimates.
I. New GASB Pronouncement In May 2020, the GASB issued Statement No. 95. The primary objective of this Statement is to provide relief to governments and other stakeholders in light of the COVID-19 pandemic. That objective is accomplished by postponing the effective dates of certain provisions in Statements and Implementation Guides that first became effective or are scheduled to become effective for periods beginning after June 15, 2018, and later.
The effective dates of certain provisions contained in the following pronouncements are postponed by one year:
Statement No. 83, Certain Asset Retirement Obligations Statement No. 84, Fiduciary Activities Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period Statement No. 90, Majority Equity Interests Statement No. 91, Conduit Debt Obligations Statement No. 92, Omnibus 2020 Statement No. 93, Replacement of Interbank Offered Rates Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting) Implementation Guide No. 2018-1, Implementation Guidance Update-2018 Implementation Guide No. 2019-1, Implementation Guidance Update-2019 Implementation Guide No. 2019-2, Fiduciary Activities
The effective dates of the following pronouncements are postponed by 18 months:
Statement No. 87, Leases Implementation Guide No. 2019-3, Leases
Earlier application of the provisions addressed in this Statement is encouraged and is permitted to the extent specified in each pronouncement as originally issued.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. Future Accounting Pronouncements GASB pronouncements which will be effective in future periods, are as follows:
1. In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported.
This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity, and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities.
The requirements of this Statement are effective for reporting periods beginning after December 15, 2019.
2. In June 2017, the GASB issued Statement No. 87, Leases. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities.
The requirements of this Statement are effective for reporting periods beginning after June 15, 2021.
3. In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period. The objectives of this Statement are (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period, and (2) to simplify accounting for interest cost incurred before the end of a construction period.
This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. Such interest cost includes all interest that previously was accounted for in accordance with the requirements of paragraphs 5-22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which are superseded by this Statement. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. Future Accounting Pronouncements (continued)
3. (continued) This Statement also reiterates that in financial statements prepared using the current financial resources measurement focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis consistent with governmental fund accounting principles.
The requirements of this Statement are effective for reporting periods beginning after December 15, 2020. Earlier application is encouraged. The requirements of this Statement should be applied prospectively.
4. In August 2018, the GASB issued Statement No. 90, Majority Equity Interests-An Amendment of GASB Statements No. 14 and No. 61. The primary objectives of this Statement are to improve the consistency and comparability of reporting a government’s majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government’s holding of the equity interest meets the definition of an investment. A majority equity interest that meets the definition of an investment should be measured using the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or permanent fund. Those governments and funds should measure the majority equity interest at fair value.
For all other holdings of a majority equity interest in a legally separate organization, a government should report the legally separate organization as a component unit, and the government or fund that holds the equity interest should report an asset related to the majority equity interest using the equity method. This Statement establishes that ownership of a majority equity interest in a legally separate organization results in the government being financially accountable for the legally separate organization and, therefore, the government should report that organization as a component unit.
This Statement also requires that a component unit in which a government has a 100 percent equity interest account for its assets, deferred outflows of resources, liabilities, and deferred inflows of resources at acquisition value at the date the government acquired a 100 percent equity interest in the component unit.
The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier application is encouraged. The requirements should be applied retroactively, except for the provisions related to (1) reporting a majority equity interest in a component unit and (2) reporting a component unit if the government acquires a 100 percent equity interest. Those provisions should be applied on a prospective basis.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. Future Accounting Pronouncements (continued)
5. In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures.
This Statement also addresses arrangements – often characterized as leases – that are associated with conduit debt obligations. In those arrangements, capital assets are constructed or acquired with the proceeds of a conduit debt obligation and used by third-party obligors in the course of their activities.
Payments from third-party obligors are intended to cover and coincide with debt service payments. During those arrangements, issuers retain the titles to the capital assets. Those titles may or may not pass to the obligors at the end of the arrangements.
This Statement requires issuers to disclose general information about their conduit debt obligations, organized by type of commitment, including the aggregate outstanding principal amount of the issuers’ conduit debt obligations and a description of each type of commitment. Issuers that recognize liabilities related to supporting the debt service of conduit debt obligations also should disclose information about the amount recognized and how the liabilities changed during the reporting period.
The requirements of this Statement are effective for reporting periods beginning after December 15, 2021. Earlier application is encouraged.
6. In January 2020, the GASB issued Statement No. 92, Omnibus 2020. The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics and includes specific provisions about the following:
The effective date of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, for interim financial reports Reporting of intra-entity transfers of assets between a primary government employer and a component unit defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan The applicability of Statements No. 73, Accounting and Financial Reporting for Pensions and Related Assets That are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as amended, and No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pensions Plans, as amended, to reporting assets accumulated for postemployment benefits The applicability of certain requirements of Statement No. 84, Fiduciary Activities, to postemployment benefit arrangements
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. Future Accounting Pronouncements (continued)
6. (continued)
Measurement of liabilities (and assets, if any) related to asset retirement obligations (AROs) in a government acquisition Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers Reference to nonrecurring fair value measurements of assets or liabilities in authoritative literature Terminology used to refer to derivative instruments
The requirements of this Statement are effective as follows:
The requirements related to the effective date of Statement 87 and Implementation Guide 2019-3, reinsurance recoveries, and terminology used to refer to derivative instruments are effective upon issuance. The requirements related to intra-entity transfers of assets and those related to the applicability of Statements 73 and 74 are effective for fiscal years beginning after June 15, 2021. The requirements related to application of Statement 84 to postemployment benefit arrangements and those related to nonrecurring fair value measurements of assets or liabilities are effective for reporting periods beginning after June 15, 2021. The requirements related to the measurement of liabilities (and assets, if any) associated with AROs in a government acquisition are effective for government acquisitions occurring in reporting periods beginning after June 15, 2021.
Earlier application is encouraged and is permitted by topic.
7. In March 2020, the GASB issued Statement No. 93, Replacement of Interbank Offered Rates. Some governments have entered into agreements in which variable payments made or received depending on an interbank offered rate (IBOR) – most notably, the London Interbank Offered Rate (LIBOR). As a result of global reference rate reform, LIBOR is expected to cease to exist in its current form at the end of 2021, prompting governments to amend or replace financial instruments for the purpose of replacing LIBOR with other reference rates, by either changing the reference rate or adding or changing fallback provisions related to the reference rate.
Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, as amended, requires a government to terminate hedge accounting when it renegotiates or amends a critical term of a hedging derivative instrument, such as the reference rate of a hedging derivative instrument’s variable payment. In addition, in accordance with Statement No. 87, Leases, as amended, replacement of the rate on which variable payments depend in a lease contract would require a government to apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable.
The objective of this Statement is to address those and other accounting and financial reporting implications that result from the replacement of an IBOR. This Statement achieves that objective by:
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. Future Accounting Pronouncements (continued)
7. (continued)
Providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced as the reference rate of the hedging derivative instrument’s variable payment Clarifying the hedge accounting termination provisions when a hedged item is amended to replace the reference rate Clarifying that the uncertainty related to the continued availability of IBORs does not, by itself, affect the assessment of whether the occurrence of a hedged expected transaction is probable Removing LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap Identifying a Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap Clarifying the definition of reference rate, as it is used in Statement 53, as amended Providing an exception to the lease modifications guidance in Statement 87, as amended, for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend.
The removal of LIBOR as an appropriate benchmark interest rate is effective for reporting periods ending after December 31, 2021. All other requirements of this Statement are effective for reporting periods beginning after June 15, 2021.
8. In March 2020, the GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The primary objective of this Statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which (1) the operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.
This Statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction.
This Statement requires that PPPs that meet the definition of a lease apply the guidance in Statement No. 87, Leases, as amended, if existing assets of the transferor that are not required to be improved by the operator as part of the PPP arrangement are the only underlying PPP assets and the PPP does not meet the definition of an SCA.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
J. Future Accounting Pronouncements (continued)
8. (continued) This Statement also provides specific guidance in financial statements prepared using the economic resources measurement focus for a government that is an operator in a PPP that either (1) meets the definition of an SCA or (2) is not within the scope of Statement 87, as amended (as clarified in this Statement).
This Statement also requires a government to account for PPP and non-PPP components of a PPP as separate contracts.
This Statement also requires an amendment to a PPP to be considered a PPP modification, unless the operator’s right to use the underlying PPP asset decreases, in which case it should be considered a partial or full PPP termination.
An APA that is related to designing, constructing, and financing a nonfinancial asset in which ownership of the asset transfers by the end of the contract should be accounted for by a government as a financed purchase of the underlying nonfinancial asset. This Statement requires a government that engaged in an APA that contains multiple components to recognize each component as a separate arrangement. An APA that is related to operating or maintaining a nonfinancial asset should be reported by a government as an outflow of resources in the period to which payments relate.
The requirements of this Statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.
NOTE 2 – DEPOSITS AND INVESTMENTS
Deposits and investments as of June 30, 2020 are classified in the accompanying financial statements as follows:
Governmental funds$ 42,146,018 Fiduciary funds 142,189 Total deposits and investments$ 42,288,207
Deposits and investments as of June 30, 2020 consist of the following:
Cash on hand and in banks$ 142,189 Cash in revolving fund 10,000 Investments 42,136,018 Total deposits and investments $ 42,288,207
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 2 – DEPOSITS AND INVESTMENTS (continued)
Pooled Funds In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the County Treasury. The County pools and invests the cash. These pooled funds are carried at cost which approximates fair value. Interest earned is deposited annually to participating funds. Any investment losses are proportionately shared by all funds in the pool.
Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the District's share of the pool does not consist of specific, identifiable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial credit risk classifications is required.
In accordance with applicable state laws, the County Treasurer may invest in derivative securities with the State of California. However, at June 30, 2020, the County Treasurer has represented that the Pooled Investment Fund contained no derivatives or other investments with similar risk profiles.
Custodial Credit Risk – Deposits Custodial credit risk 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. Cash balances held in banks are insured up to $250,000 by the Federal Depository Insurance Corporation (FDIC) and are collateralized by the respective financial institutions. In addition, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits.
As of June 30, 2020, none of the District’s bank balance was exposed to custodial credit risk because it was insured by the FDIC.
Investments - Interest Rate Risk The District’s investment policy limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District’s investment policy limits investment purchases to investments with a term not to exceed three years. Investments purchased with maturity terms greater than three years require approval by the Board of Trustees. Investments purchased with maturities greater than one year require written approval by the Superintendent prior to commitment. Maturities of investments held at June 30, 2020, consist of the following:
Maturity One Year Reported Less Than Through Fair Value Amount One Year Five Years Measurement Rating
Local Agency Investment Fund$ 15 $ 15 $ - uncategorized N/A County Pool 42,136,003 42,136,003 - uncategorized N/A
Total Investments$ 42,136,018 $ 42,136,018 $ -
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 2 – CASH AND INVESTMENTS (continued)
Investments - Credit Risk The District’s investment policy limits investment choices to obligations of local, state and federal agencies, commercial paper, certificates of deposit, repurchase agreements, corporate notes, banker acceptances, and other securities allowed by State Government Code Section 53600. At June 30, 2020, all investments represented governmental securities which were issued, registered and held by the District’s agent in the District’s name.
Fair Value Measurements The District categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset’s fair value. The following provides a summary of the hierarchy used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets that the District has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, implied volatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level 2 input is required to be observable for substantially the full term of the asset.
Level 3 – Unobservable inputs should be developed using the best information available under the circumstances, which might include the District’s own data. The District should adjust that date if reasonably available information indicates that other market participants would use different data or certain circumstances specific to the District are not available to other market participants.
Uncategorized – Investments in the Contra Costa County Treasury Investment Pool are not measured using the input levels above because the District’s transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share.
All assets have been valued using a market approach, with quoted market prices.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable as of June 30, 2020, consisted of the following:
Governmental Funds Non-Major General Governmental Fund Funds Total Federal Government: Categorical aid programs$ 307,308 $ 70,921 $ 378,229 State Government: LCFF 368,598 - 368,598 Lottery 33,916 - 33,916 Other state resources 382,570 - 382,570
Total$ 1,092,392 $ 70,921 $ 1,163,313
NOTE 4 – FUND BALANCES
At June 30, 2020, fund balances of the District's governmental funds were classified as follows:
Bond Interest Non-Major General Building and Redemption Governmental Fund Fund Fund Funds Total Nonspendable: Revolving Cash$ 10,000 $ - $ - $ - $ 10,000 Total Nonspendable 10,000 - - - 10,000 Restricted: Categorical programs 934,531 - - - 934,531 Food service program - - - 146,775 146,775 Capital projects - 28,774,034 - 2,625,384 31,399,418 Debt service - - 4,132,046 - 4,132,046 Total Restricted 934,531 28,774,034 4,132,046 2,772,159 36,612,770 Assigned: 3% additional board reserve 572,412 - - - 572,412 Bad checks 37,204 - - - 37,204 Health & safety 1,599 - - - 1,599 Supplemental/concentration 1,809,626 - - - 1,809,626 Other assignments 456,845 - - - 456,845 Total Assigned 2,877,686 - - - 2,877,686 Unassigned: Reserve for economic uncertainties 572,412 - - - 572,412 Remaining unassigned balances 110,282 - - - 110,282 Total Unassigned 682,694 - - - 682,694
Total$ 4,504,911 $ 28,774,034 $ 4,132,046 $ 2,772,159 $ 40,183,150
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 5 – CAPITAL ASSETS AND DEPRECIATION
Capital asset activity for the year ended June 30, 2020, was as follows:
Balance, Balance, July 1, 2019 Additions Retirements June 30, 2020 Capital assets not being depreciated: Land$ 1,821,227 $ - $ - $ 1,821,227 Construction in progress 8,285,164 17,921,728 - 26,206,892 Total capital assets not being depreciated 10,106,391 17,921,728 - 28,028,119 Capital assets being depreciated: Land Improvements 6,335,377 - - 6,335,377 Buildings & Improvements 67,063,436 - - 67,063,436 Equipment 942,948 - - 942,948 Total capital assets being depreciated 74,341,761 - - 74,341,761 Accumulated depreciation for: Land Improvements (4,342,119) (214,602) - (4,556,721) Buildings & Improvements (26,806,322) (2,416,549) - (29,222,871) Equipment (770,575) (12,070) - (782,645) Total accumulated depreciation (31,919,016) (2,643,221) - (34,562,237) Total capital assets being depreciated, net 42,422,745 (2,643,221) - 39,779,524
Governmental activity capital assets, net$ 52,529,136 $ 15,278,507 $ - $ 67,807,643
NOTE 6 – LONG-TERM DEBT OTHER THAN PENSIONS
Changes in long-term debt for the year ended June 30, 2020, were as follows:
Balance, Balance, Amounts Due July 1, 2019 Additions Deductions June 30, 2020 Within One Year General Obligation Bonds: Principal repayments$ 72,840,542 $ - $ 2,337,782 $ 70,502,760 $ 2,466,588 Accreted interest component 465,373 84,054 - 549,427 - Unamortized issuance premium 2,938,455 - 202,926 2,735,529 202,926 Total - Bonds 76,244,370 84,054 2,540,708 73,787,716 2,669,514 Compensated Absences 31,937 60,299 54,070 38,166 - Other Postemployment Benefits 4,918,240 1,874,669 526,989 6,265,920 -
Totals$ 81,194,547 $ 2,019,022 $ 3,121,767 $ 80,091,802 $ 2,669,514
Bond interest and principal are paid from the Bond Interest and Redemption Fund. Payments for compensated absences and postemployment benefits are paid from the fund in which the employee worked.
A. General Obligation Bonds
2008 Election Bonds were authorized at an election of the registered voters of the District held on November 4, 2008, which authorized a total of $20,000,000 principal amount of general obligation bonds to finance the addition and modernization of school facilities for the District. The Board of Supervisors of Contra Costa 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 Bonds.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 6 – LONG-TERM DEBT OTHER THAN PENSIONS (continued)
A. General Obligation Bonds (continued)
Measure P Bonds were authorized at an election of the registered voters of the District held on November 8, 2016, which authorized the issuance of $40.2 million general obligation bonds for the purpose of financing a new middle school pursuant to a bond measure known as “Measure P.” The Bonds are general obligations of the District. The Board of Supervisors of Contra Costa 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 Bonds.
Measure Q The Bonds were authorized at an election of the registered voters of the District held on November 8, 2016, which authorized the issuance of $22 million general obligation bonds for the purpose of financing school facility projects at John Swett High School pursuant to a bond measure known as “Measure Q.” The Bonds are general obligations of the District. The Board of Supervisors of Contra Costa 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 Bonds.
Refunding Bonds
Prior‐Year Defeasance of Debt In prior years, the District defeased certain general obligation bonds by placing the proceeds of new refunding bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the District’s financial statements. At June 30, 2020, there were no bonds outstanding on defeased debt.
The difference between the reacquisition price and the net carrying amount of the old debt is reported as a deferred outflow of resources and recognized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the life of the new debt, whichever is shorter. At June 30, 2020, deferred amounts on refunding were $228,618.
The Board of Supervisors of Contra Costa County has the power and is obligated to annually levy ad valorem taxes upon all property subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the Bonds.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 6 – LONG-TERM DEBT OTHER THAN PENSIONS (continued)
A. General Obligation Bonds (continued)
Refunding Bonds (continued) Below is a schedule of bonds issued and outstanding as of June 30, 2020.
Issue Maturity Interest Original Balance, Refundings/ Balance, Series Date Date Rate Issue July 1, 2019 Additions Deductions June 30, 2020 2008 Election 2008 Series A 9/17/2009 8/1/2034 1.0-4.75%$ 6,001,175.00 $ 481,175 $ - $ 215,000 $ 266,175 2008 Series B 6/22/2011 8/1/2026 3.75% 11,963,755.00 8,534,784 - 977,782 7,557,002 2008 Series C-1 9/15/2011 8/1/2028 6.53% 1,824,583 1,824,583 - - 1,824,583 Measure P 2016 Series A-1 5/17/2006 8/1/2030 3.0% - 5.0% 20,000,000 19,735,000 - 485,000 19,250,000 2016 Series B 6/19/2019 8/1/2044 3.0% - 5.0% 11,000,000 11,000,000 - - 11,000,000 Measure Q 2016 Series A-2 5/14/2017 8/1/2045 2.0% - 5.0% 22,000,000 21,870,000 - 30,000 21,840,000 Refunding Bonds 2010 10/14/2010 8/1/2026 3.0% - 5.0% 8,990,000 6,230,000 - 570,000 5,660,000 2019 6/19/2019 8/1/2029 4.0% - 5.0% 3,165,000 3,165,000 - 60,000 3,105,000 Totals$ 72,840,542 $ - $ 2,337,782 $ 70,502,760
Accreted Interest 2008 C-1$ 26,688 $ 5,719 $ - $ 32,407 2008 A-1 438,685 78,335 - 517,020 Totals$ 465,373 $ 84,054 $ - $ 549,427
The annual requirements to amortize general obligation bonds payable are as follows:
Fiscal Year Principal Interest Total 2020-21$ 2,466,588 $ 2,842,125 $ 5,308,713 2021-22 2,449,747 2,721,845 5,171,592 2022-23 2,476,562 2,597,716 5,074,278 2023-24 2,686,583 2,467,145 5,153,728 2024-25 2,907,354 2,323,045 5,230,399 2025-30 13,039,751 9,594,230 22,633,981 2030-35 8,971,175 9,280,553 18,251,728 2035-40 13,625,000 4,900,804 18,525,804 2040-45 19,820,000 2,148,059 21,968,059 2045-46 2,060,000 36,050 2,096,050 Total$ 70,502,760 $ 38,911,572 $ 109,414,332
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 6 – LONG-TERM DEBT OTHER THAN PENSIONS (continued)
B. Other Postemployment Benefits (OPEB) Liability For the fiscal year ended June 30, 2020, the District reported net OPEB liability, deferred outflows of resources, deferred inflows of resources, and OPEB expense for the following plans:
Net Deferred Outflows Deferred Inflows Pension Plan OPEB Liability of Resources of Resources OPEB Expense District Plan$ 6,265,920 $ 1,307,780 $ 300,715 $ 700,596
The details of each plan are as follows:
District Plan
Plan Description John Swett Unified School District has a single employer plan that provides post-employment benefits other than pensions (OPEB) to employees who meet certain criteria. The District provides post-employment healthcare benefits to eligible retirees and their covered eligible dependents and pays a portion of the cost. All active employees who retire directly from the District and meet the eligibility criteria may participate. The District has no assets accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75.
Benefits Provided The postretirement health plans and the District’s obligation vary by employee group as described below.
Certificated Classified Benefit types provided Medical and dental Medical and dental* Duration of benefits To age 65 To age 65 Required service 10 years 20 years Minimum age 55 55 Dependent coverage Yes Yes District contribution % 100% 100% to cap District cap Kaiser Active cap
* Confidential; and management also receive District-paid vision benefits and only require 8 years of service.
Employees Covered by Benefit Terms At June 30, 2020, the following employees were covered by the benefit terms:
Inactive employees or beneficiaries currently receiving benefit payments 65 Active employees 126 Total 191
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 6 – LONG-TERM DEBT OTHER THAN PENSIONS (continued)
B. General Information about the OPEB Plan (continued)
Total OPEB Liability The District’s total OPEB liability of $6,265,920 was measured as of June 30, 2020 and was determined by an actuarial valuation as of June 30, 2020.
Actuarial Assumptions and Other Inputs The total OPEB liability in the June 30, 2020 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement, unless otherwise specified:
Valuation Date June 30, 2020 Inflation 2.75 percent Salary increases 2.75 percent Healthcare cost trend rates 4.00 percent for 2020 and thereafter Retirees' share of benefit- varies among bargaining unit between statutory related costs minimum.
Discount Rate The discount rate of 2.2% was based on the Bond Buyer 20 Bond Index. The actuary assumed contributions would be sufficient to fully fund the obligation over a period not to exceed thirty years.
Mortality Rates
Participant Type Mortality Tables Certificated 2009 CalSTRS Mortality Classified 2014 CalPERS Active Mortality for Miscellaneous Employees
Changes in the Total OPEB Liability
Total OPEB Liability Balance at July 1, 2019 $ 4,918,240 Changes for the year: Service cost 405,425 Interest 175,878 Differences between expected and actual experience (335,280) Changes of assumptions 1,293,366 Benefit payments (191,709) Net changes 1,347,680 Balance at June 30, 2020 $ 6,265,920
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 7 – LONG-TERM DEBT OTHER THAN PENSIONS (continued)
B. Other Postemployment Benefits (OPEB) Liability (continued)
District Plan (continued)
Sensitivity of the Total OPEB Liability to Changes in the Discount Rate The following presents the total OPEB liability of the District, as well as what the District’s total OPEB liability would be if it were calculated using a discount rate that is one percentage-point lower or one percentage-point higher than the current discount rate:
OPEB Discount Rate Liability 1% decrease$ 7,214,833 Current discount rate$ 6,265,920 1% increase$ 5,492,191
Sensitivity of the Total OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the total OPEB liability of the District, as well as what the District’s total OPEB liability would be if it were calculated using healthcare cost trend rates that are one percentage-point lower or one percentage-point higher than the current healthcare cost trend rates:
Healthcare Cost OPEB Trend Rate Liability 1% decrease$ 5,293,014 Current trend rate$ 6,265,920 1% increase$ 7,520,091
OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended June 30, 2020, the District recognized OPEB expense of $700,596. In addition, at June 30, 2020, the District reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:
Deferred Outflows Deferred Inflows of Resources of Resources
Differences between expected and actual experience$ - $ 300,715 Changes of assumptions 1,307,780 -
Total$ 1,307,780 $ 300,715
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 7 – LONG-TERM DEBT OTHER THAN PENSIONS (continued)
B. Other Postemployment Benefits (OPEB) Liability (continued)
District Plan (continued)
OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB (continued) The deferred outflows of resources related to changes of assumptions will be amortized over five years and will be recognized in OPEB expense as follows:
Deferred Outflows Deferred Inflows Year Ended June 30: of Resources of Resources 2021$ 153,858 $ 34,565 2022 153,858 34,565 2023 153,858 34,565 2024 153,858 34,565 2025 153,858 34,565 Thereafter 538,490 127,890
$ 1,307,780 $ 300,715
NOTE 8 – PENSION PLANS
Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CalSTRS), and classified employees are members of the California Public Employees' Retirement System (CalPERS).
For the fiscal year ended June 30, 2020, the District reported net pension liabilities, deferred outflows of resources, deferred inflows of resources, and pension expense for each of the above plans as follows:
Net Deferred Outflows Deferred Inflows Pension Plan Pension Liability of Resources of Resources Pension Expense CalSTRS$ 11,052,767 $ 3,664,436 $ 3,055,730 $ 1,606,708 CalPERS 4,401,617 1,106,917 472,697 994,466 Total$ 15,454,384 $ 4,771,353 $ 3,528,427 $ 2,601,174
The details of each plan are as follows:
A. California State Teachers’ Retirement System (CalSTRS)
Plan Description The District contributes to the State Teachers Retirement Plan (STRP) administered by the California State Teachers' Retirement System (CalSTRS). STRP is a cost-sharing multiple-employer public employee retirement system defined benefit pension plan. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
A. California State Teachers’ Retirement System (CalSTRS) (continued)
Plan Description (continued) A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2018, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial information are publicly available reports that can be found on the CalSTRS website under Publications at: http://www.calstrs.com/ actuarial-financial-and-investor-information.
Benefits Provided The STRP provides retirement, disability and survivor benefits to beneficiaries. Benefits are based on members' final compensation, age, and years of service credit. Members hired on or before December 31, 2012, with five years of credited service are eligible for the normal retirement benefit at age 60. Members hired on or after January 1, 2013, with five years of credited service are eligible for the normal retirement benefit at age 62. The normal retirement benefit is equal to 2.0% of final compensation for each year of credited service.
The STRP is comprised of four programs: Defined Benefit Program, Defined Benefit Supplement Program, Cash Balance Benefit Program, and Replacement Benefits Program. The STRP holds assets for the exclusive purpose of providing benefits to members and beneficiaries of these programs. CalSTRS also uses plan assets to defray reasonable expenses of administering the STRP. Although CalSTRS is the administrator of the STRP, the State is the sponsor of the STRP and obligor of the trust. In addition, the State is both an employer and non- employer contributing entity to the STRP. The District contributes exclusively to the STRP Defined Benefit Program; thus, disclosures are not included for the other plans.
The STRP provisions and benefits in effect at June 30, 2020, are summarized as follows:
STRP Defined Benefit Program On or before On or after Hire Date December 31, 2012 January 1, 2013 Benefit Formula 2% at 60 2% at 62 Benefit Vesting Schedule 5 years of service 5 years of service Benefit Payments Monthly for life Monthly for life Retirement Age 60 62 Monthly Benefits as a Percentage of Eligible Compensation 2.0%-2.4% 2.0%-2.4% Required Member Contribution Rate 10.25% 10.205% Required Employer Contribution Rate 17.10% 17.10% Required State Contribution Rate 10.328% 10.328%
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
A. California State Teachers’ Retirement System (CalSTRS)
Contributions Required member District and State of California contributions rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. The contributions rates are expressed as a level percentage of payroll using the entry age normal actuarial method. In June 2019, California Senate Bill 90 (SB 90) was signed into law and appropriated approximately $2.2 billion in fiscal year 2018–19 from the state’s General Fund as contributions to CalSTRS on behalf of employers. The bill requires portions of the contribution to supplant the amounts remitted by employers such that the amounts remitted will be 1.03 and 0.70 percentage points less than the statutorily required amounts due for fiscal years 2019–20 and 2020–21, respectively. The remaining portion of the contribution is allocated to reduce the employers’ share of the unfunded actuarial obligation of the DB Program.
The contribution rates for each program for the year ended June 30, 2020, are presented above, and the District's total contributions were $1,213,814.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2020, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as follows:
District's proportionate share of net pension liability $ 11,052,767 State's proportionate share of the net pension liability associated with the District 6,030,022
Total $ 17,082,789
The net pension liability was measured as of June 30, 2019. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts and the State, actuarially determined. The District's proportions of the net pension liability for the two most recent measurement periods were:
Percentage Share of Risk Pool Fiscal Year Fiscal Year Change Ending Ending Increase/ June 30, 2020 June 30, 2019 (Decrease)
Measurement Date June 30, 2019 June 30, 2018
Proportion of the Net Pension Liability 0.012238% 0.013440% -0.001202%
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
A. California State Teachers’ Retirement System (CalSTRS) (continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (continued) For the year ended June 30, 2020, the District recognized pension expense of $1,606,708. In addition, the District recognized pension expense and revenue of $164,979 for support provided by the State. At June 30, 2020, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 1,213,814 $ - Net change in proportionate share of net pension liability 999,331 2,293,065 Difference between projected and actual earnings on pension plan investments 25,455 451,211 Changes of assumptions 1,397,933 - Differences between expected and actual experience 27,903 311,454 Total $ 3,664,436 $ 3,055,730
The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows/(inflows) of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period. The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability, changes of assumptions, and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is 7 years.
Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year Ended Deferred Outflows Deferred Inflows June 30, of Resources of Resources 2021$ 606,402 $ 485,817 2022 606,402 781,362 2023 606,402 489,856 2024 500,989 398,806 2025 125,776 380,382 Thereafter 4,651 519,507 Total$ 2,450,622 $ 3,055,730
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
A. California State Teachers’ Retirement System (CalSTRS) (continued)
Actuarial Methods and Assumptions The total pension liability for the STRP was determined by applying update procedures to the financial reporting actuarial valuation as of June 30, 2018 and rolling forward the total pension liability to June 30, 2019. In determining the total pension liability, the financial reporting actuarial valuation used the following actuarial methods and assumptions:
Valuation Date June 30, 2018 Experience Study July 1, 2010 through June 30, 2015 Actuarial Cost Method Entry age normal Investment Rate of Return 7.10% Consumer Price of Inflation 2.75% Wage Growth 3.50%
CalSTRS uses a generational mortality assumption, which involves the use of a base mortality table and projection scales to reflect expected annual reductions in mortality rates at each age, resulting in increases in life expectancies each year into the future. The base mortality tables are CalSTRS custom tables derived to best fit the patterns of mortality among our members. The projection scale was set equal to 110% of the ultimate improvement factor from the Mortality Improvement Scale (MP–2016) table issued by the Society of Actuaries.
The long-term investment rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best-estimate ranges were developed using capital market assumptions from CalSTRS’ general investment consultant (Pension Consulting Alliance) as inputs to the process. The actuarial investment rate of return assumption was adopted by the board in February 2017 in conjunction with the most recent experience study.
For each future valuation, CalSTRS’ independent consulting actuary reviews the return assumption for reasonableness based on the most current capital market assumptions. Best estimates of expected 20-year geometrically linked real rates of return and the assumed asset allocation for each major asset class as of June 30, 2019, are summarized in the following table:
Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global Equity 47% 4.8% Fixed Income 12% 1.3% Real Estate 13% 3.6% Private Equity 13% 6.3% Risk Mitigating Strategies 9% 1.8% Inflation Sensitive 4% 3.3% Cash/Liquidity 2% (0.4%)
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
A. California State Teachers’ Retirement System (CalSTRS) (continued)
Discount Rate The discount rate used to measure the total pension liability was 7.10%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers are made at statutory contribution rates in accordance with the rate increases. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.10%) and assuming that contributions, benefit payments and administrative expenses occur midyear. Based on those assumptions, the STRP’s fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine the total pension liability.
The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate:
Net Pension Discount Rate Liability 1% decrease (6.10%)$ 16,458,485 Current discount rate (7.10%) 11,052,767 1% increase (8.10%) 6,570,397
On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS pursuant to Sections 22954 and 22955.1 of the Education Code and Public Resources Code Section 6217.5. In addition, for the 2018-19 fiscal year, California Senate Bill No. 90 (SB 90) was signed into law on June 27, 2019, and appropriated supplemental contributions. Under accounting principles generally accepted in the United States of America, these amounts are reported as revenues and expenditures in the fund financial statements. The total amount recognized by the District for its proportionate share of the State’s on-behalf contributions is $841,130.
B. California Public Employees Retirement System (CalPERS)
Plan Description Qualified employees are eligible to participate in the Schools Pool under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer defined benefit pension plan administered by CalPERS. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Law.
A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2018 annual actuarial valuation report, Schools Pool Accounting Report. This report and CalPERS audited financial information are publicly available reports that can be found on the CalPERS website under Forms and Publications at: https://www.calpers.ca.gov/page/ employers/actuarial-resources/gasb.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
B. California Public Employees Retirement System (CalPERS) (continued)
Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of service credit, a benefit factor, and the member's final compensation. Members hired on or before December 31, 2012, with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. Members hired on or after January 1, 2013, with five years of total service are eligible to retire at age 52 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after five years of service. The Basic Death Benefit is paid to any member's beneficiary if the member dies while actively employed. An employee's eligible survivor may receive the 1957 Survivor Benefit if the member dies while actively employed, is at least age 50 (or 52 for members hired on or after January 1, 2013), and has at least five years of credited service. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law.
The CalPERS provisions and benefits in effect at June 30, 2020, are summarized as follows:
Schools Pool (CalPERS) On or before On or after Hire Date December 31, 2012 January 1, 2013 Benefit Formula 2% at 55 2% at 62 Benefit Vesting Schedule 5 years of service 5 years of service Benefit Payments Monthly for life Monthly for life Retirement Age 55 62 Monthly Benefits as a Percentage of Eligible Compensation 2.0 – 2.5% 2.0 – 2.5% Required Employee Contribution Rate 7.00% 7.00% Required Employer Contribution Rate 19.721% 19.721%
Contributions Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Total plan contributions are calculated through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. The contribution rates are expressed as a percentage of annual payroll. The contribution rates for each plan for the year ended June 30, 2020 are presented above, and the total District contributions were $433,668.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
B. California Public Employees Retirement System (CalPERS) (continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions As of June 30, 2020, the District reported net pension liabilities for its proportionate share of the CalPERS net pension liability totaling $4,401,617. The net pension liability was measured as of June 30, 2019. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts, actuarially determined. The District's proportions of the net pension liability for the two most recent measurement periods were:
Percentage Share of Risk Pool Fiscal Year Fiscal Year Change Ending Ending Increase/ June 30, 2020 June 30, 2019 (Decrease)
Measurement Date June 30, 2019 June 30, 2018
Proportion of the Net Pension Liability 0.015103% 0.016483% -0.001380%
For the year ended June 30, 2020, the District recognized pension expense of $994,466. At June 30, 2020, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 433,668 $ - Net change in proportionate share of net pension liability 92,114 380,001 Difference between projected and actual earnings on pension plan investments 51,870 92,696 Changes of assumptions 209,531 - Differences between expected and actual experience 319,734 - Total $ 1,106,917 $ 472,697
The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows/(inflows) of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period. The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability, changes of assumptions, and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is 4.1 years.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
B. California Public Employees Retirement System (CalPERS) (continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (continued) Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year Ended Deferred Outflows Deferred Inflows June 30, of Resources of Resources 2021$ 431,389 $ 99,469 2022 173,611 179,967 2023 51,526 111,668 2024 16,723 74,176 2025 - 7,417 Thereafter - - Total$ 673,249 $ 472,697
Actuarial Methods and Assumptions Total pension liability for the Schools Pool was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2018 and rolling forward the total pension liability to June 30, 2019. The financial reporting actuarial valuation as of June 30, 2018 used the following methods and assumptions, applied to all prior periods included in the measurement:
Valuation Date June 30, 2018 Experience Study 1997-2015 Actuarial Cost Method Entry age normal Discount Rate 7.15% Consumer Price of Inflation 2.50% Wage Growth Varies by entry age and service
Post-retirement mortality rates are based on CalPERS experience and include 15 years of projected ongoing mortality improvement using 90 percent of Scale MP 2016 published by the Society of Actuaries. These tables are used to estimate the value of benefits expected to be paid for service and disability retirements. For disability retirements, impaired longevity is recognized by a separate table.
In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical and forecasted information for all the funds’ asset classes, expected compound (geometric) returns were calculated over the short term (first 10 years) and the long term (11+ years) using a building-block approach. Using the expected nominal returns for both short term and long term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long- term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 8 – PENSION PLANS (continued)
B. California Public Employees Retirement System (CalPERS) (continued)
Actuarial Methods and Assumptions (continued) The target asset allocation and best estimates of real rates of return for each major asset class are summarized in the following table:
Assumed Asset Real Return Real Return Asset Class Allocation Years 1-10 Years 11+ Global Equity 50% 4.80% 5.98% Fixed Income 28% 1.00% 2.62% Inflation Assets 0% 0.77% 1.81% Private Equity 8% 6.30% 7.23% Real Assets 13% 3.75% 4.93% Liquidity 1% 0.00% (0.92%)
Discount Rate The discount rate used to measure the total pension liability was 7.15%. The discount rate is not adjusted for administrative expenses. The fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return for the pension plan’s investments was applied to all periods of projected benefit payments to determine the total pension liability.
The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate:
Net Pension Discount Rate Liability 1% decrease (6.15%)$ 6,344,642 Current discount rate (7.15%) 4,401,617 1% increase (8.15%) 2,789,744
C. Social Security As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by social security or an alternative plan. The District has elected to use the Social Security as its alternative plan.
D. Payables to the Pension Plans At June 30, 2020, the District reported payables of $93,136 and $0 for the outstanding amount of legally required contributions to the CalSTRS and CalPERS pension plans, respectively, for the fiscal year ended June 30, 2020.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 9 – JOINT VENTURES
The District participates in three joint powers agreement (JPA) entities; the East Bay Schools Insurance Group (EBSIG) for property and liability insurance, the Contra Costa County Schools Insurance Group (CCCSIG) for workers’ compensation insurance, and the Schools’ Self Insurance of Contra Costa County (SSICCC) for dental and vision insurance. Each JPA is governed by a board consisting of a representative from each member district. Each governing board controls the operations of its JPA independent of any influence by the John Swett Unified School District beyond the District’s representation on the governing boards.
Each JPA is independently accountable for its fiscal matters. Budgets are not subject to any approval other than that of the respective governing boards. Member districts share surpluses and deficits proportionately to their participation in the JPA. The relationship between the John Swett Unified School District and the JPAs are such that none of the three JPAs is a component unit of the District for financial reporting purposes. Current financial information can be obtained by contacting each JPA’s management.
NOTE 10 – RISK MANAGEMENT
Property and Liability The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. During fiscal year ending June 30, 2020, the District participated in the East Bay Schools Insurance Group risk pool for property and liability insurance coverage. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year.
Workers' Compensation For fiscal year 2020, the District participated in the Contra Costa County Schools Insurance Group for workers’ compensation.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
A. State and Federal Allowances, Awards, and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material.
B. Construction Commitments As of June 30, 2020, the District had commitments with respect to unfinished capital projects of approximately $30.2 million.
C. Litigation The District is involved in certain legal matters that arose out of the normal course of business. The District has not accrued a liability for any potential litigation against it because it does not meet the criteria to be considered a liability at June 30, 2020.
D. Impact of COVID-19 On March 13, 2020, a presidential emergency was declared due to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic. The declaration made federal disaster assistance available through the Coronavirus Aid, Relief, and Economic Security (CARES) Act to the State of California to supplement the local recovery efforts
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JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to Financial Statements June 30, 2020
NOTE 11 – COMMITMENTS AND CONTINGENCIES (continued)
D. Impact of COVID-19 (continued) by the K-12 education community. On that same date, Governor Newsom issued Executive Order N-26-20, guaranteeing continued State funding, holding LEAs harmless from several regulations, and providing guidelines for LEAs to operate under a “distance learning” environment.
In response, the District announced the closing of all schools in mid-March. With nearly all districts in California shut down to stem the spread of COVID-19, officials statewide hastily put in place plans to deliver “grab and go” meals with minimal contact between cafeteria staff, volunteers and families in need. In addition, the District worked to implement distance learning for all students for the remainder of the 2019-20 school year. Construction projects were able to begin earlier than planned due to the absence of students resulting from the school closures.
A companion bill to Executive Order N-26-20, Senate Bill 117 changed the method used by the District to calculate average daily attendance (ADA) for both the P-2 and Annual period apportionment to include all full school months from July 1, 2019 to February 29, 2020. As events unfold and changes are made on a daily basis, the future impacts of COVID-19 on the District’s operations are not fully known at this time.
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Required Supplementary Information
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JOHN SWETT UNIFIED SCHOOL DISTRICT Budgetary Comparison Schedule – General Fund For the Fiscal Year Ended June 30, 2020
Budgeted Amounts Variance with Actual Final Budget - Original Final (Budgetary Basis) Pos (Neg) Revenues LCFF sources$ 14,583,288 $ 14,500,482 $ 14,950,110 $ 449,628 Federal sources 937,960 941,893 750,842 (191,051) Other state sources 1,819,016 1,468,602 1,793,487 324,885 Other local sources 831,967 923,480 1,114,038 190,558
Total Revenues 18,172,231 17,834,457 18,608,477 774,020
Expenditures Current: Certificated salaries 7,110,739 7,190,194 7,260,739 (70,545) Classified salaries 2,517,029 2,595,461 2,662,684 (67,223) Employee benefits 5,683,414 5,319,801 5,760,924 (441,123) Books and supplies 320,237 405,928 353,306 52,622 Services and other operating expenditures 3,042,223 3,951,210 3,144,655 806,555 Intergovernmental 3,871 3,871 30,000 (26,129)
Total Expenditures 18,677,513 19,466,465 19,212,308 254,157
Excess (Deficiency) of Revenues Over (Under) Expenditures (505,282) (1,632,008) (603,831) 1,028,177
Fund Balances, July 1, 2019 3,302,781 4,775,178 4,651,897 (123,281)
Fund Balances, June 30, 2020$ 2,797,499 $ 3,143,170 4,048,066 $ 904,896
Fund Balances included in the Statement of Revenues, Expenditures and Changes in Fund Balances: Special Reserve Fund for Postemployment Benefits 456,845
Reported General Fund balance on the Statement of Revenues, Expenditures and Changes in Fund Balances:$ 4,504,911
Note to Schedule: The excess of expenditures over budgeted amounts for employee benefits is the result of the STRS on-behalf contributions from the State that were recorded in the financial statements but were not included in the budget.
See accompanying notes to required supplementary information. 54
JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Proportionate Share of the Net Pension Liability For the Fiscal Year Ended June 30, 2020
Last Ten Fiscal Years*
2018-19 2017-18 2016-17 2015-16 2014-15 2013-14
CalSTRS
District's proportion of the net pension liability 0.0122% 0.0134% 0.0150% 0.0140% 0.0140% 0.0130%
District's proportionate share of the net pension liability$ 11,052,767 $ 12,352,388 $ 14,068,744 $ 11,317,863 $ 9,668,557 $ 7,547,455
State's proportionate share of the net pension liability associated with the District 6,030,022 7,072,320 8,323,018 6,444,006 5,113,587 4,557,479
Totals$ 17,082,789 $ 19,424,708 $ 22,391,762 $ 17,761,869 $ 14,782,144 $ 12,104,934
District's covered-employee payroll$ 6,836,597 $ 7,240,832 $ 8,106,517 $ 5,113,587 $ 4,557,479 $ 5,752,618
District's proportionate share of the net pension liability as a percentage of its covered-employee payroll 161.67% 170.59% 173.55% 221.33% 212.15% 131.20%
Plan fiduciary net position as a percentage of the total pension liability 73% 71% 70% 70% 74% 77%
CalPERS
District's proportion of the net pension liability 0.0151% 0.0165% 0.0170% 0.0160% 0.0150% 0.0160%
District's proportionate share of the net pension liability$ 4,401,617 $ 4,394,907 $ 4,062,164 $ 3,139,608 $ 2,232,785 $ 1,760,503
District's covered-employee payroll$ 2,123,342 $ 2,218,395 $ 2,140,791 $ 1,976,606 $ 1,883,611 $ 1,627,923
District's proportionate share of the net pension liability as a percentage of its covered-employee payroll 207.30% 198.11% 189.75% 158.84% 118.54% 108.14%
Plan fiduciary net position as a percentage of the total pension liability 70% 71% 72% 74% 79% 83%
* This schedule is required to show information for ten years; however, until a full ten year trend is compiled, information is presented for those years for which information is available.
See accompanying notes to required supplementary information. 55
JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Pension Contributions For the Fiscal Year Ended June 30, 2020
Last Ten Fiscal Years*
2019-20 2018-19 2017-18 2016-17 2015-16 2014-15
CalSTRS
Contractually required contribution$ 1,213,814 $ 1,112,998 $ 1,044,852 $ 927,745 $ 807,653 $ 608,224
Contributions in relation to the contractually required contribution 1,213,814 1,112,998 1,044,852 927,745 807,653 608,224
Contribution deficiency (excess):$ - $ - $ - $ - $ - $ -
District's covered-employee payroll$ 7,098,327 $ 6,836,596 $ 7,240,830 $ 8,106,517 $ 5,113,587 $ 4,557,479
Contributions as a percentage of covered-employee payroll 17.10% 16.28% 14.43% 11.44% 15.79% 13.35%
CalPERS
Contractually required contribution$ 433,668 $ 383,518 $ 344,539 $ 301,399 $ 238,630 $ 203,462
Contributions in relation to the contractually required contribution 433,668 383,518 344,539 301,399 238,630 203,462
Contribution deficiency (excess):$ - $ - $ - $ - $ - $ -
District's covered-employee payroll$ 2,199,016 $ 2,123,342 $ 2,218,398 $ 2,140,790 $ 1,976,606 $ 1,883,611
Contributions as a percentage of covered-employee payroll 19.721% 18.062% 15.531% 14.079% 12.073% 10.802%
* This schedule is required to show information for ten years; however, until a full ten year trend is compiled, information is presented for those years for which information is available.
See accompanying notes to required supplementary information. 56
JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Changes in the District’s Total OPEB Liability and Related Ratios For the Fiscal Year Ended June 30, 2020
Last 10 Fiscal Years*
2019-20 2018-19 2017-18 Total OPEB liability Service cost$ 405,425 $ 372,368 $ 362,402 Interest 175,878 156,621 156,526 Differences between expected and actual experience (335,280) - - Changes of assumptions or other inputs 1,293,366 188,793 - Benefit payments (191,709) (176,497) (169,709) Net change in total OPEB liability 1,347,680 541,285 349,219 Total OPEB liability - beginning 4,918,240 4,376,955 4,027,736 Total OPEB liability - ending $ 6,265,920 $ 4,918,240 $ 4,376,955
Covered-employee payroll $ 9,794,043 $ 9,400,857 $ 9,459,229
Total OPEB liability as a percentage of covered- employee payroll 63.98% 52.32% 46.27%
Notes to Schedule: * This schedule is required to show information for ten years; however, until a full ten year trend is compiled, information is presented for those years for which information is available.
See accompanying notes to required supplementary information. 57
JOHN SWETT UNIFIED SCHOOL DISTRICT Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2020
NOTE 1 – PURPOSE OF SCHEDULES
Budgetary Comparison Schedule The District employs budget control by object codes and by individual appropriation accounts. Budgets are prepared on the modified accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board and provisions of the California Education Code. The governing board is required to hold a public hearing and adopt an operating budget no later than July 1 of each year. 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 adoptions 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.
This schedule presents information for the original and final budgets and actual results of operations, as well as the variances from the final budget to actual results of operations.
Schedule of the District’s Proportionate Share of the Net Pension Liability This schedule presents information on the District’s proportionate share of the net pension liability (NPL), the plans’ fiduciary net position and, when applicable, the State’s proportionate share of the NPL associated with the District. In the future, as data becomes available, ten years of information will be presented.
Change in benefit terms – There were no changes in benefit terms since the previous valuations for both CalSTRS and CalPERS.
Change of assumptions - There were no changes in economic assumptions since the previous valuations for either CalSTRS or CalPERS.
Schedule of District Contributions This schedule presents information on the District’s required contribution, the amounts actually contributed, and any excess or deficiency related to the required contribution. In the future, as data becomes available, ten years of information will be presented.
Schedule of Changes in the District’s Total OPEB Liability and Related Ratios This schedule presents information on the District’s changes in the total OPEB liability, including beginning and ending balances, and the total OPEB liability. In the future, as data becomes available, ten years of information will be presented.
Change in benefit terms – There were no changes in benefit terms since the previous valuation.
Change of assumptions – Liability changes resulting from changes in economic and demographic assumptions are also deferred based on the average working life. The discount rate used for the 2020 valuation was 2.2% compared to 3.5% from the prior year.
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Supplementary Information
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JOHN SWETT UNIFIED SCHOOL DISTRICT Local Educational Agency Organization Structure June 30, 2020
The John Swett Unified School District is located in Contra Costa County. There were no changes in the boundaries of the District during the current year. The District is currently operating one elementary school, one middle school, one high school, and one alternative education center.
GOVERNING BOARD Member Office Term Expires
Barbara Vargen-Kotchevar President 2020
Deborah Brandon Clerk 2022
Jerry Parsons Member 2022
Marina Ramos Member 2020
Shane Reinhart Member 2020
DISTRICT ADMINISTRATOR
Dr. Charles Miller Superintendent
Susan Wheet, Business Manager
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JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Average Daily Attendance For the Fiscal Year Ended June 30, 2020
Second Period Annual Report Report Certificate No. Certificate No. 9E138A8E 84384BAA Regular ADA & Extended Year: TK/K-3 396.16 396.16 Grades 4-6 298.83 298.83 Grades 7-8 185.57 185.57 Grades 9-12 443.53 443.53
Total Regular ADA 1,324.09 1,324.09
Special Education - Nonpublic, Nonsectarian Schools: Grades 4-6 0.90 0.90 Grades 9-12 3.22 3.22
Total Special Education - Nonpublic, Nonsectarian Schools 4.12 4.12
Total ADA 1,328.21 1,328.21
See accompanying note to supplementary information. 60
JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Instructional Time For the Fiscal Year Ended June 30, 2020
2019-20 Number of Days Offered Traditional Grade Level Required Minutes Calendar Status
Kindergarten 36,000 39,600 180 Complied Grade 1 50,400 51,300 180 Complied Grade 2 50,400 51,300 180 Complied Grade 3 50,400 51,300 180 Complied Grade 4 54,000 54,020 180 Complied Grade 5 54,000 54,020 180 Complied Grade 6 54,000 54,496 180 Complied Grade 7 54,000 54,496 180 Complied Grade 8 54,000 54,496 180 Complied Grade 9 64,800 65,240 180 Complied Grade 10 64,800 65,240 180 Complied Grade 11 64,800 65,240 180 Complied Grade 12 64,800 65,240 180 Complied
See accompanying note to supplementary information. 61
JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Financial Trends and Analysis For the Fiscal Year Ended June 30, 2020
(Budget) General Fund 2021 2 2020 3 2019 2018
Revenues and other financing sources$ 16,871,717 $ 18,608,477 $ 18,932,776 $ 19,416,178
Expenditures 18,616,916 19,212,308 17,782,396 18,257,738
Change in fund balance (deficit) (1,745,199) (603,831) 1,150,380 1,158,440
Ending fund balance$ 2,302,867 $ 4,048,066 $ 4,651,897 $ 3,501,517
Available reserves 1 $ 849,970 $ 682,694 $ 646,848 $ 2,092,391
Available reserves as a percentage of total outgo 4.6% 3.6% 3.6% 11.5%
Total long-term debt $ 92,876,672 $ 95,546,186 $ 97,941,842 $ 89,131,167
Average daily attendance at P-2 N/A 1,328 1,341 1,425
The General Fund balance has increased by $546,549 over the past two years. The fiscal year 2020-21 adopted budget projects a decrease of $1,745,199. For a district of this size, the state recommends available reserves of at least 3% of total general fund expenditures, transfers out, and other uses (total outgo).
The District has incurred an operating surplus in two of the past three years, but anticipates incurring an operating deficit during the 2020-21 fiscal year. Long-term debt has increased by $6,415,019 over the past two years.
Average daily attendance has decreased by 97 over the past two years. No ADA will be reported in 2020-21.
1 Available reserves consist of all unassigned fund balances in the General Fund.
2 Revised Final Budget August, 2020.
3 The actual amounts reported in this schedule are for the General Fund only, and do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances because the amounts on that schedule include the financial activity of the Special Reserve Fund for Postemployment Benefits, in accordance with the fund type definitions promulgated by GASB Statement No. 54.
See accompanying note to supplementary information. 62
JOHN SWETT UNIFIED SCHOOL DISTRICT Reconciliation of Annual Financial and Budget Report with Audited Financial Statements For the Fiscal Year Ended June 30, 2020
Cafeteria Fund
June 30, 2020, annual financial and budget report (SACS) fund balances$ 231,182 Adjustments and reclassifications: Increasing (decreasing) the fund balance: Overstatement of accounts receivable (84,407)
June 30, 2021, audited financial statement fund balances$ 146,775
See accompanying note to supplementary information. 63
JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Expenditures of Federal Awards For the Fiscal Year Ended June 30, 2020
Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identifying Cluster Federal Grantor/Program or Cluster Title Number Number Expenditures Expenditures
Federal Programs: U.S. Department of Agriculture: Passed through California Dept. of Education (CDE): Child Nutrition Cluster: School Breakfast Program - Especially Needy 10.553 13526$ 81,865 National School Lunch Program 10.555 13523 206,449 Summer Feeding Option 10.555 13523 90,799 USDA Donated Foods 10.555 13391 35,356 Total Child Nutrition Cluster $ 414,469 Child and Adult Care Food Program 10.558 13393 87,966 Cash In Lieu of Commodities 10.558 13389 5,607 Total Child and Adult Care Food Program 93,573 Total U.S. Department of Agriculture 508,042
U.S. Department of Education: Passed through California Dept. of Education (CDE): Every Student Succeeds Act (ESSA): Title I, Part A, Basic Grants Low-Income and Neglected 84.010 14329 316,363 Title II, Part A, Supporting Effective Instruction 84.367 14341 80,680 English Language Acquisition Grants: Title III, Immigrant Education Program 84.365 15146 313 Title III, Limited English Proficiency 84.365 14346 20,597 Total English Language Acquisition Grants Cluster 20,910 Title IV, Part A, Student Support and Academic Enrichment Grants 84.424 15396 43,635 Title VIII, Impact Aid 84.041 10015 13,733 Passed through Contra Costa SELPA: Individuals with Disabilities Education Act (IDEA): Basic Local Assistance Entitlement, Part B, Section 611 84.027 13379 255,211 Preschool Grants, Part B, Section 619 (Age 3-4-5) 84.173 13430 4,411 Mental Health Allocation Plan, Part B, Sec 611 84.027 14468 15,899 Total Special Education (IDEA) Cluster 275,521 Total U.S. Department of Education 750,842
Total Expenditures of Federal Awards $ 1,258,884
Of the Federal expenditures presented in the schedule, the District provided no Federal awards to subrecipients.
See accompanying note to supplementary information. 64
JOHN SWETT UNIFIED SCHOOL DISTRICT Note to the Supplementary Information June 30, 2020
NOTE 1 – PURPOSE OF SCHEDULES
Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs.
Schedule of Instructional Time The District has participated in the Incentives for Longer Instructional Day and Longer Instructional Year. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with Article 8 (commencing with Section 46200) of Chapter 2 Part 26 of the Education Code. The instructional time presented in this schedule includes the days that the District was closed due to the COVID-19 pandemic and for one emergency day on October 16, 2019 approved by the CDE through a waiver.
Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time.
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 Expenditures of Federal Awards The schedule of expenditures of Federal awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. The District did not elect to use the ten percent de minimis indirect cost rate.
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Other Independent Auditors' Reports
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INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Governing Board John Swett Unified School District Rodeo, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of John Swett Unified School District as of and for the year ended June 30, 2020, and the related notes to the financial statements, which collectively comprise John Swett Unified School District's basic financial statements, and have issued our report thereon dated January 5, 2021.
Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered John Swett Unified School District's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the John Swett Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the John Swett Unified School District's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters As part of obtaining reasonable assurance about whether John Swett 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 financial statements. 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.
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Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Murrieta, California January 5, 2021
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INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE
Governing Board John Swett Unified School District Rodeo, California
Report on Compliance for Each Major Federal Program We have audited John Swett Unified School District's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of John Swett Unified School District's major federal programs for the year ended June 30, 2020. John Swett Unified School District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs.
Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.
Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of John Swett Unified School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about John Swett Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of John Swett Unified School District's compliance.
Opinion on Each Major Federal Program In our opinion, John Swett Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2020.
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Report on Internal Control Over Compliance Management of John Swett Unified School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered John Swett Unified School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Murrieta, California January 5, 2021
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INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE
Governing Board John Swett Unified School District Rodeo, California
Report on State Compliance We have audited John Swett Unified School District's compliance with the types of compliance requirements described in the 2019-20 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting that could have a direct and material effect on each of the John Swett Unified School District's state government programs as noted on the following page for the fiscal year ended June 30, 2020.
Management's Responsibility Management is responsible for compliance with state laws, regulations, and the terms and conditions of its State programs.
Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of John Swett Unified School District's state programs based on our audit of the types of compliance requirements referred to on the following page. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the 2019-20 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to on the following page that could have a direct and material effect on a state program occurred. An audit includes examining, on a test basis, evidence about John Swett Unified School District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each state program. However, our audit does not provide a legal determination of John Swett Unified School District’s compliance.
In connection with the audit referred to above, we selected and tested transactions and records to determine the District’s compliance with the State laws and regulations applicable to the following items:
Procedures Description Performed Local Education Agencies Other Than Charter Schools: Attendance Yes Teacher Certification and Misassignments Yes Kindergarten Continuance Yes Independent Study No (see below) Continuation Education No (see below) Instructional Time Yes Instructional Materials Yes Ratio of Administrative Employees to Teachers Yes
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Procedures Description Performed Classroom Teacher Salaries Yes Early Retirement Incentive Not Applicable Gann Limit Calculation Yes School Accountability Report Card Yes Juvenile Court Schools Not Applicable Middle or Early College High Schools Not Applicable K-3 Grade Span Adjustment Yes Transportation Maintenance of Effort Yes Apprenticeship: Related and Supplemental Instruction Not Applicable Comprehensive School Safety Plan Yes District of Choice Not Applicable School Districts, County Offices of Education, and Charter Schools: California Clean Energy Jobs Act Yes After/Before School Education and Safety Program Yes Proper Expenditure of Education Protection Account Funds Yes Unduplicated Local Control Funding Formula Pupil Counts Yes Local Control and Accountability Plan Yes Independent Study - Course Based Not Applicable Charter Schools: Attendance Not Applicable Mode of Instruction Not Applicable Nonclassroom-Based Instruction/Independent Study Not Applicable Determination of Funding for Nonclassroom-Based Instruction Not Applicable Annual Instructional Minutes – Classroom Based Not Applicable Charter School Facility Grant Program Not Applicable
We did not perform testing for independent study and continuation education because the ADA was under the level that requires testing.
Unmodified Opinion on Compliance with State Programs In our opinion, John Swett Unified School District complied, in all material respects, with the types of compliance requirements referred to above for the year ended June 30, 2020.
Murrieta, California January 5, 2021
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Findings and Questioned Costs
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JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2020
SECTION I - SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? No Significant deficiency(s) identified not considered to be material weaknesses? None reported Noncompliance material to financial statements noted? No Federal Awards Internal control over major programs: Material weakness(es) identified? No Significant deficiency(s) identified not considered to be material weaknesses? None reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance, Section 200.516 No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 10.553 and 10.555 Child Nutrition Cluster Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? Yes
State Awards
Type of auditor's report issued on compliance for state programs: Unmodified
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JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2020
SECTION II - FINANCIAL STATEMENT FINDINGS
This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance related to the financial statements that are required to be reported in accordance with Government Auditing Standards. Pursuant to Assembly Bill (AB) 3627, all audit findings must be identified as one or more of the following categories:
Five Digit Code AB 3627 Finding Types 10000 Attendance 20000 Inventory of Equipment 30000 Internal Control 40000 State Compliance 42000 Charter School Facilities Programs 43000 Apprenticeship: Related and Supplemental Instruction 50000 Federal Compliance 60000 Miscellaneous 61000 Classroom Teacher Salaries 62000 Local Control Accountability Plan 70000 Instructional Materials 71000 Teacher Misassignments 72000 School Accountability Report Card
There were no financial statement findings in 2019-20.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2020
SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
This section identifies the audit findings required to be reported by the Uniform Guidance, Section 200.516 (e.g., significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs).
There were no federal award findings or questioned costs in 2019-20.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Schedule of Audit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2020
SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS
This section identifies the audit findings pertaining to noncompliance with state program rules and regulations.
There were no state award findings or questioned costs in 2019-20.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2020
Original Finding No. Finding Code Recommendation Current Status
Finding 2019‐001: Any teachers assigned to provide instruction to English 40000 We recommend that the District create a process to ensure all Implemented. Teacher Learner students, must hold the appropriate credential or 71000 teachers who teach Limited English Proficient students have the Credentials certificate, pursuant to Education Code Section 44001, proper credential on file. 44830(a), 44831, and 44253.1. English Learners identified in K-12 public schools in California are required to receive services designed to meet their linguistic and academic needs based on assessments made by the LEA. Education Code Section 44253.1 further states, “for these pupils to have access to quality education, their special needs must be met by teachers who have essential skills and knowledge related to English language development, specially designed content instruction delivered in English, and content instruction delivered in the pupils’ primary languages.”
Our sample of teachers selected for testing included one that lacked the appropriate credentials to instruct limited English proficient pupils. This finding is limited to one teacher and is not a repeat finding.
Finding 2019-002: Education Code 41401 through 41407 defines and 40000 We recommend the District take the necessary steps to come into Implemented. Ratio of stipulates the allowed ratio of administrative employees compliance with the requirement. Administrative to teachers. For a unified school district, the maximum Employees to ratio of administrative employees to each 100 teachers is Teachers eight per EC 41402(a).
The District had eight administrative employees, which was 1.8 full time employees in excess of the allowed number based on the number of teachers. This is not a repeat finding.
Finding 2019-003: Education Code Section 8483(a)(1) requires that 40000 The District should implement procedures requiring site Implemented. After School elementary school students are to participate in the full personnel to document on the attendance form the reason for a Education and day of the program and that the program is to stay open student’s early release. The District should clarify the pickup Safety until 6pm every day during which students participate, times so that students are not picked up until they have attended except as consistent with the established early release the full day of the program unless they meet an early release policy. exception which is then documented on the attendance form.
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JOHN SWETT UNIFIED SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2020
Original Finding No. Finding Code Recommendation Current Status
Finding 2019-003: Adequate documentation that supports attendance After School participation must be maintained by each site that Education and documents that students are attending the program as Safety (continued) consistent with the early release policy.
There were instances in which reasons were not provided for early release on the sign out forms. The forms indicated that acceptable pick up times were between 5pm and 6pm. During testing at Rodeo Hills Elementary we identified 88 instances where students left early without a documented explanation.
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Governing Board John Swett Unified School District Rodeo, California
In planning and performing our audit of the basic financial statements of John Swett Unified School District for the year ending June 30, 2020, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control structure.
However, during our audit we noted matters that are an opportunity for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated January 5, 2021 on the financial statements of John Swett Unified School District.
ATTENDANCE
Observation: When teachers are taking online attendance, the rosters are required to be printed out and signed by the teacher on a weekly basis to indicate their review and agreement of the attendance reported. We noted that the certifications are stamped with the date of the Monday following the attendance week, so that we could not verify when the document was signed. There is no impact on ADA reported associated with this comment.
Recommendation: We recommend that the rosters be signed and dated on a weekly basis as required by CDE to create a valid contemporaneous record. Alternatively, the District may seek approval for digital signatures, but a digital system must first be approved by the CDE.
ASSOCIATED STUDENT BODY (ASB)
Observation: We noted exceptions in some transactions over cash receipts at Carquinez Middle School. Without adequate supporting documentation, we could not verify whether all cash collected had been turned in and deposited intact. Sound internal controls for handling cash discourage theft of ASB funds and protect those who handle the cash. It is important to tie all proceeds to the specific event from which they were generated and to ensure that all proceeds from an event or activity are turned in and properly accounted for.
Recommendation: We recommend that before any events are held, control procedures such as utilizing ticket logs, tally sheets, prenumbered cash receipts, or cash register receipts, be established which will allow for the reconciliation between money collected and sales.
Observation: A budget is not adopted at Carquinez Middle or prepared by the Student Council. A budget is an important tool to monitor the financial activities of the ASB.
Recommendation: After preparation of an annual operating budget, the Student Council should adopt the budget and document it in the meeting minutes.
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ASSOCIATED STUDENT BODY (ASB) (continued)
Observation: We noted that ASB records at Carquinez Middle are kept in both quicken and on a check register and are comingled with a teacher activity account. Activities in the check book are inconsistent with those recorded in quicken and could not be reconciled with each other.
Recommendation We recommend the District separate the records of the ASB and teacher activity account and stop accounting for them in the same record, additionally the District should investigate why the checkbook and Quicken records do not match.
Observation: Some disbursements at John Swett High and Carquinez Middle were not preapproved or in some cases were missing approval by the ASB advisor.
Recommendation: Education Code Section 48933(b) requires all expenditures from ASB funds be authorized by a student representative, an advisor, and a district representative (usually a principal or vice- principal) prior to disbursing the funds. As a “best practice”, approval by required parties should be obtained before the actual commitment to purchase the items in order to ensure the expense is a proper use of student-body funds and falls within budgetary guidelines.
Observation: While reviewing disbursements and bank statements, for both Carquinez Middle and John Swett High we made an effort to view the back of all canceled checks in our samples to ensure that the endorsement was consistent with the payee. However, as statements did not have a copy of the canceled checks, we were unable to verify this information.
Recommendation: We recommend the District request at least periodically review this information from the bank to ensure that the payee on the canceled check matches accounting records as a fraud prevention step.
Observation: We noted two disbursements at John Swett High that appeared to be inappropriate use of ASB funds. In the first case, a disbursement occurred in connection with AP fees. In the second case, the purchase was for gift cards. AP fees should not be comingled with ASB funds. Gift cards are discouraged as an award because they may constitute a gift of public funds.
Recommendation: We recommend that the ASB not commingle items such as AP fees which are not ASB related. We also discourage the use of gift cards as an award. See Education Code 44015 which defines the criteria and process for student awards.
Observation: We could not verify that an online fundraising account at John Swett High being used for the Girls Soccer Team was approved by the District office. Online fundraising can be a viable tool to raise funds if proper controls are followed. Without guidelines or controls, sites might establish their own accounts for specific classrooms, clubs, or programs without fully understanding the potential issues or implications.
Recommendation: We recommend the District investigate the fundraising account to ensure that the website is a legitimate, allowable fundraising website. The District should define its stance on online fundraising with the sites to maintain control over their use.
We will review the status of the current year comments during our next audit engagement.
Murrieta, California January 5, 2021
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APPENDIX B
GENERAL AND FINANCIAL INFORMATION ABOUT THE DISTRICT
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 Bonds is payable from the General Fund of the District. The Bonds are payable from the proceeds of an ad valorem property tax required to be levied by the County in an amount sufficient for the payment thereof. See "SECURITY FOR THE BONDS" in the front half of the Official Statement.
GENERAL DISTRICT INFORMATION
General Information
The District is a K-12 school district serving students located in Contra Costa County (the “County”) in Northern California. The District is located in the East Bay and consists of an area of approximately 20 square miles composed of a portion of the city of Hercules, the unincorporated communities of Crockett, Rodeo and Port Costa, and adjacent unincorporated areas of Contra Costa County. The District is currently operating one elementary school (Rodeo Hills Elementary), one middle school (Carquinez Middle School), one high school (John Swett High School), and one continuation and alternative education center (Willow High School). Enrollment in the District for grades K-12 for the 2020-21 school year is approximately 1,299 students.
Administration
The District is governed by a five-member Board of Trustees, each member of which is elected to a four-year term. Elections for positions to the Board of Trustees are held every two years, alternating between two and three available positions. The Board of Trustees acts as a committee of the whole for all matters concerning the District. All actions taken by the Board of Trustees are done in an appropriately noticed public meeting. The powers and duties of the Board include governance, executive, and judicial functions. These relate to the Board's own operations as a governing body and to all functions of the District.
Board of Trustees. Current members of the Board of Trustees, together with their office and the date their term expires, are listed below.
BOARD OF TRUSTEES John Swett Unified School District
Name Position Term Expires Marina Ramos President December 2024 Stefanie Tavis Clerk December 2024 Deborah Brandon Member December 2022 Amarjit Kaur Member December 2024 Jerrod Parsons Member December 2022
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Administration. The Superintendent is appointed by the Board and is responsible for management of the District’s day-to-day operations and supervises the work of other key District administrators. The Board of Trustees appointed Charles Miller to undertake the position of District Superintendent in July 1, 2017. Susan Wheet is the Business Manager for the District as of July 2018.
Recent Enrollment Trends
The following table shows recent enrollment history for the District.
ANNUAL ENROLLMENT Fiscal Years 2009-10 through 2020-21 (Projected) John Swett Unified School District
Average Daily School Year Enrollment % Change Attendance % Change 2009-10 1,670 -- 1,569 -- 2010-11 1,735 3.9% 1,607 2.4% 2011-12 1,655 (4.6) 1,523 (5.2) 2012-13 1,600 (3.3) 1,514 (0.6) 2013-14 1,682 5.1 1,573 3.9 2014-15 1,699 1.0 1,595 1.4 2015-16 1,754 3.2 1,647 3.3 2016-17 1,719 (2.0) 1,556 (5.5) 2017-18 1,536 (10.6) 1,425 (8.4) 2018-19 1,439 (6.3) 1,334 (6.4) 2019-20 1,421 (1.2) 1,327 (0.5) 2020-21* 1,312 (7.6) 1,324* (0.2)
*Projected. Funded ADA shown as 100.9% of enrollment because funded ADA is based on ADA in fiscal year 2019-20 due to the COVID-19 pandemic. Source: John Swett Unified School District.
Employee Relations
As of the Second Interim Report for fiscal year 2020-21, the District employed 76.7 full time equivalent (“FTE”) certificated employees, 49.8 FTE classified employees and 12.2 management/Supervisor/Confidential FTE employees. District employees are represented by employee bargaining units as follows:
Current Contract Name of Bargaining Unit Expiration Date John Swett Education Association June 2022* California School Employees Association June 2020† ______*Updated terms through June 2022 subject to approval by the District Board at its meeting on April 14, 2021. † Parties perform pursuant to expired terms pending settlement. Settlement currently expected in May 2021. Source: John Swett Unified School District.
District’s Response to COVID-19 Pandemic
To reduce the potential for community transmission of COVID-19 and in accordance with all official recommendations, guidelines and mandates, the District closed its facilities with respect to in-person instruction in March 2020. Thereafter, distance learning was implemented, which
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extended through the end of the 2019-20 academic year. The District commenced the 2020-21 academic year in distance learning and formulated learning plans for education in distance and blended/hybrid learning formats. The District Board voted on March 10, 2021 to commence the offering of hybrid in-person learning at its school sites commencing on April 13, 2021. The schedule is a modified schedule with small groups and in accordance with all recommended safety measures. Distance learning remains an option for students.
The District has received or expects to receive one-time federal and State funding to address expenses arising due to COVID-19 pandemic in the combined approximate amount of $7.4 million. The funds which have been received by the District have been spent to date on addressing costs that have arisen due to COVID-19, including acquiring personal protective equipment, instructional software, chrome books, cleaning and sanitizing facilities and establishing Wi-Fi hotspots.
The District has realized some cost-savings resulting from not operating its sites, such as reductions in costs relating to substitute teachers, reduced electricity costs and costs relating to transportation and fuel, which have offset some of the expenses resulting from the COVID-19 pandemic. Furthermore, the District maintains reserves for economic uncertainties, which exceed the State’s required minimum reserve of three percent of expenditures. See “DISTRICT FINANCIAL INFORMATION – District Budget and Interim Financial Reporting - District Reserves.”
With respect to pension costs, the District cannot currently predict if the COVID-19 emergency will have a material impact on its required employer contributions which could rise if the unfunded actuarial accrued liabilities of PERS and STRS materially increase, although the State reduced employer contribution rates as part of its fiscal year 2020-21 Budget in response to the COVID-19 pandemic.
Because the District is funded pursuant to the State’s education funding formula known as LCFF, the District’s main operating revenues will be affected by the State’s financial position. The extent of the impact of the COVID-19 pandemic on education funding cannot be fully predicted. See herein under the heading “STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS” for information on the State’s current and proposed budgets.
The impacts of the COVID-19 emergency on global, State-wide and local economies, which could impact District operations and finances, and local property values are unknown and cannot be predicted by the District. See also information in the front half of this Official Statement under the heading “SECURITY FOR THE BONDS - Disclosure Relating to COVID-19 Pandemic.”
Insurance and Risk Management
Property and Liability Insurance. Property and liability insurance coverage is provided in the form of a risk pool by the East Bay Schools Insurance Group. Settled claims have not exceeded coverage in any of the past three years, and there was not a significant change in coverage as of June 30, 2020.
Workers’ Compensation Insurance. Workers’ compensation insurance is provided by the Contra Costa County Schools Insurance Group for Workers’ compensation.
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Both of the insurers described above are joint powers agencies (“JPAs”). Each JPA is governed by a board consisting of a representative from each member district. The JPAs are independently accountable for its fiscal matters. The JPAs are not component units of the District for financial reporting purposes.
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 and interest on the Bonds is payable from the General Fund of the District. The 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.
Education Funding Generally
School districts in California receive operating income primarily from two sources: the State funded portion which is derived from the State’s general fund, and a locally funded portion, being the district’s share of the one percent general ad valorem tax levy authorized by the California Constitution. As a result, decreases or deferrals in education funding by the State could significantly affect a school district’s revenues and operations.
From 1973-74 to 2012-13, California school districts operated under general purpose revenue limits established by the State Legislature. In general, revenue limits were calculated for each school district by multiplying (1) the average daily attendance (“ADA”) for such district by (2) a base revenue limit per unit of ADA. The revenue limit calculations were 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 was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments amounted to the difference between the District's revenue limit and its local property tax revenues. Districts which had local property tax revenues which exceeded its revenue limit entitlement were deemed “Basic Aid District” and received full funding from local property tax revenues and were entitled to keep those tax revenues which exceeded its revenue limit funding entitlement.
The fiscal year 2013-14 State budget package replaced the previous K-12 finance system with a new formula known as the Local Control Funding Formula (the “LCFF”). Under the LCFF, revenue limits and most state categorical programs were eliminated. School districts instead receive funding based on the demographic profile of the students they serve and gain greater flexibility to use these funds to improve outcomes of students. The LCFF creates funding targets based on student characteristics. For school districts and charter schools, the LCFF funding targets consist of grade span-specific base grants plus supplemental and concentration grants that reflect student demographic factors. The LCFF includes the following components:
• A base grant for each local education agency per unit of ADA, which varies with respect to different grade spans. The base grant is $2,375 more than the average revenue limit provided prior to LCFF implementation. The base grants will be adjusted upward each year to reflect cost-of-living increases. In addition, grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%,
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respectively, to cover the costs of class size reduction in grades K-3 and the provision of career technical education in grades 9-12.
• A 20% supplemental grant for English learners, students from low-income families and foster youth to reflect increased costs associated with educating those students.
• An additional concentration grant of up to 50% of a local education agency’s base grant, based on the number of English learners, students from low- income families and foster youth served by the local agency that comprise more than 55% of enrollment.
• An economic recovery target to ensure that almost every local education agency receives at least their pre-recession funding level, adjusted for inflation, at full implementation of the LCFF.
The LCFF was implemented for fiscal year 2013-14 and was phased in over a period of five fiscal years. Beginning in fiscal year 2013-14, an annual transition adjustment was required to be calculated for each school district, equal to each district’s proportionate share of the appropriations included in the State budget (based on the percentage of each district’s students who are low-income, English learners, and foster youth (“Targeted Students”), to close the gap between the prior-year funding level and the target allocation at full implementation of LCFF. In each year, districts had the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district’s funding gap. Full implementation occurred in fiscal year 2018-19 in connection with adoption of the State Budget for said fiscal year.
Funding levels used in the LCFF target entitlement calculations, not including any supplemental or concentration grant funding entitlements, for fiscal year 2020-21 are set forth in the following table. Full implementation of LCFF occurred in fiscal year 2018-19 in connection with adoption of the State Budget for said fiscal year.
Fiscal Year 2020-21 Base Grant* Under LCFF by Grade Span (Targeted Base Grant)
Entitlement Factors per ADA K-3 4-6 7-8 9-12 2019-20 Base Grants $7,702 $7,818 $8,050 $9,329 Statutory COLA (2.31%) $178 $181 $186 $215 2020-21 Base Grant Before Deficit Factor $7,880 $7,999 $8,236 $9,544 Deficit Factor Impact ($178) ($181) ($186) ($215) 2020-21 Base Grants After Deficit Factor $7,702 $7,818 $8,050 $9,329 Grade Span Adjustment Factors 10.4% -- -- 2.6% Grade Span Adjustment Amounts $801 -- -- $243 2020-21 Adjusted Base Grants† $8,503 $7,818 $8,050 $9,572
*Does not include supplemental and concentration grant funding entitlements. †Reflects 0% cost of living adjustment from fiscal year 2019-20. The proposed State budget for fiscal year 2021-22, if approved as presented, would backfill the cost of living increase owed to the District in fiscal year 2020-21. See below under the heading “STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS - Proposed 2021-22 State Budget.” Source: San Leandro Unified School District.
The LCFF includes a “hold harmless” provision which provides that a district or charter school will maintain total revenue limit and categorical funding at least equal to its 2012-13 level, unadjusted for changes in ADA or cost of living adjustments.
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The LCFF includes an accountability component. Districts are required to increase or improve services for English language learners, low income, and foster youth students in proportion to supplemental and concentration grant funding received. All school districts, county offices of education, and charter schools are required to develop and adopt local control and accountability plans, which identify local goals in areas that are priorities for the State, including pupil achievement, parent engagement, and school climate.
County superintendents review and provide support to the districts under their jurisdiction, and the Superintendent of Public Instruction performs a corresponding role for county offices of education. In addition, the Budget for fiscal year 2013-14 created the California Collaborative for Education Excellence to advise and assist school districts, county offices of education, and charter schools in achieving the goals identified in their plans. Under the LCFF and related legislation, the State will continue to measure student achievement through statewide assessments, produce an Academic Performance Index for schools and subgroups of students, determine the contents of the school accountability report card, and establish policies to implement the federal accountability system.
Basic Aid or Community Supported districts are school districts which have local property tax revenues which exceed such district’s funding entitlement under LCFF. As such, in lieu of State funding under LCFF, Basic Aid districts are entitled to keep the full share of local property tax revenues, even the amount which exceeds its funding entitlement under LCFF. The District’s funding formula is currently determined pursuant to LCFF, and not as a Basic Aid district.
District 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.
District accounting is organized on the basis of fund groups, with each group consisting of a separate set of self-balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the general fund which accounts for all financial resources not requiring a special fund placement. The District's fiscal year begins on July 1 and ends on June 30.
District expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Current taxes are considered susceptible to accrual. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories.
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
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(i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting, (iii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iv) required supplementary information.
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 June 30, 2020 Audited Financial Statements were prepared by Nigro & Nigro PC, Murrieta, California and are attached hereto as Appendix A. Audited financial statements for the District for prior fiscal years are on file with the District and available for public inspection at the District Business Office, John Swett Unified School District, 400 Parker Avenue, Rodeo, California 94572. The District has not requested, and the auditor has not provided, any review or update of such Financial Statements in connection with inclusion in this Official Statement. Copies of such financial statements will be mailed to prospective investors and their representatives upon written request to the District. This District may impose a charge for copying, mailing and handling.
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General Fund Revenues, Expenditures and Changes in Fund Balance. The District’s General Fund is the District’s primary operating fund. It accounts for all financial resources of the District except those required to be accounted for in another fund. The following table shows the audited income and expense statements for the District’s General Fund for the fiscal years 2015- 16 through 2019-20.
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Years 2015-16 through 2019-20 (Audited)(1) John Swett Unified School District
Audited Audited Audited Audited Audited Revenues 2015-16 2016-17 2017-18 2018-19 2019-20 LCFF sources $14,367,191 $15,838,586 $15,437,006 $14,805,051 $14,950,110 Federal revenues 871,875 827,155 857,178 724,470 750,842 Other state revenues 2,277,030 1,723,831 2,162,548 2,382,006 1,793,487 Other local revenues 898,829 1,312,433 964,636 1,031,565 1,121,896 Total revenues 18,414,925 19,702,005 19,421,368 18,943,092 18,616,335
Expenditures Instruction 11,591,762 11,606,214 11,503,147 11,274,562 12,318,076 Instructional supervision 199,691 204,847 185,346 226,759 242,775 Instructional library, media, & technology 143,843 146,533 159,209 166,917 167,663 School administration 1,400,486 1,310,947 1,326,440 1,275,400 1,082,747 Home to school transportation 347,983 400,171 363,992 391,612 295,894 Food Services ------28,634 All other pupil services 705,859 895,800 818,505 671,175 801,379 Data processing 422,160 501,548 443,978 339,948 338,877 All other general administration 1,339,617 1,380,404 1,269,000 1,431,792 1,440,090 Plant services 1,695,247 1,902,024 1,883,719 1,816,904 2,310,407 Ancillary services 125,655 119,465 101,063 140,300 112,833 Community services -- 30,783 50,278 42,416 42,933 Transfers of indirect costs ------(25,389) -- Intergovernmental Transfers 82,963 25,132 26,000 30,000 30,000 Total expenditures 18,055,266 18,523,868 18,130,677 17,782,396 19,212,308
Excess of revenues over/(under) expenditures 359,659 1,178,137 1,290,691 1,160,696 (595,973)
Other financing sources (uses) Operating transfers in 1,141 ------Operating transfers out ------Total other financing sources (uses) 1,141 ------
Net Change in Fund Balances 360,800 1,178,136 1,290,691 1,160,696 (595,973)
Fund Balance, July 1 761,779* 1,471,361** 2,649,497 3,940,188 5,100,884 Fund Balance, June 30 $1,122,579 $2,649,497 $3,940,188 $5,100,884 $4,504,911
(1) Totals may not foot due to rounding. * Adjusted for accounts receivable never realized. **As restated. Source: John Swett Unified School District - Audited Financial Statements.
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District Budget and Interim Financial Reporting
Budgeting and 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 Contra Costa 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 September 8. Pursuant to State law, the County Superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district's administration may submit budget revisions for governing board approval.
Subsequent to approval, the County Superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent will notify the district's governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) after also consulting with the district's board, develop and impose revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority.
A State law adopted in 1991 (“A.B. 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.
Interim Certifications Regarding Ability to Meet Financial Obligations. Under the provisions of AB 1200, each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the then-
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current fiscal year and, based on current forecasts, for the subsequent two fiscal years. The county office of education reviews the certification and issues the following types of certifications:
• Positive certification - the school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years.
• Negative certification - the school district will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year.
• Qualified certification - the school district may not meet its financial obligations for the current fiscal year or subsequent two 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. During the past five years, each of the District’s adopted budgets has been approved by the County Superintendent and the District has certified each of its interim reports as positive except for the 2016-17 second interim report, which was certified as qualified. The report was certified as qualified because the multi-year projections for the fiscal year 2018-19 reflected reserves below levels required by the State. The District’s most recent interim report, the second interim for fiscal year 2020-21, was certified as positive by the District’s Board of Trustees in March 2021.
Copies of the District’s budget, interim reports and certifications may be obtained upon request from the District Business Office, John Swett Unified School District, 400 Parker Avenue, Rodeo, California 94572. The District may impose charges for copying, mailing and handling.
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District’s Fiscal Year 2020-21 General Fund Budget and Projections. The following table shows a comparison of the Adopted Budget and the Second Interim Projections.
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Fiscal Year 2020-21 (Adopted Budget and Second Interim Projections)(1) John Swett Unified School District
Original Budgeted Second Interim Fiscal Year Fiscal Year Revenues 2020-21 2020-21(2) LCFF Sources $13,200,575 $14,078,395 Federal revenues 1,219,698 2,556,191 Other state revenues 1,470,277 1,613,591 Other local revenues 981,166 1,010,655 Total Revenues 16,874,716 19,258,833
Expenditures Certificated salaries 7,085,887 7,265,996 Classified salaries 2,602,680 2,499,295 Employee benefits 5,335,574 5,712,732 Books and supplies 823,341 974,331 Services and other operating expenditures 3,119,233 3,438,961 Capital outlay -- -- Other outgo (excluding indirect costs) (25,000) (30,000) Other outgo – transfers of indirect costs -- -- Total expenditures 18,991,715 19,921,316
Excess of revenues over/(under) expenditures (2,119,999) (662,482)
Net change in fund balance (2,119,999) (662,482)
Fund balance, July 1* 4,651,896 4,048,065 Fund balance, June 30 $2,531,897 $3,385,583
(1) Totals may not foot due to rounding. (2) Projected year totals. * Budgeting documents account for reserves outside of the general fund. Audited financial statements account for reserves within the general fund. As such, the fund balance as of July 1, 2020 shown on this table does not correspond directly with the ending balance on the previous table. Fund balances as set forth in Second Interim. Source: John Swett Unified School District Second Interim Report for Fiscal Year 2020-21.
District Reserves. The District’s ending fund balance is the accumulation of surpluses from prior years. This fund balance is used to meet the State’s minimum required reserve of 3% of expenditures, plus any other allocation or reserve which might be approved as an expenditure by the District in the future. The District maintains an unrestricted reserve which meets the State’s minimum requirements.
Under State law (Education Code Section 42127.01), there are certain restrictions on the amount of reserves that can be maintained by LCFF-funded districts with ADA over 2,500. State law provides that in a fiscal year immediately after a fiscal year in which the amount of moneys in the Public School System Stabilization Account is equal to or exceeds three percent of the combined total of General Fund revenues appropriated for school districts, the school district budget shall not contain a combined assigned or unassigned ending general fund balance that is in excess of ten percent of those funds. A county superintendent of schools may grant a school district under its jurisdiction an exemption from the requirements under certain circumstances.
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The District cannot predict if or when the foregoing reserve cap will be triggered, however it currently would not apply to the District because the District’s ADA is less than 2,500 students. However, the District cannot predict future additional changes to legal provisions governing reserves which could apply to the District.
Attendance - Revenue Limit and LCFF Funding
LCFF Funding Trends. As described herein, prior to fiscal year 2013-14, school districts in California derived most State funding based on a formula which considered a revenue limit per unit of average daily attendance (“ADA”). With the implementation of the LCFF, commencing in fiscal year 2013-14, school districts receive base funding based on ADA, and may also be entitled to supplemental funding, concentration grants and funding based on an economic recovery target. The following table sets forth recent total LCFF funding trends for the District.
AVERAGE DAILY ATTENDANCE AND STATE FUNDING UNDER LCFF Fiscal Years 2013-14 through2020-21 John Swett Unified School District
Total LCFF Fiscal Year ADA Funding(1) 2013-14 1,573 $9,844,631 2014-15 1,595 12,658,453 2015-16 1,647 14,591,449 2016-17 1,556 15,838,585 2017-18 1,425 15,437,007 2018-19 1,334 14,805,051 2019-20 1,327 14,950,110 2020-21(1) 1,324 14,078,395 ______(1) Projection. Based on 2019-20 ADA pursuant to State law as a result of the COVID-19 pandemic. Source: John Swett Unified School District.
Unduplicated Student Count - Over 55 Percent. The unduplicated count of the District’s students which are low-income, English learners and/or foster youth was approximately 63.8% in fiscal year 2019-20. As such, the District continues to qualify for both supplemental and concentration grant funding under LCFF. See “- Education Funding Generally.”
Revenue Sources
The District categorizes its general fund revenues into four sources, being LCFF, Federal Revenues, Other State Revenues and Local Revenues. Each of these revenue sources is described below.
LCFF Sources. District funding is provided by a mix of (1) local property taxes and (2) State apportionments of funding under the LCFF. Generally, the State apportionments will amount to the difference between the District's LCFF funding entitlement and its local property tax revenues.
Beginning in 1978-79, Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter-approved indebtedness) 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.
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The principal component of local revenues is the school district’s property tax revenues, i.e., the district’s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. Education Code Section 42238(h) itemizes the local revenues that are counted towards the base revenue limit before calculating how much the State must provide in equalization aid. Historically, the more local property taxes a district received, the less State equalization aid it is entitled to.
Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under Every Student Succeeds Act, the Individuals with Disabilities Education Act, and specialized programs such as Drug Free Schools.
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 other State revenues.
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 March 2000 requires that 50% of the increase in Lottery revenues over 1997-98 levels must be restricted to use on instruction material.
For additional discussion of State aid to school districts, see “-State Funding of Education.”
Other Local Revenues. In addition to local property taxes, the District receives additional local revenues from items such as interest earnings and other local sources.
District Retirement Systems
Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (“STRS”) and classified employees are members of the Public Employees' Retirement System (“PERS”). The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Underwriter.
STRS. All full-time certificated employees participate in STRS, a cost-sharing, multiple- employer contributory public employee retirement system. The plan provides retirement and disability benefits and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teacher’s Retirement Law. Due to the implementation of the Public Employee Pension Reform Act of 2013 (“PEPRA”) (see below summary), new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. For 2013-14, the required contribution rate for new members is 8.0%. "Classic" plan members are also required to contribute 8.0% of their salary. 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 STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2013-14 was 8.25% of annual payroll. The contribution
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requirements of the plan members are established by State statute. The District’s contributions to STRS for recent fiscal years are set forth in the following table. These contributions represent 100% of the required contribution for each year.
STRS Contributions John Swett Unified School District Fiscal Years 2013-14 through 2020-21
Fiscal Year Amount 2013-14 $504,665 2014-15 608,224 2015-16 807,653 2016-17 1,299,659 2017-18 1,044,852 2018-19 1,112,998 2019-20 1,213,814 2020-21(1) 2,169,867
(1) Second Interim Projections. Includes State on behalf contribution. Source: John Swett Unified School District.
Historically, employee, employer and State contribution rates did not vary annually to account for funding shortfalls or surpluses in the STRS plan. In recent years, the combination of investment earnings and statutory contributions were not sufficient to pay actuarially required amounts. As a result, the STRS defined benefit program showed an estimated unfunded actuarial liability of approximately $102.6 billion as of June 30, 2019 (the date of the last actuarial valuation). In connection with the State’s adoption of its fiscal year 2014-15 Budget, the Governor signed into law Assembly Bill 1469 (“AB 1469”), which represents a legislative effort to fund the unfunded actuarial obligation with respect to service credited members of the STRS Defined Benefit Program before July 1, 2014, within 32 years. AB 1469 addressed the funding gap by increasing contributions by employees, employers and the State. In particular, employer contribution rates are scheduled to increase through at least fiscal year 2020-21, from a contribution rate of 8.88% in fiscal year 2013-14 to 19.1% in fiscal year 2020-21. Thereafter, employer contribution rates will be determined by the STRS board to reflect the contribution required to eliminate unfunded liabilities by June 30, 2046.
The District’s employer contribution rates for fiscal years 2015-16, 2016-17, 2017-18, 2018-19, and 2019-20 were 10.73%, 12.58%, 14.43%, 16.28%, and 17.10% respectively. Projected employer contribution rates for school districts (including the District) for fiscal year 2020-21 through fiscal year 2022-23 are set forth in the following table.
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EMPLOYER CONTRIBUTION RATES (STRS) Fiscal Years 2020-21 through 2022-23
Employer Fiscal Year Contribution Rate(1) 2020-21(2) 16.15% 2021-22(2) 16.02 2022-23 18.10
(1) Expressed as a percentage of covered payroll. Rates may change based on actual experience and other factors. (2) Reflects changes to such rates included in the State’s 2020-21 Budget. Source: AB 1469.
PERS. All full-time and some part-time classified employees participate in PERS, an agent multiple-employer contributory public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State. PERS provides retirement, disability, and death benefits to plan members and beneficiaries. The District is part of a cost-sharing pool within PERS known as the “Schools Pool.” Benefit provisions are established by State statutes, as legislatively amended. Contributions to PERS are made by employers and employees. Each fiscal year, the District is required to contribute an amount based on an actuarially determined employer rate. The District’s employer contributions to PERS for recent fiscal years are set forth in the following table.
PERS Contributions John Swett Unified School District Fiscal Years 2011-12 through 2018-19
Fiscal Year Amount 2013-14 $188,581 2014-15 203,462 2015-16 238,630 2016-17 298,153 2017-18 334,539 2018-19 383,518 2019-20 433,668 2020-21(1) 469,719
(1) Second Interim Projections. Source: John Swett Unified School District.
Like the STRS program, the PERS program has experienced an unfunded liability in recent years. The PERS unfunded liability, on a market value of assets basis, was approximately $31.4 billion as of June 30, 2019 (the date of the last actuarial valuation). To address this issue, the PERS board has taken a number of actions. In April 2013, for example, the PERS board approved changes to the PERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. In addition, in April 2014, PERS set new contribution rates, reflecting new demographic assumptions and other changes in actuarial assumptions. In November 2015, PERS adopted a funding risk mitigation policy intended to incrementally lower its discount rate (its assumed rate of investment return) in years of good investment returns, help pay down the pension fund's unfunded liability, and provide greater predictability and less volatility in contribution rates for employers. In December 2016, PERS voted to lower its discount rate from
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the current 7.5% to 7.0% over the next subsequent three years according to the following schedule. PERS DISCOUNT RATE Fiscal Years 2018-19 through 2020-21
Fiscal Year Amount 2018-19 7.375% 2019-20 7.250 2020-21 7.000
Source: PERS.
The new rates and underlying assumptions, which are aimed at eliminating the unfunded liability of PERS in approximately 30 years, was implemented for school districts beginning in fiscal year 2016-17, with the costs spread over 20 years and the increases phased in over the first five years.
The District’s employer contribution rates for fiscal years 2015-16, 2016-17, 2017-18, 2018-19, and 2019-20 were 11.847%, 13.888%, 15.531%, 18.062%, and 19.721% respectively. Projected employer contribution rates for school districts (including the District) for fiscal year 2020-21 through fiscal year 2022-23 are set forth in the following table.
EMPLOYER CONTRIBUTION RATES (PERS) Fiscal Years 2020-21 through 2022-23(1)
Employer Fiscal Year Contribution Rate(2) 2020-21 20.700% 2021-22 22.840 2022-23 25.500
(1) The PERS board is expected to approve official employer contribution rates for each fiscal year shown during the immediately preceding fiscal year. (2) Expressed as a percentage of covered payroll. Rates have been reduced following adoption of the fiscal year 2020-21 State Budget. Source: PERS
California Public Employees’ Pension Reform Act of 2013. On September 12, 2012, the Governor signed into law the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”), which impacted various aspects of public retirement systems in the State, including the STRS and PERS programs. In general, PEPRA (i) increased the retirement age for public employees depending on job function, (ii) capped the annual pension benefit payouts for public employees hired after January 1, 2013, (iii) required public employees hired after January 1, 2013 to pay at least 50% of the costs of their pension benefits (as described in more detail below), (iv) required final compensation for public employees hired after January 1, 2013 to be determined based on the highest average annual pensionable compensation earned over a period of at least 36 consecutive months, and (v) attempted to address other perceived abuses in the public retirement systems in the State. PEPRA applies to all public employee retirement systems in the State, except the retirement systems of the University of California, and charter cities and charter counties whose pension plans are not governed by State law. PEPRA’s provisions went into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on or after that date; existing employees who are members of employee associations,
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including employee associations of the District, have a five-year window to negotiate compliance with PEPRA through collective bargaining.
PERS has predicted that the impact of PEPRA on employees and employers, including the District and other employers in the PERS system, will vary, based on each employer’s current level of benefits. As a result of the implementation of PEPRA, new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. 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.
With respect to the STRS pension program, employees hired after January 1, 2013 will pay the greater of either (1) fifty percent of the normal cost of their retirement plan, rounded to the nearest one-quarter percent, or (2) the contribution rate paid by then-current members (i.e., employees in the STRS plan as of January 1, 2013). The member contribution rate could be increased from this level through collective bargaining or may be adjusted based on other factors. Employers will pay at least the normal cost rate, after subtracting the member’s contribution.
The District is unable to predict the amount of future contributions it will have to make to PERS and STRS as a result of the implementation of PEPRA, and as a result of negotiations with its employee associations, or, notwithstanding the adoption of PEPRA, resulting from any legislative changes regarding the PERS and STRS employer contributions that may be adopted in the future.
Additional Information. Additional information regarding the District’s retirement programs is available in Note 11 to the District’s audited financial statements attached hereto as APPENDIX B. In addition, 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; and (ii) PERS, 400 Q Street, Sacramento, California 95811. More information regarding STRS and PERS can also be obtained at their websites, www.calstrs.com and www.calpers.ca.gov, respectively. The references to these Internet websites are shown for reference and convenience only and the information contained on such websites is not incorporated by reference into this Official Statement. The information contained on these websites may not be current and has not been reviewed by the District or the Underwriter for accuracy or completeness.
Other Post-Employment Retirement Benefits
Plan Description. The John Swett School District’s defined benefit OPEB plan, John Swett Unified School District Retiree Benefit Plan (the “Plan”) is described below. The Plan is a single employer defined benefit plan administered by the district. As of June 30, 2020, there were 126 active plan members and 65 retirees and beneficiaries receiving benefits, for total membership in the plan of 185.
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Benefits Provided. The eligibility requirements and benefits provided by the Plan are as follows: Certificated Classified Benefit types provided Medical and dental Medical and dental* Duration of Benefits To age 65 To age 65 Required Service 10 years 20 years Minimum Age 55 55 Dependent Coverage Yes Yes District Contribution % 100% to cap 100% to cap District Cap Kaiser Active
*Confidential; and management also receive District-paid vision benefits and only require 8 years of service Source: District Audited Financial Statement.
Contributions. The contribution requirements of Plan members and the John Swett Unified School District are established and may be amended by the John Swett Unified School District. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement 75.
Actuarial Assumptions and Other Inputs. The District’s total OPEB liability of $6,265,920 was measured as of June 30, 2020 and was determined by an actuarial valuation as of that date using the following certain actuarial assumptions, applied to all periods included in the measurement, including: inflation 2.75%, salary increases 2.75%, and healthcare cost trend rates 4.00% for 2020.
Changes in OPEB Liability of the District. The changes in OPEB liability of the District as of June 30, 2020, is shown in the following table.
CHANGES IN TOTAL OPEB LIABILITY John Swett Unified School District Total OPEB Liability Balance July 1, 2019 $4,918,240 Changes for the year: Service Cost $405,425 Interest on total OPEB liability 175,878 Diff: Expected and Actual (335,280) Changes in Assumptions 1,293,366 Benefit payments (191,709) Net change in total OPEB liability 1,347,680 Balance June 30, 2020 $6,265,920
Source: John Sweet Unified School District Audit Report.
OPEB Expense. For the year ended June 30, 2020, the District recognized an OPEB expense of $700,596.
For more information regarding the District’s OPEB and assumptions used in its most recent actuarial study, see Note 6 of Appendix A to the Official Statement.
Existing Debt Obligations
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In addition to long term debt relating to pension plans and OPEB, the District has outstanding issues of general obligation bonds and refunding bonds currently outstanding, as summarized in the following table. The District has never defaulted on the payment of principal or interest on any of its indebtedness. See also, “DEBT SERVICE SCHEDULES” in the front section of this Official Statement.
SUMMARY OF OUTSTANDING GENERAL OBLIGATION BOND DEBT John Swett Unified School District
Amount of Outstanding Issue Date Series Original Issue March 1, 2021 09/17/2009 Election of 2008, Series A $6,001,174.85 $266,174.85 10/14/2010 2010 Refunding* 8,990,000.00 5,040,000.00 07/07/2011 Election of 2008 Series C 11,963,754.69 6,550,415.23 09/15/2011 Election of 2008 Series C-1* 1,824,583.20 1,824,583.20 06/14/2017 Election of 2016, Series A-1 20,000,000.00 19,145,000.00 06/14/2017 Election of 2016, Series A-2 22,000,000.00 21,775,000.00 11/26/2019 2019 Refunding 3,165,000.00 2,915,000.00 11/26/2019 Election of 2016, Series B 11,000,000.00 10,520,000.00 Total $84,944,512.74 $68,036,173.28
*Certain maturities will be refunded with the proceeds of the Bonds described herein. Source: John Swett Unified School District; Financial Advisor.
Investment of District Funds
In accordance with Government Code Section 53600 et seq., the 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. See “APPENDIX G - CONTRA COSTA COUNTY INVESTMENT POLICY.”
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 LCFF funding, which is derived from a combination of State funds and local property taxes (see “—Attendance-Revenue Limit and LCFF Funding” above). State funds typically make up the majority of a district’s LCFF funding. School districts also receive funding from the State for some specialized programs such as special education.
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. The District cannot predict how education funding may further be changed in the future, or the state of the economy which in turn can impact the amounts of funds available from the State for education funding. See “STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS” below.
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STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS
State Funding of Education
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. School districts in California receive operating income primarily from two sources: (1) the State funded portion which is derived from the State’s general fund, and (2) a locally funded portion, being a district’s share of the 1% general ad valorem tax levy authorized by the California Constitution (see “DISTRICT FINANCIAL INFORMATION – Education Funding Generally” above). 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 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.
As described below in the summaries of State budgeting documents and commentary of the LAO and the State Department of Finance, the COVID-19 pandemic is expected to have a material impact on State revenues and appropriations.
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 Underwriter or the County 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
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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 (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 or the Underwriter and is not incorporated herein by reference.
• The California State Treasurer Internet home page at www.treasurer.ca.gov, under the heading “Bond Finance” and sub-heading “-Public Finance Division”, (1) 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, and (2) also posts various financial documents for the State under the “-Financial Information” link.
• 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 headings “The Budget” and “State Budget Condition.”
Prior Years’ Budgeting Techniques. Declining revenues and fiscal difficulties which arose in the State commencing in fiscal year 2008-09 led the State to undertake a number of budgeting strategies, which had subsequent impacts on local agencies within the State. These techniques included the issuance of IOUs in lieu of warrants (checks), the enactment of statutes deferring amounts owed to public schools until a later date in the fiscal year or even into the following fiscal year (known as statutory deferrals), trigger reductions, which were budget cutting measures which were implemented or could have been implemented if certain State budgeting goals were not met, and the dissolution of local redevelopment agencies in part to make available additional funding for local agencies. As a result of the COVID-19 pandemic and subsequent economic recession, budget-cutting strategies such as those used in recent years are being used and may continue to be used in the future during a period of budgetary strain.
2013-14 State Budget: Significant Change in Education Funding. As described previously herein, the 2013-14 State Budget and its related implementing legislation enacted significant reforms to the State’s system of K-12 education finance with the enactment of the LCFF. Significant reforms such as the LCFF and other changes in law may have significant impacts on the District’s finances.
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2020-21 State Budget
Introduction and Background. The Governor signed the fiscal year 2020-21 State Budget (the “2020-21 State Budget”) on June 29, 2020. The 2020-21 State Budget notes that the COVID-19 pandemic has impacted every sector of the State's economy and has caused record high unemployment, and further action from the federal government is needed as a result of the crisis. The Governor is pursuing $1 trillion in flexible federal aid to state and local governments across the country, which support will be critical to mitigate the effects of the public health crisis, encourage recovery, and support persons in need.
At the time of the Governor's proposed 2020-21 State Budget in January, the State was projecting a surplus of $5.6 billion. At the time of the May Revision with respect to the 2020-21 State Budget, the State had projected a budget deficit of $54.3 billion. The 2020-21 State Budget includes measures to close the gap and bring the State’s resources and spending into balance while preserving reserves for future years.
To reduce the structural deficit in the coming years, the 2020-21 State Budget sustains the January 1, 2022 suspension of several ongoing programmatic expansions that were made in the 2019 Budget Act. In addition, the 2020-21 State Budget accelerates the suspension of most Proposition 56 (2016 tobacco tax measure) tax rate increases to July 1, 2021. Despite these measures, the State forecasts an operating deficit of $8.7 billion in 2021-22, after accounting for reserves.
Closing the Budget Gap. The 2020-21 State Budget uses the following strategies to close the budget gap:
• Reserve Draw Down: Draws down $8.8 billion in reserves, including from the State’s Rainy Day Fund ($7.8 billion), the Safety Net Reserve ($450 million), and all of the funds in the Public School System Stabilization Account.
• Triggers: Includes $11.1 billion in funding reductions and deferrals that will be restored if at least $14 billion in federal funds are received by October 15, 2020. If the State receives a lesser amount between $2 billion and $14 billion, the reductions and deferrals will be partially restored. The trigger includes $6.6 billion in deferred funding for schools.
• Federal Funds: Relies on $10.1 billion in federal funds that provide State general fund relief, including $8.1 billion already received.
• Revenues: Temporarily suspends the use of net operating losses for medium and large businesses and temporarily limits to $5 million the amount of business incentive credits a taxpayer can use in any given tax year. These short-term limitations will generate $4.4 billion in new revenues in the 2020-21 fiscal year.
• Borrowing/Transfers/Deferrals: Relies on $9.3 billion in special fund borrowing and transfers, as well as other deferrals for K-14 schools. Approximately $900 million in additional special fund borrowing is associated with the reductions to employee compensation and is contained in the trigger.
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• Other Solutions: Cancelling multiple program expansions and anticipating increased government efficiencies, higher ongoing revenues above the May Revision forecast and lower health and human services caseload costs than the May Revision estimated.
General Budget Highlights. Certain highlights of the 2020-21 State Budget are:
Emergency Response: COVID-19 and other emergency response efforts included in the 2020-21 State Budget are:
• Responding to COVID-19: The State expects to receive over $72 billion in federal assistance to State programs, of which unemployment insurance represents about $52 billion of this total. Under the CARES Act, the State received $9.5 billion for various uses including $4.4 billion to mitigate K-14 learning loss. The amount of $5.9 million of General Fund spending for 2020-21 and $4.8 million ongoing is allocated to support the State Department of Health’s response to COVID-19.
• Enhancements to Emergency Responses and Preparedness: $117.6 million is allocated to the State Office of Emergency Services to enhance emergency preparedness and response capabilities, including with respect to power outages, earthquakes, wildfires and cybersecurity.
• Forestry and Fire Protection: $90 million is allocated to enhance CAL FIRE’s fire protection capabilities, including for wildfire prediction and modeling technology.
Revenue Solutions. Revenue measures which are expected to net $4.3 billion in 2020- 21, $3.1 billion in 2021-22 and $1.3 billion in 2022-23, include:
• Certain Tax Measure Extensions. Extending certain tax measures including certain sales tax exemptions through the end of 2022-23, extending the carryover period for film credits from 6 years to 9 years, and extending the current exemption from the minimum tax for first year corporations to first year limited liability corporations, partnerships, and limited liability partnerships. • Expansion of Earned Income Tax. Expanding the Earned Income Tax Credit to certain taxpayers. • Changes to Tax Laws and Sales Tax. Changes in tax law including suspending net operating losses for 2020, 2021, and 2022 for medium and large businesses, and limiting certain business incentive tax credits, and with respect to closing the sale tax loss gap, requiring used car dealers to remit sales tax to the Department of Motor Vehicles with registration fees.
Recovery for Small Businesses. The 2020-21 State Budget includes a waiver of the minimum franchise tax for the first year of operation, $100 million budgeted for the State’s small business loan program, $25 million to provide capital to enable the origination of more loans in underbanked communities, and adding funding of $758,000 ongoing for positions relating to small business support.
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Housing. Up to $500 million is allocated in State tax credits for low-income housing in 2021, under certain conditions. The 2020-21 State Budget provides $331 million in National Mortgage Settlement funds to help prevent avoidable foreclosures and evictions, and $8.3 billion across multiple departments and programs to address housing throughout the State.
K-12 Education Funding Summary. For K-12 education funding, the 2020-21 State Budget provides for funding under Proposition 98 of $70.9 billion, which is more than $10 billion below the minimum guarantee contained in the State’s 2019-20 budget. For K-12 schools, this results in Proposition 98 per pupil spending of $10,654 in 2020-21, which is a $1,339 decrease over the 2019-20 per pupil spending levels. Additionally, in the same period, per pupil spending from all State, federal, and local sources decreased by approximately $542 per pupil to $16,881.
Efforts to mitigate the impact of the decline in K-12 funding in the 2020-21 State Budget include:
Deferrals: $1.9 billion of LCFF apportionment deferrals in 2019-20, growing to $11 billion LCFF apportionment deferrals in 2020-21. These deferrals will allow LCFF funding to remain at 2019-20 levels in both fiscal years. The statutory LCFF cost-of- living adjustment is suspended in 2020-21. Of the total deferrals, $5.8 billion will be triggered off in 2020-21 if the federal funding becomes available.
Learning Loss Mitigation: A one-time investment of $5.3 billion ($4.4 billion federal Coronavirus Relief Fund, $539.9 million Proposition 98 General Fund, and $355.2 million federal Governor’s Emergency Education Relief Fund) to local educational agencies to address learning loss related to COVID-19 school closures. Funds will be allocated to local educational agencies on an equity basis, with an emphasis on ensuring the greatest resources are available to local educational agencies serving students with the greatest needs.
Supplemental Appropriations: In 2019-20 and 2020-21, the Proposition 98 funding level drops below the target funding level by a total of approximately $12.4 billion. To accelerate the recovery from this funding reduction, the 2020-21 State Budget provides supplemental appropriations above the constitutionally-required Proposition 98 funding level, beginning in 2021-22, and in each of the next several fiscal years, in an amount equal to 1.5% of State general fund revenues per year, up to a cumulative total of $12.4 billion.
Revised PERS and STRS Contributions. To provide local educational agencies with increased fiscal relief, the 2020-21 State Budget redirects $2.3 billion appropriated in the 2019 Budget Act to STRS and PERS for long-term unfunded liabilities to reduce employer contribution rates in 2020-21 and 2021-22. This reallocation will reduce the STRS employer rate from 18.41% to approximately 16.15% in 2020-21 and from 17.9% to 16.02% in 2021-22. The PERS Schools Pool employer contribution rate will be further reduced from 22.67% to 20.7% in 2020-21 and from 24.6% to 22.84% in 2021-22.
Federal Funds. The 2020-21 State Budget appropriates $1.6 billion in federal Elementary and Secondary School Emergency Relief funds that the State was recently awarded. Of this amount, 90% ($1.5 billion) will be allocated to local educational
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agencies in proportion to the amount of Title I-A funding they receive to be used for COVID-19 related costs. The remaining 10% ($164.7 million) is available for certain COVID-19 related State-level activities, such as providing additional funding for student meals and social services.
Special Education. The 2020-21 State Budget increases special education base rates to $625 per pupil pursuant to a new funding formula, apportioned using the existing hold harmless methodology, and provides $100 million to increase funding for students with low-incidence disabilities. Additional federal funding received by the State is also allocated to various special education programs.
Average Daily Attendance. To ensure funding stability regardless of the instructional model undertaken in the 2020-21 academic year, the 2020-21 State Budget includes a hold harmless for the average daily attendance used to calculate school funding for all local educational agencies and includes requirements for distance learning to ensure that, when in-person instruction is not possible, students continue to receive access to a quality education via distance learning.
In addition, the 2020-21 State Budget includes certain employee protection terms to ensure the continuity of employment for essential school staff during the COVID-19 pandemic. As such, the 2020-21 State Budget includes the suspension of the August 15, 2020, layoff window for teachers and other non-administrative certificated staff, and the suspension of layoffs for classified staff working in transportation, nutrition, and custodial services from July 1, 2020 through June 30, 2021. The 2020-21 State Budget also includes the intent of the State Legislature that school districts, community college districts, joint powers authorities, and county offices of education retain all classified employees in the 2020-21 fiscal year.
Proposed 2021-22 Budget
On January 8, 2021, Governor Gavin Newsom submitted his $227.2 billion 2021-22 State Budget proposal (the “2021-22 Proposed Budget”) to the Legislature. The Governor has called for immediate legislative action to provide rapid relief to individuals, families and small businesses hit hardest by the COVID-19 pandemic, including direct payments to low-income workers; funding for grants to small businesses and small non-profit cultural institutions disproportionately impacted by the pandemic fee relief for small businesses including personal services and restaurants; funds to support and accelerate safe returns to in-person instruction starting in February 2021; and an increase in the State’s minimum wage to $14 per hour.
Reflecting an improved economic outlook and a $15 billion revenue surplus since the 2020 Budget Act, highlights of the 2021-22 Proposed Budget are:
• $85.8 billion in Proposition 98 funding for K-12 schools and community colleges, including $2 billion to support and accelerate safe returns to in-person instruction, $4.6 billion to help students bounce back from the impacts of the pandemic and $400 million for school-based mental health services. See “– K-14 Education Spending” below.
• $372 million to speed up administration of vaccines across all of California’s 58 counties and a $14 billion investment in the State’s economic recovery, including direct cash supports of $600 to millions of Californians through the Golden State
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Stimulus, extending new protections and funding to help keep people in their homes and investing in relief grants for small businesses.
• Budget reserves of $34 billion, including $15.6 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies; $450 million in the Safety Net Reserve; $3 billion in the Public School System Stabilization Account; and an estimated $2.9 billion in the state’s operating reserve.
• In order to pay down the State’s retirement liabilities, the 2021-22 Proposed Budget includes $3 billion in additional payments required by Proposition 2 in 2021-22 and nearly $6.5 billion over the next three years.
K-14 Education Spending. The 2021-22 Proposed Budget’s improved revenue estimate results in the highest funding level ever at $85.8 billion for K-12 schools and community college districts under Proposition 98, representing an increased investment of $14.9 billion in K-12 schools and community colleges above the level funded in the 2020 Budget Act. The Proposition 98 funding levels for the 2019-20 and 2020-21 fiscal years increased from 2020 Budget Act levels by $1.9 billion and $11.9 billion, respectively, due almost exclusively to increased General Fund revenues in all fiscal years. Reflecting the changes to Proposition 98 funding levels noted above, total K-12 per-pupil expenditures from all sources are projected to be $18,837 in 2020-21 and $18,000 in 2021-22—the highest levels ever (K-12 Education Spending Per Pupil). The decrease between 2020-21 and 2021-22 reflects the significant allocation of one-time federal funds in 2020- 21. Ongoing K-12 per-pupil expenditures of Proposition 98 funds are $12,648 in 2021-22, an increase of $1,994 per pupil over the level provided in the 2020 Budget Act.
The 2021-22 Proposed Budget also includes $4.6 billion Proposition 98 General Fund revenues for extending learning time, including summer school programs and other strategies to address learning loss related to the pandemic. The 2021-22 Proposed Budget continues to commit $2.3 billion General Fund one-time in recognition of the additional costs schools face as they respond to the pandemic. The 2021-22 Proposed Budget directs a significant portion of additional funding to paying down nearly two-thirds of the deferrals implemented in 2020-21 (see below paragraph entitled “-Deferrals” for more details) and provides a 3.84% cost-of-living adjustment to the Local Control Funding Formula. The significant growth in capital gains and overall General Fund revenue growth also triggers deposits of roughly $3 billion into the Public School System Stabilization Account, resulting in a statutory cap of 10 percent on local school district reserves beginning in 2022-23.
Funds to Implement In-Person Learning. The 2021-22 Proposed Budget includes $2 billion of one-time Proposition 98 funding available beginning in February 2021, to augment resources for schools to offer in-person instruction safely. This funding will be available on a per-pupil basis for all county schools, school districts, and charter schools that are open for in-person instruction by specified dates. For schools that continue offering or begin offering in-person instruction for at least all TK-2nd grade students, all students with disabilities, youth in foster care, homeless youth, and students without access to technology or high-speed Internet by February 16, and all 3rd-6th grade students by March 15, base grant amounts will be $450, increasing to more than $700 per pupil for schools with a high enrollment of low-income students, youth in foster care, and English language learners. Schools with later start dates will qualify for a proportionally lower base grant, except those in counties with high rates of community spread. Schools in counties with high rates of community spread will be eligible for the full February grant amount if they open for in-person instruction pursuant to state and local health guidance once their rates of community spread
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sufficiently decline. Funds may be used for any purpose that supports in-person instruction, including enhancing and expanding COVID-19 testing, purchasing personal protective equipment, improving ventilation and the safety of indoor or outdoor learning spaces, teacher or classified staff salaries for those providing and supporting in-person instruction, and social and mental health support services provided in conjunction with in-person instruction. On March 4, 2021, the Governor signed into law Assembly Bill 86 (“AB 86”), urgency legislation which provides approximately $6.6 billion to accelerate the return of in-person school instruction and expand student support. Specifically, AB 86 provides $2 billion for in-person instruction grants to local educational agencies (with the exception of non-classroom based charter schools and independent study programs) that can be used for, among other things, personal protective equipment, ventilation upgrades and COVID-19 testing. The remaining $4.6 billion is allocated for supplemental instruction and support for social and emotional well-being.
Federal Funds. The recent federal COVID-19 relief bill provides $54.3 billion Elementary and Secondary Schools Emergency Relief Fund (“ESSER”) for public K-12 schools and $4 billion Governor’s Emergency Education Relief Fund (“GEER”) for both public and private pre- kindergarten through higher education institutions. Based on prior allocations, the 2021-22 Proposed Budget projects that California could receive more than $6 billion in ESSER funds and $400 million in GEER funds.
LCFF Funding. Due to a significant reduction in available revenues, the 2020 Budget Act did not provide a statutory cost-of-living adjustment for the LCFF in 2020-21. To make up for this, the Proposed 2021-22 Budget funds the LCFF in 2021-22 with both the 2020-21 cost-of-living adjustment (2.31%) and the 2021-22 cost-of-living adjustment (1.5%), creating a compounded combined cost-of-living adjustment of 3.84%, and increasing ongoing LCFF funding by $2 billion Proposition 98 General Fund, when adjusted for declining ADA. This increase brings total LCFF funding to $64.5 billion, and funds all local educational agencies at their full LCFF target level.
Deferrals. The 2020-21 State Budget included deferrals of LCFF apportionments, in the amounts of $1.9 billion in 2019-20, growing to more than $11 billion in 2020-21. The Proposed 2021-22 Budget pays off the full K-12 deferral in 2019-20 and $7.3 billion of the K-12 deferral in 2020-21, leaving an ongoing K-12 deferral balance of only $3.7 billion in 2021-22. As a result, local educational agencies will experience only a few weeks of delay in receiving apportionment in 2021-22 (as opposed to ten-month deferrals in 2020-21), impacting only the June 2022 apportionment, which will be delayed into July 2022.
PERS and STRS Contributions. For 2021-22, STRS will apply $820 million to reduce the employer contribution rate from 18.1% to approximately 15.92%, and PERS will apply $330 million to reduce the Schools Pool employer contribution rate from 24.9% to 23%.
School Facilities. The Proposed 2021-22 Budget continues to allocate $1.5 billion of Proposition 51 bond funds to support school construction projects, which is more than double the amount allocated in 2018-19.
Higher Education. The Proposed 2021-22 Budget proposes a General Fund increase of $786 million for the University of California and the California State University with an expectation that they focus on measurable goals to address equity gaps, further maintain online educational opportunities and expand dual admissions and other innovative strategies that reduce time to degree completion. The Proposed 2021-22 Budget also assumes resident tuition and fees remain flat in 2021-22.
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Disclaimer Regarding State Budgets
The execution of State budgets including the above may be affected by numerous factors, including but not limited to: (i) shifts in costs from the federal government to the State, (ii) national, State and international economic conditions, (iii) litigation risks associated with proposed spending reductions, (iv) rising health care costs and/or other unfunded liabilities, such as pension or OPEB, and (v) numerous other factors, all or any of which could cause the revenue and spending projections included in such budgets to be unattainable. The current State budget is expected to be impacted by the COVID-19 emergency described herein. The District cannot predict the impact that the 2020-21 State Budget or subsequent State Budgets, will have on its own finances and operations. However, the 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.
The State has not entered into any contractual commitments with the District, the County, the Underwriter or the Owners of the Bonds to provide State Budget information to the District or the owners of the Bonds. Although they believe the sources of information listed below are reliable, neither the District nor the Underwriter assumes any responsibility for the accuracy of the State Budget information set forth or referred to in this Official Statement or incorporated herein.
Availability of State Budgets
The complete adopted State budgets and related information are available from the California Department of Finance website at www.ebudget.ca.gov. Impartial analyses of these documents are published by the Legislative Analyst Office, and can be accessed at www.lao.ca.gov/budget. The District can take no responsibility for the continued accuracy of internet addresses referenced herein or for the accuracy, completeness or timeliness of information posted on these sites, and such information is not incorporated in this Official Statement by these references. The information referred to above should not be relied upon when making an investment decision with respect to the Bonds.
Uncertainty Regarding Future State Budgets
The District cannot predict what actions will be taken in future years by the State legislature or the Governor to address the State’s current or future revenues and expenditures or possible 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 own budgets.
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CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS
Principal and accreted value of and interest on the 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, 39 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 Bonds. The tax levied by the County for payment of the Bonds was approved by the District's voters in compliance with Article XIIIA and all applicable laws.
Constitutionally Required Funding of Education
The State Constitution requires that from all State revenues, there shall be first set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. School districts receive a significant portion of their funding from State appropriations. As a result, decreases and increases in State revenues can significantly affect appropriations made by the State Legislature to school districts.
Article XIIIA of the California Constitution
Basic Property Tax Levy. 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. All of the District’s outstanding general obligation bonds were authorized pursuant to clause (iii) above. 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 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.
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
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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.
Article XIIIB of the California Constitution
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.
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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. However, in the event that a school district’s revenues exceed its spending limit, the district may in any fiscal year increase its appropriations limit to equal its spending by borrowing appropriations limit from the State.
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.
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.
Articles XIIIC and XIIID
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
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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.
While the provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District (thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District), the District does not believe that Proposition 218 will directly impact the revenues available to pay debt service on the Bonds.
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 XIIIB
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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 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
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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 39
On November 7, 2000, California voters approved an amendment (commonly known as “Proposition 39”) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, community college districts, including the District, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property. Prior to the approval of Proposition 39, property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to acquire or improve real property that receive two- thirds voter approval after July 1, 1978.
The 55% vote requirement authorized by Proposition 39 applies only if the local bond measure presented to the voters includes: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55 percent of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for an elementary school district or high school district), or $25 (for a community college district), per $100,000 of taxable property value. These requirements are not part of this proposition and can be changed with a majority vote of both houses of the Legislature and approval by the Governor.
Proposition 30 and Proposition 55
Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as “Proposition 30”), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, 2016. Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, 2017. This
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excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $500,000 but less than $600,000 for joint filers and over, $340,000 but less than $408,000 for head-of- household filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $600,000 but less than $1,000,000 for joint filers and over $408,000 but less than $680,000 for head-of-household filers), and (iii) 3% for taxable income over $500,000 for single filers (over $1,000,000 for joint filers and over $680,000 for head-of-household filers).
The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See “-Proposition 98” and “-Proposition 111” above. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the “EPA”). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to school districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs.
The California Children’s Education and Health Care Protection Act of 2016, also known as Proposition 55, was a constitutional amendment initiative that was approved on the November 8, 2016 general election ballot in California. Proposition 55 extends the increases to personal income tax rates for high-income taxpayers that were approved as part of Proposition 30 through 2030, instead of the scheduled expiration date of December 31, 2018. Tax revenue received under Proposition 55 is to be allocated 89% to K-12 schools and 11% to community colleges. Proposition 55 did not extend the sales tax increases of Proposition 30.
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
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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 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.
California Senate Bill 222
Senate Bill 222 (“SB 222”) was signed by the California Governor on July 13, 2015 and became effective on January 1, 2016. SB 222 amended Section 15251 of the California Education Code and added Section 52515 to the California Government Code to provide that voter-approved general obligation bonds which are secured by ad valorem tax collections such as the Bonds are secured by a statutory lien on all revenues received pursuant to the levy and collection of the property tax imposed to service those bonds. Said lien shall attach automatically and is valid and binding from the time the bonds are executed and delivered. The lien is enforceable against the issuer, its successors, transferees, and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for any further act. The effect of SB 222 is the treatment of general obligation bonds as secured debt in bankruptcy due to the existence of a statutory lien.
Proposition 19
On November 3, 2020, State voters approved Proposition 19, a legislatively referred constitutional amendment (“Proposition 19”), which amends Article XIIIA to (i) expand as of April 1, 2021 special rules that govern the transfer of a residential property’s tax base value to a replacement residence for homeowners that are over the age of 55, severely disabled, or whose property has been impacted by wildfire or natural disaster, when they buy a different home anywhere within the State, (ii) narrows as of February 16, 2021 existing special rules for the valuation of inherited real property due to a transfer between family members, and (iii) allocates most resulting State revenues and savings (if any) to fire protection services and reimbursing local
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governments for taxation-related changes. The District cannot predict whether the implementation of Proposition 19 will increase, decrease or have no overall impact on the District’s assessed values.
Future Initiatives
Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 98, 22, 26, 30 and 39 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.
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APPENDIX C
DEMOGRAPHIC INFORMATION FOR THE CITY OF HERCULES AND CONTRA COSTA COUNTY
The following information concerning the City of Hercules (the “City”) and Contra Costa County (the “County”) is included only for the purpose of supplying general information regarding the area of the District. The Bonds are not a debt of the City, the County, the State of California (the “State”) or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor.
The historical data and results presented in the tables that follow may differ materially from future results as a result of economic or other factors. For more information on the impact of the COVID-19 pandemic, see “SECURITY FOR THE BONDS – Disclosure Relating to COVID-19 Global Pandemic” herein. See also references to COVID-19 in the section entitled “PROPERTY TAXATION”, and in APPENDIX B under the heading “DISTRICT GENERAL INFORMATION” and “STATE FUNDING OF EDUCATION; RECENT STATE BUDGETS.”
General Information
The City. The City of Hercules (the “City”) is located in Contra Costa County. Formerly one of many small bedroom-communities along the I-80 corridor in Western Contra Costa County, the City is undergoing a metamorphosis into a transit-oriented, mixed-use town. It is located about 20 miles northeast of San Francisco, and approximately a half-hour drive (without traffic) from either Oakland or San Francisco. Neighboring towns are Pinole to the southwest, Rodeo to the north, as well as Martinez to the east via California State Highway 4.
The City is home to a small amount of light manufacturing and high-tech industry (most notably Bio-Rad Laboratories, a Fortune 1000 company) as well as various commercial and retail activities. Projects to develop mixed-use new development have begun in the waterfront district and around the intersection of I-80 and CA-4. The waterfront redevelopment includes the historic preservation and integration of a handful of buildings, some dating to Hercules's founding as a company town (established as the home of California Powder Works in 1881).
The County. The District is located in the County, one of the nine counties in the San Francisco-Oakland Bay Area. Situated northeast of San Francisco, the County is bounded by San Francisco and San Pablo Bays, the Sacramento River Delta, and by Alameda County on the south. Ranges of hills effectively divide the County into three distinct regions. The western portion, with its access to water, contains much of the County’s heavy industry. The central section is rapidly developing from a suburban area into a major commercial and financial headquarters center. The eastern part is also undergoing substantial change, from a rural, agricultural area, to a suburban region. The County has extensive and varied transportation facilities-ports accessible to ocean-going vessels, railroads, freeways, and rapid transit lines connecting the area with Alameda County and San Francisco.
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Population
The following table lists population figures for the County and the State from 2016 through 2020.
CONTRA COSTA COUNTY AND STATE OF CALIFORNIA Population Estimates - Calendar Years 2016 Through 2020
2016 2017 2018 2019 2020 Contra Costa County Antioch 112,177 112,280 113,266 113,901 112,520 Brentwood 59,484 61,383 62,140 63,662 65,118 Clayton 11,234 11,342 11,631 11,653 11,337 Concord 127,926 128,282 129,493 129,889 130,143 Danville 43,458 44,048 45,103 45,270 43,876 El Cerrito 24,455 24,674 25,192 25,459 24,953 Hercules 25,512 26,185 25,964 26,224 25,530 Lafayette 25,078 25,416 26,077 26,327 25,604 Martinez 37,415 37,831 38,406 38,490 37,106 Moraga 16,776 16,866 16,886 16,939 16,946 Oakley 40,459 41,116 40,949 41,759 42,461 Orinda 18,821 19,012 19,331 19,475 19,009 Pinole 18,924 19,101 19,458 19,498 19,505 Pittsburg 70,233 71,342 72,006 72,541 74,321 Pleasant Hill 34,745 34,944 34,969 35,055 34,267 Richmond 109,794 110,114 110,128 110,436 111,217 San Pablo 31,126 31,383 31,737 31,817 31,413 San Ramon 79,567 81,354 83,179 83,957 83,118 Walnut Creek 69,736 70,558 69,498 70,121 70,860 Balance of County 170,359 172,082 172,466 173,406 174,257 County Total 1,127,279 1,139,313 1,147,879 1,155,879 1,153,561
State of California 39,179,627 39,500,973 39,740,508 39,927,315 39,782,870
Source: State of California, Department of Finance, Demographic Research Unit.
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Employment and Industry
The District is included in the Oakland-Hayward-Berkeley Metropolitan Division (“MD”). The unemployment rate in the Oakland-Hayward-Berkeley MD was 7.9 percent in October 2020, down from a revised 9.2 percent in September 2020, and above the year-ago estimate of 2.8 percent. This compares with an unadjusted unemployment rate of 9.0 percent for California and 6.6 percent for the nation during the same period. The unemployment rate was 7.9 percent in Alameda County, and 7.9 percent in Contra Costa County.
The table below lists employment by industry group for Alameda and Contra Costa Counties for the years 2015 to 2019.
OAKLAND-HAYWARD-BEKELEY MD (Alameda and Contra Costa Counties) Annual Averages Civilian Labor Force, Employment and Unemployment, Employment by Industry (March 2019 Benchmark)
2015 2016 2017 2018 2019 Civilian Labor Force (1) 1,370,600 1,394,600 1,412,200 1,412,800 1,406,100 Employment 1,304,200 1,334,000 1,359,500 1,369,500 1,364,200 Unemployment 66,400 60,700 52,700 43,200 41,900 Unemployment Rate 4.8% 4.3% 3.7% 3.1% 3.0% Wage and Salary Employment: (2) Agriculture 1,300 1,400 1,300 n/a 1,400 Mining and Logging 300 300 200 200 200 Construction 62,800 67,900 71,200 75,400 75,600 Manufacturing 88,100 91,000 95,500 100,400 99,600 Wholesale Trade 47,000 48,100 48,700 48,000 45,600 Retail Trade 111,800 113,400 114,400 114,700 112,100 Transportation, Warehousing, Utilities 37,500 39,200 40,500 42,100 42,900 Information 25,000 26,400 26,800 27,400 27,900 Finance and Insurance 37,400 38,800 38,700 37,200 37,100 Real Estate and Rental and Leasing 16,800 16,900 17,400 17,700 18,000 Professional and Business Services 177,500 181,200 184,700 189,500 191,900 Educational and Health Services 178,600 185,900 191,500 194,900 197,700 Leisure and Hospitality 106,600 111,700 114,900 116,600 120,100 Other Services 38,100 39,100 40,200 40,700 41,300 Federal Government 13,800 13,900 13,800 13,600 13,400 State Government 39,900 39,700 39,300 39,500 39,600 Local Government 115,600 119,800 121,500 122,100 122,100 Total, All Industries (3) 1,098,000 1,134,600 1,160,600 1,181,200 1,186,700
(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: Labor Division of the California State Employment Development Department.
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Major Employers
The following table lists the largest employers within the County, in alphabetical order.
COUNTY OF CONTRA COSTA Major Employers (As of July 2020)
Employer Name Location Industry Bart Richmond Transit Lines Bio-Rad Laboratories Inc Hercules Physicians & Surgeons Equip & Supls-Mfrs Broadspectrum Americas Richmond Oil Refiners (mfrs) C & H Sugar Co Inc Crockett Sugar Refiners (mfrs) Chevron Corp San Ramon Oil Refiners (mfrs) Chevron Research & Technology San Ramon Service Stations-Gasoline & Oil Chevron Richmond Refinery Richmond Oil Refiners (mfrs) Contra Costa Regional Med Ctr Martinez Hospitals Job Connections Danville Personnel Consultants John Muir Health Concord Med Concord Hospitals John Muir Medical Ctr Walnut Creek Hospitals Kaiser Permanente Antioch Med Antioch Hospitals Kaiser Permanente Walnut Creek Walnut Creek Hospitals La Raza Market Richmond Grocers-Retail Martinez Medical Offices Martinez Clinics Nordstrom Walnut Creek Department Stores Robert Half Intl San Ramon Employment Agencies & Opportunities San Ramon Regional Medical Ctr San Ramon Hospitals Santa Fe Pacific Pipe Lines Richmond Pipe Line Companies Shell Oil Prod US Martinez Martinez Oil & Gas Producers St Mary's College OF Ca Moraga Schools-Universities & Colleges Academic Sutter Delta Medical Ctr Antioch Hospitals Tesoro Golden Eagle Refinery Pacheco Service Stations-Gasoline & Oil US Veterans Medical Ctr Martinez Outpatient Services Uss Posco Industries Pittsburg Steel Mills (mfrs)
Source: California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, 2020 1st Edition.
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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 2017 through 2021.
CITY OF HERCULES, CONTRA COSTA COUNTY, STATE OF CALIFORNIA AND UNITED STATES Median Household Effective Buying Income As of January 1, 2017 through 2021
Median Total Effective Household Buying Income Effective Buying Year Area (000’s Omitted) Income
2017 City of Hercules $ 917,934 $84,194 Contra Costa County 39,248,375 69,967 California 1,036,142,723 55,681 United States 8,132,748,136 48,043
2018 City of Hercules $ 917,934 $85,706 Contra Costa County 42,543,271 74,398 California 1,113,648,181 59,646 United States 8,640,770,229 50,735
2019 City of Hercules $ 998,149 $89,599 Contra Costa County 46,121,254 79,603 California 1,183,264,399 62,637 United States 9,017,967,563 52,841
2020 City of Hercules $ 1,091,380 $97,293 Contra Costa County 48,775,464 83,242 California 1,243,564,816 65,870 United States 9,487,165,436 55,303
2021 City of Hercules $ 1,141,450 $100,232 Contra Costa County 51,959,070 87,804 California 1,290,894,604 67,956 United States 9,809,944,764 56,790
Source: The Nielsen Company (US), Inc for years 2017 and 2018; Claritas, LLC for 2019 through 2021.
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Commercial Activity
Summaries of historic taxable sales within the City and the County during the past five years in which data is available are shown in the following tables. Annual figures are not yet available for calendar year 2020.
Total taxable sales during the first three quarters of calendar year 2020 in the City were reported to be $163,064,186, a 5.15% decrease in the total taxable sales of $171,909.764 reported during the first three quarters of calendar year 2019.
CITY OF HERCULES Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands)
Retail Stores Total All Outlets
Number Taxable Number Taxable of Permits Transactions of Permits Transactions 2015(1) 187 89,885 266 178,896 2016 183 87,117 261 177,343 2017 178 98,522 257 172,737 2018 185 89,885 181 104,262 2019 187 108,992 281 223,507
(1) Permit figures for calendar year 2015 are not comparable to that of prior years due to outlet counts in these reports including the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers. Source: State Department of Tax and Fee Administration.
Total taxable sales during the first three quarters of calendar year 2020 in the County were reported to be $ 12,748,851,207, a 1.95% decrease in the total taxable transactions of 13,002,550,077 that were reported in the County during the first three quarters of calendar year 2019.
COUNTY OF CONTRA COSTA Number of Permits and Valuation of Taxable Transactions Taxable Transactions (Dollars in Thousands)
Retail Stores Total Outlets Retail Permits Taxable Total Permits Taxable Year on July 1 Transactions on July 1 Transactions 2015 8,980 $11,420,248 23,996 $15,670,053 2016 14,920 11,746,808 24,064 15,924,592 2017 14,945 12,302,863 24,114 16,558,840 2018 15,095 13,163,891 25,317 17,607,890 2019 15,337 13,301,946 26,201 18,048,985
(1) Permit figures for calendar year 2015 are not comparable to that of prior years due to outlet counts in these reports including the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers. Source: State Department of Tax and Fee Administration.
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Construction Activity
The following tables show a five-year summary of the valuation of building permits issued in the City and the County. Annual figures for 2020 are not yet available.
CITY OF HERCULES Building Permit Valuation For Calendar Years 2015-2019 (Valuation in Thousands of Dollars)
2015 2016 2017 2018 2019 Permit Valuation New Single-family $9,415.6 $9,911.2 $13,807.8 $18,690.0 $5,826.0 New Multi-family 0.0 0.0 0.0 34,025.0 46,315.0 Res. Alterations/Additions 1,504.0 3,598.2 2,153.1 2,405.0 2,834.0 Total Residential $10,919.6 13,509.4 15,960.9 55,120.0 54,975.0
New Commercial 133.7 0.0 0.0 2,547.0 8,523.0 New Industrial 0.0 0.0 0.0 0.0 0.0 New Other 98.5 2,437.6 165.0 162.0 911.0 Com. Alterations/Additions 1,093.0 251.0 694.2 885.0 868.0 Total Nonresidential 1,325.2 2,688.6 859.2 3,594.0 10,302.0
New Dwelling Units Single Family 26 31 41 56 17 Multiple Family 0 0 0 172 232 TOTAL 26 31 41 228 249
Source: Construction Industry Research Board, Building Permit Summary.
COUNTY OF CONTRA COSTA Building Permit Valuation For Calendar Years 2015 through 2019 (Dollars in Thousands)
2015 2016 2017 2018 2019 Permit Valuation New Single-family $629,638.5 $605,151.6 $541,940.5 $576,116.0 $502,567.7 New Multi-family 123,088.7 155,051.9 55,154.8 159,941.5 213,697.8 Res. Alterations/Additions 301,221.7 312,967.0 354,340.6 337,089.0 300,066.4 Total Residential 1,053,948.9 1,073,170.50 951,435.9 1,082,666.5 1,016,332.0
New Commercial 122,256.4 144,878.8 133,930.0 200,592.4 148,405.7 New Industrial 15,020.0 11,624.9 3,552.0 52,919.3 2,974.5 New Other 170,219.6 309,861.1 108,530.0 189,246.6 81,032.5 Com Alterations/Additions 219,320.4 333,717.2 361,757.0 287,139.5 240,543.0 Total Nonresidential $526,816.4 $800,082.0 $607,769.0 $729,897.8 $472,955.7
New Dwelling Units Single Family 1,909 1,853 1,732 1,647 1,573 Multiple Family 629 1,043 272 1,161 1,229 TOTAL 2,538 2,896 2,004 2,808 2,802
Source: Construction Industry Research Board, Building Permit Summary.
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Transportation
The County provides alternative commute options for those without cars or who choose to commute in an environmentally friendly manner. The Bay Area Rapid Transit BART train network stops in many cities in the County, and the County Connection bus service serves areas not immediately adjacent to BART stations. Recently, the BART system was extended into the northeastern portion of the County through the construction of approximately 10 miles of new track between the existing Pittsburg/Bay Point BART Station and the new Antioch BART station. Construction of the extension began in early 2011 and service to the station began in May 2018.
In the summer of 2016, the Highway 4 expansion project was completed, providing additional traffic improvement to a major east-west highway artery in the County. The project included expanding Highway 4 from four to eight lanes and incorporates the BART extension project described above.
In addition, the local transportation demand management organization 511 Contra Costa offers services to County residents who wish to switch from single occupancy vehicle driving to greener modes.
The County also has two airports that are not currently providing passenger service: (1) Buchanan Field Airport, located in Concord and (2) Byron Airport, located two miles south of Byron.
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APPENDIX D
FORM OF OPINION OF BOND COUNSEL
May __, 2021
Board of Trustees John Swett Unified School District 400 Parker Avenue Rodeo, California 94572
OPINION: $______John Swett Unified School District (Contra Costa County, California) 2021 Refunding General Obligation Bonds
Ladies and Gentlemen:
We have acted as bond counsel to the John Swett Unified School District (the “District”) in connection with the issuance by the District of its John Swett Unified School District (Contra Costa County, California) 2021 Refunding General Obligation Bonds in the aggregate principal amount of $______(the “Bonds”). The Bonds have been authorized to be issued under the provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53550 of said Code, and a resolution adopted by the Board of Trustees of the District on March 10, 2021 (the “Bond Resolution”). We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon representations of the Board of Trustees contained in the Bond Resolution and in the certified proceedings and certifications and opinions of public officials and others furnished to us, without undertaking to verify the same by independent investigation.
Based upon the foregoing, we are of the opinion, under existing law, as follows:
1. The District is duly established and validly existing as a unified school district with the power to issue the Bonds and to perform its obligations under the Bond Resolution.
2. The Bond Resolution has been duly adopted by the Board of Trustees of the District and constitutes a valid and binding obligation of the District enforceable against the District in accordance with its terms.
3. The Bonds have been duly issued and sold by the District and are valid and binding general obligations of the District, and the County of Contra Costa is obligated to levy ad valorem property taxes for the payment of the Bonds and the interest thereon upon all property within the District subject to taxation by the District, without limitation as to rate or amount.
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4. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The District has made certain representations and covenants in order to comply with each such requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of issuance of the Bonds.
5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.
We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or disposition of, or the amount, accrual or receipt of interest on, the Bonds.
This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur.
The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.
Respectfully submitted,
A Professional Law Corporation
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APPENDIX E
FORM OF CONTINUING DISCLOSURE CERTIFICATE
$______JOHN SWETT UNIFIED SCHOOL DISTRICT (Contra Costa County, California) 2021 Refunding General Obligation Bonds
CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the John Swett Unified School District (the “District”) in connection with the issuance of the above-captioned bonds (the “Bonds”). The Bonds are being issued under a resolution adopted by the Board of Trustees of the District on March 10, 2021 (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 Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2- 12(b)(5).
Section 2. Definitions. In addition to the definitions set forth in the Bond Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4.
“Dissemination Agent” means, initially Dale Scott & Company, Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District 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, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.
“Participating Underwriter” means any of the original purchasers 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.
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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, 2022 with the report for the 2020-21 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. 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; 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, notice in an electronic format as prescribed by the MSRB, 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.
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, the following information with respect to the most recently completed fiscal year, as follows:
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(i) total assessed valuation of taxable properties in the District;
(ii) total assessed valuation of taxable properties of the top twenty taxpayers in the District;
(iii) property tax collection delinquencies for the District, but only if ad valorem taxes for general obligation bonds are not collected on the County’s Teeter Plan and such information is available from the County at the time of filing the Annual Report; and
(iv) the District’s most recently adopted budget or interim report available at the time of filing the Annual Report.
(c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further 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.
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 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. (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.
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(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. (15) Incurrence of a financial obligation of the District, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the District, any of which affect security holders, if material. (16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the District, any of which reflect financial difficulties. (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 Bond 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), (a)(14), and (a)(15) 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 District 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 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.
(e) For purposes of Section 5(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The
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term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under this 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(b).
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 such Agent, with or without appointing a successor Dissemination 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.
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(b).
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Section 10. Additional Information. Nothing herein prevents 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. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, 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. 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 it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
Section 13. Beneficiaries. This Disclosure Certificate inures solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and creates no rights in any other person or entity.
Dated: ______, 2021 JOHN SWETT UNIFIED SCHOOL DISTRICT
By: Superintendent
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APPENDIX F
BOOK-ENTRY ONLY SYSTEM
The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the District nor the Paying Agent 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.
1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (in this Appendix, 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 Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any maturity 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.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
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companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of A___. 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. The information contained on this Internet site is not incorporated herein by reference.
3. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
4. To facilitate subsequent transfers, all Bonds deposited by 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.
5. 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 Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.
6. Redemption notices will 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.
7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to District as soon as
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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).
8. 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.
9. 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.
10. 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, Bond certificates will be printed and delivered to DTC.
11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that District believes to be reliable, but District takes no responsibility for the accuracy thereof.
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APPENDIX G
CONTRA COSTA COUNTY INVESTMENT POLICY AND INVESTMENT REPORT (EXCERPT)
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CONTRA COSTA COUNTY TREASURER’S ANNUAL INVESTMENT POLICY
FISCAL YEAR 2020-2021
APPROVED BY THE BOARD OF SUPERVISORS IN JUNE 2020
The Contra Costa County Treasurer will annually present to both the Board of Supervisors (Board) and the Treasury Oversight Committee (Committee) a statement of investment policy, which the Board shall review and approve at a public meeting. Any changes in the policy shall also be reviewed and approved by the Board at a public meeting (Gov’t Code §53646(a)(1)).
OFFICE OF COUNTY TREASURER-TAX COLLECTOR 625 COURTS STREET, ROOM 100 MARTINEZ, CALIFORNIA 94553
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 1
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 2
Table of Contents 1.0 PURPOSE ...... 5
2.0 SCOPE ...... 5
3.0 PARTICIPANTS ...... 5
4.0 IMPLEMENTATION ...... 5
5.0 OBJECTIVES ...... 5
6.0 GENERAL STRATEGY ...... 6
7.0 STANDARD OF CARE ...... 7
8.0 SAFEKEEPING AND CUSTODY ...... 8
9.0 AUTHORIZED BROKERS/DEALERS AND FINANCIAL INSTITUTIONS ...... 9
10.0 SUITABLE AND AUTHORIZED INVESTMENTS ...... 10
11.0 RESTRICTIONS AND PROHIBITIONS ...... 15
12.0 INVESTMENT PARAMETERS ...... 16
13.0 EXTERNALLY MANAGED INVESTMENT POOLS, MUTUAL FUNDS AND SEPARATE ACCOUNTS ...... 18
14.0 PORTFOLIO MANAGEMENT ACTIVITY ...... 18
15.0 REPORTING ...... 19
16.0 COMPENSATION ...... 20
17.0 CALCULATING AND APPORTIONING POOL EARNINGS ...... 20
18.0 DEPOSITS AND WITHDRAWALS IN THE TREASURY ...... 20
19.0 TEMPORARY BORROWING OF POOL FUNDS ...... 22
20.0 INVESTMENT OF BOND PROCEEDS ...... 22
21.0 DISASTER RECOVERY PLAN ...... 22
22.0 POLICY CONSIDERATIONS ...... 22
AUTHORIZATION FOR LAIF INVESTMENTS ...... 24
APPROVED BROKERS ...... 25
APPROVED ISSUERS ...... 26
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 3
APPROVED PRIMARY DEALERS ...... 27
CONFLICT OF INTEREST CODE ...... 28
GLOSSARY OF TERMS ...... 30
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 4
CONTRA COSTA COUNTY TREASURER’S ANNUAL INVESTMENT POLICY
1.0 PURPOSE The purpose of this Investment Policy (Policy) is to establish cash management and investment guidelines of surplus funds entrusted to the care of the Contra Costa County Treasurer’s Office (Treasurer’s Office) in accordance with applicable sections of California Government Code. All portfolio activities will be judged by the standards of the Policy and its ranking of investment objectives.
2.0 SCOPE This Policy applies to all and only funds over which the Treasurer’s Office has been granted fiduciary responsibility and direct control for their management. The funds covered by this Policy are accounted for and incorporated in the Contra Costa County Comprehensive Annual Financial Report (CAFR) and include but not limited to: Government Funds (e.g. general fund, special revenue funds, debt service funds, capital project funds, and permanent fund), Proprietary Funds (e.g. enterprise funds and internal service funds), and various Trust Funds.
3.0 PARTICIPANTS This Policy restricts deposits to those agencies mandated by California Government Code as treasury deposits. However, subject to the consent of the Treasurer’s Office and in accordance with section 53684, exemptions may be granted to non-mandatory depositing agencies, if it is determined that the additional deposit provides a benefit to the investment pool as a whole while not creating unmanageable liquidity risk.
4.0 IMPLEMENTATION In order to provide direction to those responsible for management of surplus funds, the County Treasurer has established this Policy and presented it to the Treasury Oversight Committee and the Board of Supervisors, and has made it available to the legislative body of local agencies that participates in the County Treasurer’s investment program. The Policy explains investable funds; authorized instruments; credit quality required; maximum maturities and concentrations; collateral requirements; qualifications of broker-dealers and financial institutions doing business with, or on behalf of, the County; limits on gifts and honoraria; the reporting requirements; the Treasury Oversight Committee; the manner of apportioning interest earnings and appropriating investment costs; and the criteria to request withdrawal of funds.
5.0 OBJECTIVES Gov’t Code §53600.5: When investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the primary objective of a trustee shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its controls. 5.1 Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and market risk. 5.1.a Credit Risk
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The Treasurer will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, by: 1. Limiting investments to the safest type of securities 2. Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the Treasurer’s Office will do business 3. Diversifying the investment portfolio so that potential losses on individual securities will be minimized. 5.1.b Market Risk The Treasurer’s Office will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, by: 1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity 2. Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools. 5.2 Liquidity: The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets. A portion of the portfolio also may be placed in money market mutual funds or local government investment pools which offer same- day liquidity for short-term funds. 5.3 Yield: The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities may be sold prior to maturity when deemed prudent and necessary. Reasons of selling include but are not limited to: 1. A security with declining credit may be sold early to minimize loss of principal. 2. A security swap would improve the quality, yield, or target duration in the portfolio. 3. Liquidity needs of the portfolio require that the security be sold. 4. Portfolio rebalancing would bring the portfolio back into compliance. Investments will be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. 5.4 Public Trust: All investments will be in conformance with state law and county ordinances and policies. The investment of public funds is a task that must maintain the public trust.
6.0 GENERAL STRATEGY 6.1 Buy and Hold: The Treasurer will generally use the passive investment strategy known as BUY AND HOLD whereas securities are purchased with the intent of holding them to maturity. Interest income and the reinvestment of interest income usually are the only sources of return in the portfolio.
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The investment program will focus on purchasing securities that will limit or reduce the potential default risk and ensure the reliability of cash flows from interest income. Generally, purchases will be laddered throughout the portfolio in order to minimize the number and cost of investment transactions. 6.2 Directed Investment: Local agencies may direct the investment, exchange, liquidation and reinvestment of their assets, but must meet the provisions of the investment objectives of this policy. The withdrawal of funds in the Treasury shall coincide with investment maturities or authorized sales of securities by the local agency’s legislative or governing body.
7.0 STANDARD OF CARE The following policies are designed in accordance with Government Code to provide transparency to the investment program while enhancing portfolio controls: 7.1 Prudent Investor Standard The standard of prudence to be used by the designated representative shall be subject to the “prudent investor” standard and shall be applied in the context of managing the overall portfolio. “Governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, a trustee shall act with care, skill, prudence and diligence under the circumstances then prevailing, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part to an overall strategy, investments may be acquired as authorized by law.” (Gov’t Code §53600.3.) For the investment of county funds in a county treasury, Government Code Section 27000.3 establishes the board of supervisors as a fiduciary that is subject to the prudent investor standard unless it delegates its investment duties to the county treasurer. For local agency funds invested in the county treasury pool, the county treasurer serves as a fiduciary and is subject to the prudent investor standard.
7.2 Ethics and Conflicts of Interest Investment officials shall refrain from personal business activity that could conflict with proper execution and management of the Policy and investment program, or which could impair their ability to make impartial decisions. Please refer to the Contra Costa County Treasurer-Tax Collector’s Conflict of Interest Code for further explanation of the prohibited activities, and their enforcements and exceptions. 7.3 Limits on Honoraria, Gifts, and Gratuities In accordance with California Government Code Section 27133(d), this Policy establishes limits for the Director of Finance; individuals responsible for management of the portfolios; and members of the Investment Group and Review Group who direct individual investment decisions, select individual investment advisors and broker/dealers, and conduct day-to-day investment trading activity. The limits also apply to members of the Oversight Committee. Any individual who receives an aggregate total of gifts, honoraria and gratuities in excess of $50 in a calendar year from a broker/dealer, bank or service provider to the Pooled Investment Fund must report the gifts, dates and firms to the designated filing official and complete the appropriate State forms. No individual may receive aggregate gifts, honoraria, and gratuities in a calendar year in excess of the amount specified in Section 18940.2(a) of Title 2, Division 6 of the California Code of
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Regulations. This limitation is $500 for the period January 1, 2019, to December 31, 2020. Any violation must be reported to the State Fair Political Practices Commission. 7.4 Delegation of Authority 7.4.a Subject to Section 53607, the board of supervisors may, by ordinance, delegate to the county treasurer the authority to invest or reinvest the funds of the county and the funds of other depositors in the county treasury, pursuant to Chapter 4 (commencing with Section 53600) of Part 1 of Division 2 of Title 5. The county treasurer shall thereafter assume full responsibility for those transactions until the board of supervisors either revokes its delegation of authority, by ordinance, or decides not to renew the annual delegation, as provided in Section 53607 (Gov’t Code §27000.1). For local agency funds invested in the county treasury pool, the county treasurer serves as a fiduciary and is subject to the prudent investor standard. 7.4.b Responsibility for the operation of the investment program is hereby delegated to the County Treasurer, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures include references to: safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, and collateral/depository agreements. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the County Treasurer. 7.5 Treasury Oversight Committee In compliance with a Board Order of the Contra Costa County Board of Supervisors, the County Contra Costa County Treasury Oversight Committee was established in November 6 of 1995. The intent of the Committee is to allow local agencies, including school districts, as well as the public, to participate in reviewing the policies that guide the investment of public funds. The mandate for the existence of the Committee was suspended in 2004 by the State of California; however, the Committee serves an important function and the Treasurer’s Office has elected to continue the program. 7.5.a The Committee shall annually review and monitor the County’s Investment Policy. 7.5.b The Committee shall cause an annual audit to determine the County Treasurer’s compliance with the Investment Policy and all investment funds in the county Treasury.
8.0 SAFEKEEPING AND CUSTODY 8.1 Delivery vs. Payment: All trades of marketable securities will be executed (cleared and settled) on a delivery vs. payment (DVP) basis to ensure that securities are deposited in the County Treasurer’s safekeeping institution prior to the release of funds.
8.2 Third-party Safekeeping: Securities will be held by an independent third-party safekeeping institution selected by the County Treasurer. All securities will be evidenced by safekeeping receipts in the County’s name or in a name designated by the County Treasurer. The safekeeping institution shall annually provide a copy of its most recent report on internal controls - Service Organization Control Reports (formerly 70, or SAS 70) prepared in accordance with the Statement on Standards for Attestation Engagements (SSAE) No. 16 (effective June 15, 2011.)
8.2.a A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registered or non-registered format, shall require delivery of the securities to the local agency, including those purchased for the agency by financial
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advisors, consultants or managers using the agency’s funds, by book entry, physical delivery or by third-party custodial agreement. The transfer of securities to the counterparty bank’s customer book-entry account may be used for book-entry delivery. For purposes of this section, “counterparty” means the other party to the transaction. A counterparty bank’s trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. Where this section does not specify a limitation on the term of remaining maturity at the time of the investment, no investment shall be made in any security other than a security underlying a repurchase or reverse repurchase agreement authorized by this section. 8.2.b In compliance with this section, the securities of Contra Costa County and its agencies shall be in safekeeping at The Bank of New York Trust Company, N. A., a counterparty bank’s trust department or as defined in the debt indenture and contract. 8.3 Internal Controls: The County Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the Treasurer are protected from loss, theft or misuse. Specifics for the internal controls shall be documented in an investment procedures manual that shall be reviewed and updated periodically by the County Treasurer. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgements by management. As part of the internal controls, the investment portfolio managed by the County Treasurer shall be audited annually by both internal and external auditors.
9.0 AUTHORIZED BROKERS/DEALERS AND FINANCIAL INSTITUTIONS 9.1 All transactions initiated on behalf of the Pooled Investment Fund and Contra Costa County shall be executed only through one of the following: 1. Government security dealers reporting as primary dealers to the Market Reports Division of the Federal Reserve Bank of New York; 2. Banks and financial institutions that directly issue their own securities which have been placed on the Approved List of Broker/Dealers and Financial Institutions; 3. Brokers/dealers in the State of California approved by the County Treasurer based on the reputation and expertise of the company and individuals employed. Broker/dealers and financial institutions which have exceeded the political contribution limits as contained in Rule G-37 of the Municipal Securities Rulemaking Board within a four year period to the County Treasurer or a member of the governing board of a local agency or any candidate for those offices, are prohibited from the Approval List of Broker/Dealers and Financial Institutions. 9.2 Qualifications: All financial institutions and broker/dealers who desire to become qualified for investment transactions must complete Contra Costa County Treasurer’s Office Broker/Dealer Due Diligence Questionnaire which can be obtained at www.cctax.us. An annual review of the approved broker/dealers will be conducted by the Treasurer’s Office. The Treasurer’s Office may request additional documents from the broker/dealers during the annual review. A broker/dealer may be deleted from the Approved Brokers list without cause and without prior notification. 9.3 List of Approved Financial Institutions, Security Brokers and Dealers
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A list will be maintained of financial institutions authorized to provide investment services. In addition, a list also will be maintained of approved security broker/dealers selected for creditworthiness and qualifications stated in section 9.2. However, the County Treasury will not be limited to the financial institutions and brokers/dealers on the list. Others will be included as long as conditions for authorized financial institutions and brokers/dealers set forth in this Policy are met. Additionally, deletions and additions are based on the maintenance of required credit quality as rated by a nationally recognized statistical-rating organization (NRSRO) or reliable financial sources.
10.0 SUITABLE AND AUTHORIZED INVESTMENTS 10.1 Authorized Investment Types: (Gov’t Code §53600 et seq.) The legislative body of a local agency having moneys in a sinking fund or moneys in its treasury not required for the immediate needs of the local agency may invest any portion of the moneys that it deems wise or expedient in the investments set forth below. A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registered, or nonregistered format, shall require delivery of the securities to the local agency, including those purchased for the agency by financial advisers, consultants, or managers using the agency's funds, by book entry, physical delivery, or by third-party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book entry delivery. For purposes of this section, "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage and/or rating limitation for a particular category of investment, that percentage and/or rating are applicable only at the date of purchase. Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement or securities lending agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment: 10.1.a Bonds issued by the local agencies, including bonds payable solely out of the revenues from a revenue-producing property, owned, controlled, or operated by the local agency or by a department, board, agency or authority of the local agency. 10.1.b United States Treasury notes, bonds, bills or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. 10.1.c Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency or authority of the state. 10.1.d Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. 10.1.e Bonds, notes, warrants or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled or operated by the local agency, or by a department, board, agency or authority of the local agency.
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10.1.f Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. 10.1.g Banker’s acceptances otherwise known as bills of exchange or time drafts drawn on and accepted by a commercial bank. Purchases of banker’s acceptances may not exceed 180 days’ maturity or 40 percent of the agency’s money that may be invested pursuant to this section. However, no more than 30 percent of the agency’s money may be invested in banker’s acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any money in its treasury in any manner authorized by the Municipal Utility District Act (Division 6, commencing with Section 11501, of the Public Utilities Code). 10.1.h Commercial paper of “prime” quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical-rating organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2): 1. The entity meets the following criteria: A. Is organized and operating in the United States as a general corporation. B. Has total assets in excess of five hundred million dollars ($500,000,000). C. Has debt other than commercial paper, if any, that is rated in a rating category of “A” or its equivalent or higher by a nationally recognized statistical-rating organization (NRSRO). 2. The entity meets the following criteria: A. Is organized within the United States as a special purpose corporation, trust, or limited liability company. B. Has program-wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond. C. Has commercial paper that is rated “A-1” or higher, or the equivalent, by a nationally recognized statistical-rating organization (NRSRO). Eligible commercial paper shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and county, may invest no more than 25 percent of their moneys in eligible commercial paper. Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstanding commercial paper of any single issuer. Counties or a city and county may invest in commercial paper pursuant to the concentration limits in subdivision (a) of Section 53635: i. Not more than 40 percent of the local agency’s money may be invested in eligible commercial paper. ii. Not more than 10 percent of the total assets of the investments held by a local agency may be invested in any one issuer’s commercial paper. 10.1.i Negotiable certificates of deposit issued by a nationally- or state-chartered bank or a savings association or federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency’s money that may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section
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53638. The legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the money are prohibited from investing local agency funds, or funds in the custody of the local agency, in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or any person with investment decision making authority in the administrative office, manager’s office, budget office, auditor-controller’s office, or treasurer’s office of the local agency also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. 10.1.j Repurchase and reverse repurchase agreements 1. Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this section, provided that the agreements are subject to this subdivision, including the delivery requirements specified in this section, and that a signed Master Repurchase Agreement is on file in the Treasurer’s Office for all financial institutions that enter into a repurchase agreement with Contra Costa County. 2. Investments in repurchase agreements may be made on any investment authorized in this section when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. 3. Reverse repurchase agreements or securities lending agreements may be utilized only when all of the following conditions are met: A. The security to be sold using a reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale. B. The total of all reverse repurchase agreements and securities lending agreements on investments owned by the local agency does not exceed 20 percent of the base value of the portfolio. C. The agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. D. Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty using a reverse repurchase agreement or securities lending agreement shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement or securities lending agreement, unless the reverse repurchase agreement or securities lending agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. 4. Prior approval of the governing body; only with primary dealers:
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A. Investments in reverse repurchase agreements, securities lending agreements, or similar investments in which the local agency sells securities prior to purchase with a simultaneous agreement to repurchase the security may be made only upon prior approval of the governing body of the local agency and shall be made only with primary dealers of the Federal Reserve Bank of New York or with a nationally or state-chartered bank that has or has had a significant banking relationship with a local agency. B. For purposes of this policy, "significant banking relationship" means any of the following activities of a bank: i. Involvement in the creation, sale, purchase, or retirement of a local agency's bonds, warrants, notes, or other evidence of indebtedness. ii. Financing of a local agency's activities. iii. Acceptance of a local agency's securities or funds as deposits. 5. Definitions and terms of repos, securities and securities lending: A. "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical delivery, or by third-party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. B. "Securities," for purposes of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. C. "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date and includes other comparable agreements. D. "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. E. For purposes of this section, the base value of the local agency's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements, securities lending agreements, or other similar borrowing methods. F. For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. 10.1.k Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of "A" or its equivalent or better by an NRSRO. Purchases of medium-term notes shall not include
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other instruments authorized by this section and shall not exceed 30 percent of the agency's moneys that may be invested pursuant to this section. 10.1.l Shares of beneficial interest 1. Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o), (q), inclusive, and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement or securities lending agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement or securities lending agreement may be 100 percent of the sales price if the securities are marked to market daily. 2. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (l5 U.S.C. Sec. 80a-1 et seq.). 3. If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: A. Attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs. B. Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o), (q), inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000). 4. If investment is in shares issued pursuant to paragraph (2), the company shall have met the following criteria: A. Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. B. Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subdivisions (a) to (k), inclusive, and subdivisions (m) to (o), inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000). 5. The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that the companies may charge and shall not exceed 20 percent of the agency’s money that may be invested pursuant to this section. However, no more than 10 percent of the agency’s funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1). 10.1.m Moneys held by a trustee or fiscal agent and pledged to the payment of security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are not specific statutory provision, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance.
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10.1.n Notes, bonds, or other obligations that are at all times secured by a valid first-priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. 10.1.o Any mortgage pass-through security, collateralized mortgage obligation, mortgage- backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond. Securities eligible for investment under this subdivision shall be rated in a rating category of “AA” or its equivalent or better by a NRSRO and have a maximum remaining maturity of 5 years or less. Purchase of securities authorized by this subdivision shall not exceed 20 percent of the agency’s surplus money that may be invested pursuant to this section. 10.1.p Shares of beneficial interest issued by a joint power authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (n), (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing shares shall have retained an investment adviser that meets all of the following criteria: 1. The adviser is registered or exempt from registration with the Securities and Exchange Commission. 2. The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (n), (q), inclusive. 3. The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 10.1.q United States dollars denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated in a rating category of “AA” or its equivalent better by an NRSRO and shall not exceed 30 percent of the agency’s moneys that may be invested pursuant to this section.
11.0 RESTRICTIONS AND PROHIBITIONS 11.1 Restrictions set by the Treasurer 11.1.a All investments purchased by the Treasurer’s Office shall be of investment grade. The minimum credit rating of purchased investments shall be as defined by Government Code 53600 et. seq. 11.1.b All legal securities issued by a tobacco-related company are prohibited. A tobacco-related company is defined as 1) an entity that makes smoking products from tobacco used in cigarettes, cigars and/or snuff, or for smoking in pipes or 2) a company that has total revenues of 15 percent or more from the sale of such tobacco products. The tobacco- related issuers restricted from any investment are Alliance One, Altria Group, Inc., Auri Inc., British American Tobacco PLC, Imperial Tobacco Group PLC, Kirin International
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Holding Inc., Lorillard, Philip Morris International, Reynolds American, Inc., Schweitzer- Mauduit International Inc., Smokefree Innotec Inc., Star Scientific Inc., Universal Corp., and Vector Group, Ltd. The Treasury staff will update the list of tobacco-related companies when necessary. 11.1.c Financial futures or financial option contracts will each be approved on a per trade basis by the County Treasurer. 11.1.d Reverse repurchase agreements will be used strictly for the purpose of supplementing income with a limit of 10 percent of the total portfolio with prior approval of the Treasurer. 11.1.e SBA loans require prior approval of the Treasurer in every transaction. 11.1.f Securities purchased through brokers will be held in safekeeping at The Bank of New York Trust Company, N.A. or as designated by the specific contract(s) for government securities and tri-party repurchase agreements. 11.1.g Swaps and Trades will each be approved on a per-trade basis by Treasurer or Assistant Treasurer. 11.2 Prohibitions by Government Code (§53601.6) 11.2.a A local agency shall not invest any funds pursuant to this Article or pursuant to Article 2 (commencing with Section 53630) in inverse floaters, range notes or interest-only strips that are derived from a pool of mortgages. 11.2.b A local agency shall not invest any funds pursuant to this article or pursuant to Article 2 (commencing with Section 53630) in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.) that are authorized for investment pursuant to Government Code Section 53600, et. seq.
12.0 INVESTMENT PARAMETERS 12.1 Diversification: Investments shall be diversified so as to minimize the risk of loss and to maximize the rate of return by: 1. Limiting investment to avoid overconcentration in securities from a specific issuer or business sector (excluding U.S. Treasury securities), 2. Limiting investment in securities that have higher credit risks, 3. Investing in securities with varying maturities, and 4. Continuously investing a portion of the portfolio in readily available funds such as investment pools, money market funds or overnight repurchase agreements to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. 12.2 Maximum Maturities: To the extent possible, the County Treasurer shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the Treasurer will not directly invest in securities maturing more than five (5) years from the date of purchase or in accordance with state and local statutes and ordinances. The Treasurer shall adopt weighted average maturity limitations (which often range from 90 days to 3 years), consistent with the investment objectives. Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as LAIF, money
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market funds, or overnight repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations. 12.3 Exception to Maximum Maturity: In accordance with Government Code, the County Treasurer retains the right to petition the Board of Supervisors for approval to invest in securities with a final maturity in excess of five years. The Board of Supervisors adoption of any resolution allowing maturities beyond five years shall be considered an allowed modification to this policy and any investments made in accordance with the modification shall be allowable under this policy. 12.4 Investment Criteria1: All limitations set forth in this Policy are applicable only at the time of purchase. The County Treasurer has the full discretion to rebalance the portfolio when it is out of compliance owing to various reasons, such as market fluctuation.
MAXIMUM MAXIMUM MAXIMUM INVESTMENT TYPE % of OTHER RESTRICTIONS MATURITY % of ISSUE PORTFOLIO Bonds issued by local agencies 100% 5 years 100%
U.S. Treasury Obligations 100% 5 years 100%
Registered State Warrants, and CA 100% 5 years 100% Treasury Notes and bonds
Registered Treasury Notes or Bonds of any of the other 49 state in 100% 5 years 100% addition to CA
Bonds and Notes issued by other 100% 5 years 100% local agencies in California
Obligations of U.S. Agencies or 100% 5 years 100% government sponsored enterprises
U.S. Agencies Callables 100% 5 years 25%
Bankers Acceptances) 30%
Domestic: ($5B min. assets) Aggregate 40% 180 days
Foreign: ($5B min. assets) 5% 40% 180 days Aggregate No more than 10 % of the local agency’s money 270 days 10% Commercial paper 40% may be invested in the outstanding commercial or less Aggregate paper of any single issuer. Negotiable Certificates of Deposit ($5 10% 30% 5 years billion minimum assets) Aggregate Generally limited to Wells Fargo Bank, Bank of See America or other institutions with whom the Repurchase Agreements secured by limitations County treasury has executed tri-party 1 year for agreements. Collateral will be held by a third U.S. Treasury or agency obligation 100% Treasuries party to the transaction that may include the (102% collateral) and Agencies trust department of particular banks. Collateral above will be only securities that comply with Government Code See limitations Reverse Repurchase Agreements and for 20% 92 days Securities Lending Agreements Treasuries and Agencies above
1 The rating requirement for each investment type is referenced in the relevant sections of California Government Code.
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MAXIMUM MAXIMUM MAXIMUM INVESTMENT TYPE % of OTHER RESTRICTIONS MATURITY % of ISSUE PORTFOLIO
Corporate bonds, Medium Term 30% 5% 5 years Notes & Covered Aggregate
Shares of beneficial interest issued 10% 20% N/A by diversified mgt. companies Aggregate Moneys held by a trustee or fiscal 20% N/A agent Collateralized Notes, Bonds, Time 5% Collateralized by the eligible securities at a 15% 5 years Deposits, or other obligations Aggregate percentage specified in Government Code Mrtg Backed Securities/CMO’s: 20% 5 Years No Inverse Floaters 5% No Range Notes
Asset Backed Securities Aggregate No Interest only strips derived from a pool of 20% 5 Years mortgages As limited As limited by Joint Powers Authority (JPA) N/A by JPA JPA Supranational obligations 30% 5 Years 100% Rated “AA” or better by an NRSRO As Limited As limited by Local Agency Investment Fund (LAIF) N/A by LAIF LAIF
13.0 EXTERNALLY MANAGED INVESTMENT POOLS, MUTUAL FUNDS AND SEPARATE ACCOUNTS The County Treasurer may investment a portion of the investment pool assets in investment pools, mutual funds, and separate account investment funds managed by the external investment managers. A thorough due diligence shall be conducted on the external investment managers and the pool/funds prior to investing, and on a continual basis.
14.0 PORTFOLIO MANAGEMENT ACTIVITY 14.1 Passive Portfolio Management: (See Section 6.0., General Strategy) 14.2 Purchase of Investment Securities: Investment Securities will be purchased in the most cost effective and efficient manner by using a competitive bidding process. However, the investment securities may or may not carry the highest coupon or yield at the time of purchase after taking into consideration the various limitations of the Investment Policy and risks. 14.3 Reviewing and Monitoring of the Portfolio: The portfolio is closely monitored on a regular basis for compliance purposes. Both monthly and quarterly reports will review portfolio investments to ensure they are kept track of in a timely manner. The reports will also monitor the County Treasurer’s investment practices and the results of such practices. 14.4 Portfolio Adjustments: Certain actions may be taken if the portfolio becomes out of compliance. For instance, should a concentration limitation be exceeded due to an incident such as a fluctuation in portfolio size, the affected securities may be held to maturity to avoid losses; however, the County Treasurer may choose to rebalance the portfolio earlier to bring it back into compliance if the portfolio will not suffer any losses for selling the investment prior to maturity. 14.5 Performance Standards: The investment portfolio will be managed in accordance with the parameters specified within this Policy. The portfolio should obtain a market average rate of return during a
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market/economic environment of stable interest rates. A series of appropriate benchmarks, such as 6-month US Treasury Bill, Fed Funds Rates Index, may be established against which portfolio performance shall be compared on a regular basis. However, the benchmarks may change as appropriate based on the duration of the investment pool and/or cash flow requirements.
15.0 REPORTING 15.1 Methodology: The County Treasurer shall prepare an investment report at least quarterly, including a management summary that provides an analysis of the status of the current investment portfolio and transactions made over the last quarter. This management summary will be prepared in a manner which will allow the County Treasurer to ascertain whether investment activities during the reporting period have conformed to the investment policy. The report shall be provided to the Chief Administrative Officer, the County Auditor, the Board of Supervisors, Treasury Oversight Committee and any pool participants [Government Code 27133(e), and 53646(b)]. The report will include the following: 1. The type of investment, issuer, date of maturity, par and dollar amount invested on all securities, investments and moneys held by the County Treasurer 2. A description of any of the local agency's funds, investments, or programs that are under the management of contracted parties, including lending programs. 3. A current market value as of the date of the report of all securities held by the local agency, and under management of any outside party that is not also a local agency or the State of California Local Agency Investment Fund, and the source of this same valuation. 4. A statement that the portfolio is in compliance with the investment policy, or the manner in which the portfolio is not in compliance. 5. A statement denoting the ability of the County Treasurer to meet its pool's expenditure requirements for the next six months, or an explanation as to why sufficient money may not be available. 6. Listing of individual securities by type and maturity date held at the end of the reporting period. A. PLEDGE REPORT: Any securities that are pledged or loaned for any purpose shall be reported in the Quarterly Investment Report. The transaction detail will be provided, including purpose, beginning and termination dates and all parties to the contract. The security descriptions as to type, name, maturity date, coupon rate, CUSIP and other material information will be included. B. REVERSE REPURCHASE AGREEMENTS REPORT: All reverse repurchase agreements entered into, whether active or inactive by the end of each quarter, shall be reported in the Treasurer’s Quarterly Investment Report. 7. Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the cost and market value of securities over one-year duration that are not intended to be held until maturity. 8. Average maturity and duration of portfolio on investments as well as the yield to maturity of the portfolio as compared to applicable benchmarks. 9. Percentage of the total portfolio which each type of investment represents. 10. Whatever additional information or data may be required by the legislative body of the local agency.
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15.2 Marking to Market: The market value of the portfolio shall be calculated at least quarterly and a statement of the market value of the portfolio shall be issued at least quarterly. This will ensure that review of the investment portfolio, in terms of value and price volatility, has been performed on a regular basis.
16.0 COMPENSATION In accordance with Government Code §§27013 and 53684, the County Treasurer will charge all pool participants for administrative and overhead costs. Costs include, but are not limited to, employee salaries and benefits, portfolio management, bank and custodial fees, software maintenance fees and other indirect costs incurred from handling and managing funds. In addition, when applicable, the costs associated with the Treasury Oversight provisions of Government Code §§ 27130-27137 shall be included as administrative costs. Costs will be deducted from interest earnings on the pool prior to apportioning and payment of interest. The County Treasurer shall annually prepare a proposed budget providing a detailed itemization of all estimated costs which comprise the administrative fee charged in accordance with Government Code §27013. The administrative fee will be subject to change. Fees will be deducted from interest earnings. 16.1 Deduction of Costs: At the discretion of the County Treasurer, the County Treasurer may deduct actual administrative costs and may make any adjustments from the interest earnings and apportions the remaining earnings to all participants based on the positive average daily balance (Government Code 53684(b)).
16.2 Directed Investments Costs: At the discretion of the County Treasurer, the County Treasurer may deduct from interest earnings the actual administrative costs of such directed investments (Government Code §27013).
17.0 CALCULATING AND APPORTIONING POOL EARNINGS The Investment Pool Fund is comprised of monies from multiple units of the County, agencies, school districts and special districts. Each entity has unique cash flow demands, which dictate the type of investments the Treasurer’s Office may purchase. To ensure parity among the pool members when apportioning interest earnings, the following procedures have been developed: 1. Interest is apportioned on at least a quarterly basis in accordance with Government Code §53684. 2. Interest is apportioned to pool participants based on the participant’s average daily fund balance and the total average daily balance of deposits in the investment pool. 3. Interest is calculated on a cash basis for all investments in the County Treasurer’s investment pool and reported to the Auditor-Controller for distribution into the funds of the participants. 4. Interest earned on the directed investments is credited to pool participants on a cash basis. Administrative costs are determined annually by the County Treasurer based on actual administrative and overhead costs incurred in the previous year. 5. Negative average daily fund balance will be charged interest at the rate of interest that is being apportioned.
18.0 DEPOSITS AND WITHDRAWALS IN THE TREASURY 18.1 Deposit by Voluntary Participants
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Following are the terms and conditions for deposit of funds for investment purposes by voluntary participants, i.e. entities that are not legally required to deposit their funds in the County Treasury. 18.1.a Resolution by the County Board of Supervisors authorizing the acceptance of outside participants by the County Treasury. 18.1.b Resolution by the legislative or governing body of the local agency (voluntary participant) authorizing the investment of funds pursuant to Government Code 53684. 18.1.c Treasury investments will be directed transactions. For each transaction, the local agency (voluntary participant) must indicate the fund source, the amount to be invested and the duration of the investment. 18.2 Withdrawal Request The Treasurer’s Office has established the Withdrawal of Funds Policy for all Treasury Investment Pool participants who seek to withdraw funds from the County Treasury Investment Pool for various purposes. In accordance with California State Government Code Section 27136, all participants having funds on deposit in the Pool and seeking to withdraw their funds, shall first submit a formal written request to the County Treasurer. The County Treasurer shall evaluate the withdrawal proposals of all Pool participants upon receipt of the written requests. The evaluation process may take up to 30 days. The County Treasurer reserves the right to reject any request for withdrawal if it is in the Treasurer’s opinion after thorough evaluation, that the withdrawal will violate applicable laws and/or governing documents, compromise Treasurer’s fiduciary responsibility, adversely impact the stability of the Pool, or harm the interests of any Pool Participant. Such rejection shall prevent the withdrawal of the funds. Typically, participants make withdrawals for the following two reasons: a) regular operations and b) investing or depositing funds outside the Pool in accordance with California State Government Code Section 27136 (a). The County Treasurer seeks to honor all written withdrawal requests for regular operating purposes that are approved by the County Auditor-Controller’s Office in a timely fashion. However, the County Treasurer recognizes that occasionally the Pool participants may request large amounts in withdrawals to cover unexpected operational needs. To accommodate such withdrawals and allow for adequate time for adjustments to the liquidity position of the Pool, the County Treasurer expects all Pool Participants to submit their written requests within the following timeframes: i) Withdrawals of Up to $1 million – prior to 8:00 a.m. for same day disbursement ii) Withdrawals of between $1 million to $10 million – 1 business day in advance of disbursement iii) Withdrawals of more than $10 million – 3 business day in advance of disbursement Withdrawals of investment deposits from the County Treasury Investment Pool by any Pool participant shall coincide with investment maturities and/or authorized sale of securities by authorized personnel of the Pool Participant. Except for funds in the California State Local Agency Investment Fund, a five-business-days notification may be required when authorized sale of securities is involved. In the event that the Treasurer must liquidate investments in order to honor the withdrawal request, the Participant who requests the withdrawal shall be subject to all expenses associated with the liquidation, including, but not limited to loss of principal and interest income, withdrawal penalties, and associated fees. To maintain full fiduciary responsibility for investment and administration of the Pool, the County Treasurer shall NOT permit statutory participants to withdraw funds from and subsequently deposit the funds outside the Pool for the purpose of investments without prior approval of the County Treasurer. As permitted by the Government Code Section 53635, upon request the County Treasurer may enter into an investment agreement with a third party investment manager
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on behalf of statutory participants. However, the funds shall remain in the Pool during the entire agreement period under the care of the custodian bank retained by the County Treasurer. Voluntary participants may withdraw funds from and subsequently deposit the funds outside the Pool for investment purposes upon the County Treasurer’s approval. However, such withdrawals shall be made for the entire amount of the participant’s funds deposited in the Pool. Upon completion of such withdrawals, the voluntary participants will no longer be able to participate in the Pool or receive further services from the County Treasurer’s Office. NO partial withdrawals from the Pool for investment purposes are permitted. Please refer to Withdrawal of Funds Policy, which is maintained as a separate document, for detailed guidelines and procedures.
19.0 TEMPORARY BORROWING OF POOL FUNDS Section 6 of Article XVI of the California Constitution provides in part that "the treasurer of any city, county, or city and county shall have power and the duty to make such temporary transfers from the funds in custody as may be necessary to provide funds for meeting the obligations incurred for maintenance purposes by city, county, city and county, district, or other political subdivision whose funds are in custody and are paid out solely through the treasurer's office." The County Auditor-Controller and the County Treasurer shall make a temporary transfer of funds to the requesting agency, not to exceed 85% of the amount of money which will accrue to the agency during the fiscal year, provided that the amount of such transfer has been determined by the County Auditor-Controller to be transferable under the constitutional and statutory provisions cited in Article XVI and has been certified by the County Treasurer-Tax Collector to be available. Such temporary transfer of funds shall not be made prior to the first day of the fiscal year nor after the last Monday in April of the current fiscal year.
20.0 INVESTMENT OF BOND PROCEEDS The County Treasurer shall invest bond proceeds using the standards of this Investment Policy. The bond proceeds will be invested in securities permitted by the bond documents. If the bond documents are silent, the bond proceeds will be invested in securities permitted by this Policy.
21.0 DISASTER RECOVERY PLAN The Contra Costa County Treasurer’s Disaster Recovery Plan includes critical phone numbers and addresses of key personnel as well as active bankers and brokers/dealers. Laptops, tablets, smart phones, and other equivalent electronic devices shall be issued to key personnel for communicating between staff, bank and broker/dealers. Copies of the plan shall be distributed to the investment staff: Assistant County Treasurer, the Treasurer’s Investment Officer, and the Investment Operations Analyst. The investment staff shall interact with one another by home phone, cell phone, or e-mail to decide an alternate location from which to conduct daily operations. In the event investment staff is unable to conduct normal business operations, the custodial bank will automatically sweep all uninvested cash into an interest bearing account at the end of the business day. Until normal business operations have been restored, the limitations on the size of an individual issuer and the percentage restrictions by investment type would be allowed to exceed those approved in this investment policy.
22.0 POLICY CONSIDERATIONS 22.1 Exemption
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Any investment currently held that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this policy. 22.2 Amendments This policy shall be reviewed on an annual basis. Any changes must be approved by the County Treasurer and any other appropriate authority.
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AUTHORIZATION FOR LAIF INVESTMENTS
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APPROVED BROKERS
Alamo Capital Bank of America Merrill Lynch California Arbitrage Management Program Citigroup Global Markets Daiwa Capital Markets America Inc. Falcon Square Capital JP Morgan Securities LLC Mischler Financial Group Penserra Securities LLC Public Financial Management, Incorporated RBC Capital Markets, LLC Stifel, Nicolaus & Company, Inc. UBS Financial Services, Inc. UnionBanc Investment Services Wells Fargo Securities
Note: The County Treasury will not be limited to the above list. Others will be included as long as all conditions for authorized brokers and/or dealers set forth in this policy are met. Additionally, deletions and additions are based on many factors including the quality of services provided by the broker/dealers. The County Treasury reserves the right to delete an Approved Broker without cause and without prior notice.
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APPROVED ISSUERS
American Honda Finance Prudential Apple Inc Procter & Gamble Co Australia & New Zealand Banking Group Rabobank Nederland New York Bank of America Royal Bank of Canada Bank of Montreal Societe Generale NA Bank of Nova Scotia Standard Chartered Bank Berkshire Hathaway State Street Bank and Trust Co BNP Paribas Svenska Handelsbanken AB Chevron Toronto-Dominion Bank Cisco Systems Inc Toyota Motor Credit Corp Citigroup UBS Financial Coca-Cola Co. US Bankcorp Commonwealth of Bank of Australia Walmart Credit Agricole SA Walt Disney Company Credit Suisse Wells Fargo Bank Deere & Company Westpac Banking Corp Deutsche Bank Financial LLC Westamerica Bank Exxon Mobil General Electric Co General Electric Capital Corp HSBC Bank USA Intel Corp JP Morgan Chase & Co John Deere Capital Corporation Johnson & Johnson McDonald’s Corporation MicroSoft Corp MUFG Bank National Australia Bank Nestle Capital Corp Nordea Bank AB Oracle Corp Pepsico Inc PNC Bank NA
Note: The County Treasury may or may not invest in the Approved Issuers and will not be limited to the above list in making investments. Other issuers may be considered as the County Treasury performs additional due diligence on each investment decision. The list does not reflect the actual portfolio holdings managed by the County Treasury.
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APPROVED PRIMARY DEALERS
Amherst Pierpont Securities LLC Bank of Nova Scotia, New York Agency BMO Capital Markets Corp. BNP Paribas Securities Corp. Barclays Capital Inc. BofA Securities, Inc. Cantor Fitzgerald & Co. Citigroup Global Markets, Inc. Credit Suisse AG, New York Branch Daiwa Capital Markets America Inc. Deutsche Bank Securities Inc. Goldman, Sachs & Co. LLC HSBC Securities (USA) Inc. Jefferies LLC J.P. Morgan Securities Inc. Mizuho Securities USA Inc. Morgan Stanley & Co. LLC NatWest Markets International, Inc. Nomura Securities International, Inc. RBC Capital Markets, LLC Societe Generale, New York Branch TD Securities (USA) LLC UBS Securities LLC. Wells Fargo Securities, LLC
Note: The above list consists of primary dealers that serve as trading counterparties of the Federal Reserve Bank of New York in its implementation of monetary policy. These primary dealers are required to participate in all auctions of U.S. government debt. Treasury Staff will perform additional due diligence on each investment decision, and hence, may or may not use the primary dealers listed above.
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CONFLICT OF INTEREST CODE For the TREASURER-TAX COLLECTOR’S OFFICE
This Conflict of Interest Code is promulgated under the authority of the Political Reform Act, Government Code §81000, et seq., which requires all state and local government agencies to adopt and promulgate conflict of interest codes. Section 18730 of Title 2, Division 6 of the California Code of Regulations, as adopted by the Fair Political Practices Commission (FPPC) contains the terms of a standard conflict of interest code, which may be incorporated by reference and may be amended by the FPPC after public note and hearings to conform to amendments in the Political Reform Act. Therefore, the terms of Section 18730 of Title 2, Division 6 of the California Code of Regulations and any amendments to it duly adopted by the FPPC are hereby incorporated by reference and, along with the below stated Disclosure Categories, constitute the Conflict of Interest Code of the Treasurer-Tax Collector’s Office of Contra Costa County. Employees in designated positions below shall file a Statement of Economic Interest (Form 700) with the Executive Secretary, designated as the filing officer, who will make the statements available for public inspection and reproduction. (California Government Code §81008) Upon receipt of the statements for the Treasurer-Tax Collector and positions that manage public investments, the Filing Officer will make and retain copies and forward the originals to the Contra Costa County Clerk-Recorder- Elections Department. (Government Code § 87500)
DESIGNATED POSITIONS
CLASS/JOB CODE TITLE ASSIGNED CATEGORY County Treasurer-Tax Collector* 1 Assistant County Treasurer 1 Chief Deputy Treasurer-Tax Collector 1 Treasurer’s Investment Officer* 1 Treasurer’ Investment Operations Analyst 1 Tax Operations Supervisor 1 Executive Secretary – Exempt 2 Treasurer Oversight Committee members 2 Consultants** 1
* Pursuant to Government Code section 87314, the individuals occupying these designated positions are required to file a Form 700-Statement of Economic Interests as a public official who manages public investments within the meaning of Government Code Section 87200.
** The Treasurer-Tax Collector will determine in writing whether a consultant is hired to perform a range of duties that requires the consultant to comply with the disclosure requirements. The written determination is a public record and the Filing Officer will retain the determination for public inspection.
DISCLOSURE CATEGORIES General Rule
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An investment, interest in real property, or income is reportable if the business entity in which the investment is held, the interest in real property, or the income or source of income may foreseeably be affected materially by any decision made or participated in by the designated employee by virtue of the employee’s position. 1. Designated Employees in Category “1” must report: a. All investments, interests in real property, and income, and any business entity in which the employee is a director, officer, partner, trustee, employee, or hold any position in management. Financial interests are reportable only if located within Contra Costa County or if the business entity is doing business or planning to do business in the County (and such plans are known by the designated employee) or has done business within the County at any time during the two years prior to the filing of the statement. b. Investments in any business entity, and income from any source and status as a director, officer, partner, trustee, employee, or hold of a position of management in any business entity, which has within the last two years contracted or foreseeably may contract with Contra Costa County, or with any special district or other public agency within the County, to provide services, supplies, materials, machinery or equipment to such County, district, or public agency. 2. Designated Employees in Category “2” must report: Investments in any business entity, income from any source and status as a director, officer, partner, trustee, employee or holder of a position of management in any business entity, which has within the last two years contracted, or foreseeably may contract, with Contra Costa County to provide services, supplies, materials, machinery or equipment to the Office the Treasurer-Tax Collector.
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GLOSSARY OF TERMS
ACCRUED INTEREST The accumulated interest due on a bond as of the last interest payment made by the issuer.
AGENCY A debt security issued by a federal or federally sponsored agency. Federal agencies are backed by the full faith and credit of the U.S. Government. Federally sponsored agencies (FSAs) are backed by each particular agency with a market perception that there is an implicit government guarantee. An example of federal agency is the Government National mortgage Association (GNMA). An example of a FSA is the Federal National Mortgage Association (FNMA).
AMORTIZATION The systematic reduction of the amount owed on a debt issue through periodic payments of principal.
AVERAGE LIFE The average length of time that an issue of serial bonds and/or term bonds with a mandatory sinking fund feature is expected to be outstanding.
BANKERS ACCEPTANCES A time bill of exchange drawn on and accepted by a commercial bank to finance the exchange of goods. When a bank “accepts” such a bill, the time draft becomes, in effect, a predated, certified check payable to the bearer at some future specified date. The commercial bank assumes primary liability once the draft is accepted.
BASIS POINT A unit of measurement used in the valuation of fixed-income securities equal to 1/100 of one percent of yield. For example, if interest rates increase from 8.25% to 8.50%, the difference is referred to as a 25-basis-point increase.
BENCHMARK A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio’s investment.
BID The indicated price at which a buyer is willing to purchase a security or commodity.
BLUE SKY LAWS Common term for state securities law, which vary from state to state. Generally refers to provision related to prohibitions against fraud, dealer and broker regulations and securities registration.
BOND A bond is essentially a loan made by an investor to a division of the government, a government agency or a corporation. The bond is a promissory note to repay the loan in full at the end of a fixed time period. The date on which the principal must be repaid is called the maturity date or maturity. In addition, the issuer of the bond, that is the agency or corporation receiving the loan proceeds and issuing the promissory note, agrees to make regular payments of interest at a rate initially stated on the bond. Bonds are rated according to many factors, including cost, degree of risk and rate of income.
BOOK VALUE Refers to value of a held security as carried in the records of an investor. May differ from current market value of the security.
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BROKER/DEALER Any person engaged in the business of effecting transaction in securities in this state for the account of others or for her/his own account. Broker/dealer also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of her/his own issue.
CALLABLE BOND A bond issue in which all or part of its outstanding principal amount may be redeemed before maturity by the issuer under specified conditions.
CALL PRICE The price at which an issuer may redeem a bond prior to maturity. The price is usually at a slight premium to the bond’s original issue price to compensate the holder for the loss of income and ownership.
CALL RISK The risk to the bondholder that a bond may be redeemed prior to maturity.
CASH SALE/PURCHASE A transaction which calls for delivery and payment of securities on the same day that the transaction is initiated.
CERTIFICATES OF DEPOSIT (CD) Certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified rate of return. They are issued in two forms, negotiable and non-negotiable.
CLEAN UP CALL An action of a debt instrument issuer requiring early redemption of the instrument to reduce its own administrative expenses. This normally occurs when the principal outstanding is significantly reduced to a small amount, e.g., less than 10% of the original issue.
COLLATERALIZATION Process by which a borrower pledges securities, property, or other deposits for the purpose of securing the repayment of a loan and/or security.
COMMERCIAL PAPER Short-term, unsecured promissory notes issued in either registered or bearer form and usually backed by a line of credit with a bank. Maturities do not exceed 270 days and generally average 30-45 days.
CONVEXITY A measure of a bond’s price sensitivity to changing interest rates. A high convexity indicates greater sensitivity of a bond’s price to interest rate changes.
COUPON RATE The annual rate of interest received by an investor from the issuer of certain types of fixed-income securities. Also known as the “interest rate.”
CREDIT QUALITY The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies.
CREDIT RISK The risk to an investor that an issuer will default in the payment of interest and/or principal on a security.
CURRENT YIELD (CURRENT RETURN) A yield calculation determined by dividing the annual interest received on a security by the current market price of that security.
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CUSIP NUMBERS CUSIP is an acronym for Committee on Uniform Security Identification Procedures. CUSIP numbers are identification numbers assigned each maturity of a security issue and usually printed on the face of each individual security in the issue. The CUSIP numbers are intended to facilitate identification and clearance of securities.
DELIVERY VERSUS PAYMENT (DVP) A type of securities transaction in which the purchaser pays for the securities when they are delivered either to the purchaser or his/her custodian.
DERIVATIVE SECURITY Financial instrument created from, or whose value depends upon, one or more underlying assets or indexes of asset values.
DISCOUNT The amount by which the par value of a security exceeds the price paid for the security.
DIVERSIFICATION A process of investing assets among a range of security types by sector, maturity, and quality rating.
DURATION A measure of the timing of the cash flows, such as the interest payments and the principal repayment, to be received from a given fixed-income security. This calculation is based on three variables: term to maturity, coupon rate, and yield to maturity. The duration of a security is a useful indicator of its price volatility for given changes in interest rates.
EARNINGS APPORTIONMENT The quarterly interest distribution of the Pool Participants where the actual investment costs incurred by the Treasurer are deducted from the interest earnings of the Pool
FAIR VALUE The amount at which an investment could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
FEDERAL FUNDS (FED FUNDS) Funds placed in Federal Reserve banks by depository institutions in excess of current reserve requirements. These depository institutions may lend fed funds to each other overnight or on a longer basis. They may also transfer funds among each other on a same-day basis through the Federal Reserve banking system. Fed funds are considered to be immediately available funds.
FEDERAL FUNDS RATE Interest rate charged by one institution lending federal funds to the other.
FEDERAL OPEN MARKET COMMITTEE (FOMC) This committee sets Federal Reserve guidelines regarding purchases and sales of government securities in the open market as a means of influencing the volume of bank credit and money.
FIDUCIARY An individual who holds something in trust for another and bears liability for its safekeeping.
FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) FINRA is an independent, nongovernmental organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States. Its stated mission is “to safeguard the investing public against fraud and bad practices.” FINRA regulates the trading of equities, corporate bonds, securities futures, and options. Unless a firm is regulated by a different self-regulatory organization, it is required to be a FINRA member firm to do business.
FLOATING RATE NOTE A debt security whose interest rate is reset periodically (monthly, quarterly, annually) and is based on a market index (e.g., Treasury bills, LIBOR, etc.).
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FUTURES Commodities and other investments sold to be delivered at a future date.
GOVERNMENT SECURITIES An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. See “Treasury Bills, Notes and Bonds.”
INTEREST RATE See “Coupon Rate.”
INTERNAL CONTROLS An internal control structure is designed to ensure that the assets of the Treasurer’s Investment Pool are protected from loss, theft, or misuse, and to provide reasonable assurance that this objective is met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management.
Internal controls should address the following points: 1. Control of collusion—Collusion is a situation where two or more employees are working in conjunction to defraud their employer. 2. Separation of transaction authority from accounting and record keeping—By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. 3. Custodial safekeeping—Securities purchased from a bank or dealer including appropriate collateral (as defined by state law) shall be placed with an independent third party for custodial safekeeping. 4. Avoidance of physical delivery securities—Book-entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. 5. Clear delegation of authority to subordinate staff members—Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities. 6. Written confirmation of transactions for investments and wire transfers—Due to the potential for error and improprieties arising from telephone and electronic transactions, all transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and if the safekeeping institution has a list of authorized signatures. 7. Development of a wire transfer agreement with the lead bank and third-party custodian—The designated official should ensure that an agreement will be entered into and will address the following points: controls, security provisions, and responsibilities of each party making and receiving wire transfers.
INVERSE FLOATERS An adjustable interest rate note keyed to various indices such as LIBOR, commercial paper, federal funds, treasuries and derivative structures. The defined interest rate formula is the opposite or inverse of these indices. Interest rates and pay dates may reset daily, weekly, monthly, quarterly, semi-annually or annually.
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INVERTED YIELD CURVE A chart formation that illustrates long-term securities having lower yields than short-term securities. This configuration usually occurs during periods of high inflation coupled with low levels of confidence in the economy and a restrictive monetary policy.
INVESTMENT COMPANY ACT OF 1940 Federal legislation which sets the standards by which investment companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations.
INVESTMENT POLICY A concise and clear statement of the objectives and parameters formulated by the investor or investment manager for a portfolio of investment securities.
INVESTMENT-GRADE OBLIGATIONS An investment instrument suitable for purchase by institutional investors under the prudent person rule. Investment-grade is restricted to those obligations rated BBB or higher by a rating agency.
LIQUIDITY Usually refers to the ability to convert assets (such as investments) into cash.
LOCAL AGENCY INVESTMENT FUND (LAIF) The State of California investment pool in which money of local agencies is pooled as a method for managing and investing local funds.
MAKE WHOLE CALL A type of call provision on a bond allowing the borrower to pay off remaining debt early. The borrower has to make a lump sum payment derived from a formula based on the net present value of future coupon payments that will not be paid because of the call.
MARK TO MARKET Valuing the inventory of held securities at its current market value.
MARKET RISK The risk that the value of a security will rise or decline as a result of changes in market conditions.
MARKET VALUE Price at which a security can be traded in the current market.
MASTER REPURCHASE AGREEMENT A written contract covering all future transactions between the parties to repurchase-reverse repurchase agreements that establishes each party’s rights in the transaction. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower.
MATURITY The date upon which the principal of a security becomes due and payable to the holder.
MEDIUM-TERM NOTES (MTNS) Corporate debt obligations continuously offered in a broad range of maturities. MTNs were created to bridge the gap between commercial paper and corporate bonds. The key characteristic of MTNs is that they are issued on a continuous basis.
MONEY MARKET INSTRUMENTS Private and government obligations of one year or less.
MONEY MARKET MUTUAL FUNDS Mutual funds that invest solely in money market instruments (short- term debt instruments, such as Treasury bills, commercial paper, banker’s acceptances, repos and federal funds).
MUTUAL FUND An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the
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Investment Company Act of 1940 and must abide by the following Securities and Exchange Commission (SEC) disclosure guidelines:
1. Report standardized performance calculations. 2. Disseminate timely and accurate information regarding the fund’s holdings, performance, management and general investment policy. 3. Have the fund’s investment policies and activities supervised by a board of trustees, which are independent of the adviser, administrator or other vendor of the fund. 4. Maintain the daily liquidity of the fund’s shares. 5. Value their portfolios on a daily basis. 6. Have all individuals who sell SEC-registered products licensed with a self-regulating organization (SRO) such as the National Association of Securities Dealers (NASD). 7. Have an investment policy governed by a prospectus which is updated and filed by the SEC annually.
MUTUAL FUND STATISTICAL SERVICES Companies that track and rate mutual funds, e.g., IBC/Donoghue, Lipper Analytical Services and Morningstar.
NEGOTIABLE CERTIFICATES OF DEPOSIT May be sold by one holder to another prior to maturity. This is possible because the issuing bank agrees to pay the amount of the deposit plus interest earned to the bearer of the certificate at maturity.
NET ASSET VALUE The market value of one share of an investment company, such as a mutual fund. This figure is calculated by totaling a fund’s assets which includes securities, cash, and any accrued earnings, subtracting this from the fund’s liabilities and dividing this total by the number of shares outstanding. This is calculated once a day based on the closing price for each security in the fund’s portfolio. (See below)
[(Total assets) – (Liabilities]/(Number of shares outstanding)
NO LOAD FUND A mutual fund which does not levy a sales charge on the purchase of its shares.
NOMINAL YIELD The stated rate of interest that a bond pays its current owner, based on par value of the security. It is also known as the “coupon,” “coupon rate,” or “interest rate.”
NON-NEGOTIABLE CERTIFICATES OF DEPOSIT For public funds, these certificates are collateralized and are not money market instruments since they cannot be traded in the secondary market. They are issued on a fixed-maturity basis and often pay higher interest rates than are permissible on other savings or time-deposit accounts.
OFFER The price of a security at which a person is willing to sell.
OPTION A contract that provides the right, but not the obligation, to buy or to sell a specific amount of a specific security within a predetermined time period. A call option provides the right to buy the underlying security. A put option provides the right to sell the underlying security. The seller of the contracts is called the writer.
PAR Face value of principal value of a bond, typically $1,000 per bond.
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PAR VALUE The stated or face value of a security expressed as a specific dollar amount marked on the face of the security; the amount of money due at maturity. Par value should not be confused with market value.
POSITIVE YIELD CURVE A chart formation that illustrates short-term securities having lower yields than long-term securities.
PREMIUM The amount by which the price paid for a security exceeds par value, generally representing the difference between the nominal interest rate and the actual or effective return to the investor.
PRIME RATE A preferred interest rate charged by commercial banks to their most creditworthy customers. Many interest rates are keyed to this rate.
PRINCIPAL The face value or par value of a debt instrument. Also may refer to the amount of capital invested in a given security.
PROSPECTUS A legal document that must be provided to any prospective purchaser of a new securities offering registered with the SEC. This can include information on the issuer, the issuer’s business, the proposed use of proceeds, the experience of the issuer’s management, and certain certified financial statements.
PRUDENT PERSON RULE An investment standard outlining the fiduciary responsibilities of public funds investors relating to investment practices.
RANGE NOTES A security whose rate of return is pegged to an index. The note defines the interest rate minimum or floor and the interest rate maximum or cap. An example of an index may be federal funds. The adjustable rate of interest is determined within the defined range of the funds.
RATE OF RETURN The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond and the current income return.
REINVESTMENT RISK The risk that a fixed-income investor will be unable to reinvest income proceeds from a security holding at the same rate of return currently generated by that holding.
REPURCHASE AGREEMENT OR RP OR REPO An agreement consisting of two simultaneous transactions whereby the investor purchases securities from a bank or dealer and the bank or dealer agrees to repurchase the securities at the same price on a certain future date. The interest rate on a RP is that which the dealer pays the investor for the use of his funds. Reverse repurchase agreements are the mirror image of the RPs when the bank or dealer purchases securities from the investor under an agreement to sell them back to the investor.
REVERSE REPURCHASE AGREEMENT (REVERSE REPO) An agreement of one party to sell securities at a specified price to a second party and a simultaneous agreement of the first party to repurchase the securities at a specified price or at a specified later date.
RULE 2A-7 OF THE INVESTMENT COMPANY ACT Applies to all money market mutual funds and mandates such funds to maintain certain standards, including a 13-month maturity limit and a 90-day average maturity on investments, to help maintain a constant net asset value of one dollar ($1.00).
SAFEKEEPING Holding of assets (e.g., securities) by a financial institution.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 36
SECURITIES LENDING A transaction wherein the Treasurer’s Pool transfers its securities to a broker/dealer or other entities for collateral which may be cash or securities and simultaneously agrees to return the collateral for the same securities in the future.
SERIAL BOND A bond issue, usually of a municipality, with various maturity dates scheduled at regular intervals until the entire issue is retired.
SETTLEMENT DATE The date used in price and interest computations, usually the date of delivery.
SINKING FUND Money accumulated on a regular basis in a separate custodial account that is used to redeem debt securities or preferred stock issues.
SLUGS An acronym for State and Local Government Series. SLUGS are special United States Government securities sold by the Secretary of the Treasury to states, municipalities and other local government bodies through individual subscription agreements. The interest rates and maturities of SLUGS are arranged to comply with arbitrage restrictions imposed under Section 103 of the Internal Revenue Code. SLUGS are most commonly used for deposit in escrow in connection with the issuance of refunding bonds.
STRIPS US Treasury acronym for “separate trading of registered interest and principal of securities." Certain registered Treasury securities can be divided into separate interest and principal components, which may then be traded as separate entities.
SUPRANATIONAL Supranational is an international organization, or union, whereby member states transcend national boundaries or interests to share in the decision-making and vote on issues pertaining to the wider grouping. Examples of supranational are International Bank for Reconstruction and Development, International Finance Corporation, European Union, and World Trade Organization.
SWAP Generally refers to an exchange of securities, with essentially the same par value, but may vary in coupon rate, type of instrument, name of issuer and number of days to maturity. The purpose of the SWAP may be to enhance yield, to shorten the maturity or any benefit deemed by the contracting parties.
TERM BONDS Bonds comprising a large part or all of a particular issue which come due in a single maturity. The issuer usually agrees to make periodic payments into a sinking fund for mandatory redemption of term bonds before maturity.
TOTAL RETURN The sum of all investment income plus changes in the capital value of the portfolio. For mutual funds, return on an investment is composed of share price appreciation plus any realized dividends or capital gains. This is calculated by taking the following components during a certain time period: (Price Appreciation) + (Dividends paid) + (Capital gains) = Total Return TREASURY SECURITIES Debt obligations of the United States Government sold by the Treasury Department in the form of bills, notes and bonds:
1. Bills Short-term obligations that mature in one year or less and are sold at a discount in lieu of paying periodic interest. 2. Notes Interest-bearing obligations that mature between one year and 10 years. 3. Bonds Interest-bearing long-term obligations that generally mature in 10 years or more.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 37
UNIFORM NET CAPITAL RULE SEC Rule 15C3-1 outlining capital requirements for broker/dealers.
U.S. AGENCY OBLIGATIONS Federal agency or United States government-sponsored enterprise obligations, participants, or other instruments. The obligations are issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises.
U.S. TREASURY OBLIGATIONS Securities issued by the U.S. Treasury and backed by the full faith and credit of the United States. Treasuries are considered to have no credit risk and are the benchmark for interest rates on all other securities in the U.S. and overseas. The Treasury issues both discounted securities and fixed coupon notes and bonds.
VOLATILITY A degree of fluctuation in the price and valuation of securities.
“VOLATILITY RISK” RATING A rating system to clearly indicate the level of volatility and other non-credit risks associated with securities and certain bond funds. The ratings for bond funds range from those that have extremely low sensitivity to changing market conditions and offer the greatest stability of the returns (“S1+” by S&P) to those that are highly sensitive with currently identifiable market volatility risk (“S6” by S&P).
WEIGHTED AVERAGE MATURITY (WAM) The average maturity of all the securities that comprise a portfolio. According to SEC rule 2a-7, the WAM for SEC registered money market mutual funds may not exceed 90 days and no one security may have a maturity that exceeds 397 days.
WHEN ISSUED (WI) A conditional transaction in which an authorized new security has not been issued. All “when issued” transactions are settled when the actual security is issued.
YIELD The current rate of return on an investment security generally expressed as a percentage of the security’s current price.
YIELD-TO-CALL (YTC) The rate of return an investor earns from a bond assuming the bond is redeemed (called) prior to its nominal maturity date.
YIELD CURVE A graphic representation that depicts the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may be alternatively referred to as a positive yield curve.
YIELD-TO-MATURITY The rate of return yielded by a debt security held to maturity when both interest payments and the investor’s potential capital gain or loss are included in the calculation of return.
ZERO-COUPON SECURITY A security that makes no periodic interest payments but instead is sold at a discount from its face value.
CONTRA COSTA COUNTY ANNUAL INVESTMENT POLICY FY 2020-2021 Page 38
CONTRA COSTA COUNTY
TREASURER’S QUARTERLY INVESTMENT REPORT
AS OF DECEMBER 31, 2020 TABLE OF CONTENTS
Page
I. Executive Summary 1
II. Contra Costa County Investment Pool Summary 2
III. Appendix
A. Investment Portfolio Detail—Managed by Treasurer’s Office
1. Portfolio Statement 6
2.Market Valuation Sources 23
B. Investment Portfolio Detail – Managed by Outside Contracted Parties
1. PFM 24
2. State of California Local Agency Investment Fund 35
3. Wells Capital Management 36
4. CAMP 90
5. CalTRUST Liquidity*
6. US Bank 92
7. Other
a. East Bay Regional Communications System Authority (EBRCS) 96
*For the quarter ending 9/30/20, no Treasury Pool assets were invested in the CalTRUST Liquidity fund. Page 1
EXECUTIVE SUMMARY
• The Treasurer's investment portfolio is in compliance with Government Code 53600 et. seq..
• The Treasurer's investment portfolio is in compliance with the Treasurer's current investment policy.
• The Treasurer’s investment portfolio has no securities lending, reverse repurchase agreements or derivatives.
• As of 12/31/20, the fair value of the Treasurer’s investment portfolio was 100.36% of the cost. Approximately 83 percent of the portfolio or over $3.76 billion will mature in less than a year. Historical activities combined with future cash flow projections indicate that the County should be able to meet its cash flow needs for the next six months.
• Treasurer’s Investment Portfolio Characteristics
Par $4,530,085,471.49
Cost $4,525,820,165.91
Market Value $4,542,182,409.60
Weighted Yield to Maturity 0.47%
Weighted Average Days to Maturity 231 days
Weighted Duration 0.62 year
Notes: 1. All reporting information is unaudited but due diligence was utilized in its preparation. The information in this report is subject to change without notice. 2. There may be slight differences between the investment pool summary pages and the attached statements and exhibits from time to time. The variances are largely due to the timing difference in recording and/or posting transactions, interests, security values, etc. 3. All securities and amounts reported are denominated in U.S. Dollars. Page 2
CONTRA COSTA COUNTY INVESTMENT POOL As of December 31, 2020
PERCENT OF TYPE PAR VALUE COST FAIR VALUE TOTAL COST A. Investments Managed by Treasurer's Office 1. U.S. Treasuries (STRIPS, Bills, Notes) $416,483,000.00 $416,339,996.19 $416,424,900.28 9.20%
2. U.S. Agencies Federal Home Loan Banks 271,745,000.00 271,431,159.85 272,741,460.86 6.00% Federal National Mortgage Association 190,000,000.00 189,559,713.00 192,635,810.00 4.19% Federal Farm Credit Banks 174,606,000.00 174,455,020.77 176,024,053.52 3.85% Federal Home Loan Mortgage Corporation 165,331,000.00 165,266,223.88 165,425,301.80 3.65% Subtotal 801,682,000.00 800,712,117.50 806,826,626.18 17.69%
3. Supranationals - International Government 260,000,000.00 259,657,461.63 260,039,600.00 5.74%
4. Money Market Instruments Commercial Paper 1,308,609,000.00 1,308,039,235.35 1,308,370,949.12 28.90% Negotiable Certificates of Deposit 635,000,000.00 635,000,000.00 635,136,841.97 14.03% Time Deposit 3,401.36 3,401.36 3,400.68 0.00% Subtotal 1,943,612,401.36 1,943,042,636.71 1,943,511,191.77 42.93%
5. Corporate Notes 229,107,000.00 226,439,632.09 234,049,631.42 5.00%
1 TOTAL (Section A.) 3,650,884,401.36 3,646,191,844.12 3,660,851,949.65 80.56%
B. Investments Managed by Outside Contractors
1. PFM 79,536,447.13 79,608,796.88 80,521,754.36 1.76% 2. Local Agency Investment Fund (LAIF) 316,969,743.10 316,969,743.10 317,689,682.18 2 7.00% 3. Wells Capital Management 44,010,340.58 44,365,242.49 44,434,484.09 3 0.98% 4. CAMP 340,533,974.95 340,533,974.95 340,533,974.95 7.52% 5. CalTRUST (Liquidity Fund) - - - 0.00% 6. US Bank (Federated Tax Free Cash Fund) 4,219,137.83 4,219,137.83 4,219,137.83 0.09% 7. Other a. EBRCS Bond 1,428,780.65 1,428,780.65 1,428,780.65 0.03%
TOTAL (Section B.) 786,698,424.24 787,125,675.90 788,827,814.06 17.39%
C. Cash 92,502,645.89 92,502,645.89 92,502,645.89 2.04%
4 GRAND TOTAL (FOR A , B, & C) $4,530,085,471.49 $4,525,820,165.91 $4,542,182,409.60 100.00%
Notes:
1. Excludes funds managed by PFM retained by Contra Costa School Insurance Group and Community College District
2. Estimated Fair Value
3. Base Market Value plus Accrued Interest
4. Does not include the Futuris Public Entity Trust of the Contra Costa Community College District Retirement Board of Authority Page 3 CONTRA COSTA COUNTY INVESTMENT POOL As of December 31, 2020
CONTRA COSTA COUNTY INVESTMENT POOL - EARNING STATISTICS
Fiscal Quarter Year To Date To Date
Average Daily Balance ($) 3,447,561,458.70 3,634,048,220.23 Net Earnings ($) 13,062,722.69 5,640,013.17 Earned Income Yield 0.74% 0.61%
CONTRA COSTA COUNTY INVESTMENT POOL - PORTFOLIO STATISTICS
Investment Par Fair YTM WAM Percentage Type Value Value of ($) ($) (%) (days) Portfolio
U.S. Treasury 416,483,000.00 416,424,900.28 0.08 70 9.17% Agencies 801,682,000.00 806,826,626.18 0.83 870 17.76% Commercial Paper 1,308,609,000.00 1,308,370,949.12 0.17 66 28.80% NCD/YCD 635,000,000.00 635,136,841.97 0.19 57 13.98% Corporate Notes 229,107,000.00 234,049,631.42 2.68 461 5.15% Time Deposit 3,401.36 3,400.68 0.08 144 0.00% Supranationals 260,000,000.00 260,039,600.00 0.56 75 5.72% PFM 79,536,447.13 80,521,754.36 1.29 764 1.77% LAIF 316,969,743.10 317,689,682.18 0.58 1 6.99% CAMP 340,533,974.95 340,533,974.95 0.12 0 7.50% CalTRUST (Liquidity) - - - 0 0.00% Wells Cap 44,010,340.58 44,434,484.09 0.26 266 0.98% US Bank (Federated Tax Free) 4,219,137.83 4,219,137.83 0.01 0 0.09% Misc.1 1,428,780.65 1,428,780.65 N/A N/A 0.03% Cash 92,502,645.89 92,502,645.89 0.10 2 0 2.04% Total Fund3 4,530,085,471.49 4,542,182,409.60 0.47 231 100.00%
1. East Bay Regional Communications System Authority. 2. Average Earning Allowance for this quarter. 3. Excludes the Futuris Public Entity Trust of the CCCCD Retirment Board of Authority. Page 4 CONTRA COSTA COUNTY INVESTMENT POOL AT A GLANCE As of December 31, 2020
PORTFOLIO BREAKDOWN PORTFOLIO CREDIT QUALITY NR (CASH) BY INVESTMENT NR (Misc.) BBB+ Money Market 2.04% 0.02% 42.93% 0.52%
Supranationals AAA 5.74% A-1 10.60% 17.81% AA+ 16.24% U.S.Agencies 17.69%
AA 7.89% U.S. Treasuries LAIF PFM 9.20% CAMP Wells 7.00% 1.76% A-1+ AA- Cap Cash 7.52% 43.17% 1.05% 2.04% 0.98% Corporate Notes CalTRUST A+ Other 5.00% 0.00% 0.03% 0.10% A- A US Bank 0.53% 0.09% 0.02%
MATURITY DISTRIBUTION YIELD TO MATURITY BY PORTFOLIO 1.40% 1.29% $4,000,000,000 83.17% 1.20% $3,500,000,000
$3,000,000,000 1.00%
$2,500,000,000 0.80% $2,000,000,000 0.58% 0.60% $1,500,000,000 0.47% 0.48%
$1,000,000,000 0.40% 0.26% $500,000,000 4.72% 4.62% 6.10% 0.20% 1.40% 0.12% 0.10% $0 0.01% 1 yr & less 1 to 2 yrs 2 to 3 yrs 3 to 4 yrs 4+ yrs 0.00% Total Treasurer PFM LAIF Wells CAMP US Bank Cash
Total consists of 81% Treasurer, 2% of PFM; 7% LAIF; 1% Wells Cap; and 9% of CAMP appriximately.
QUARTERLY WEIGHTED YIELD TO MATURITY County&Agencies Voluntary POOL BALANCE BY PARTICIPANTS 3.00% 45.73% Participants 7.75% 2.50% Community College 2.00% Dist. 9.53% 1.50%
1.00%
0.50% School Dist. 0.00% 36.99% 3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20
Note: More than 44% of the School Dist. funds from the bond proceeds YTM
NOTES TO INVESTMENT PORTFOLIO SUMMARY AND AT A GLANCE AS OF DECEMBER 31, 2020
1. All report information is unaudited but due diligence was utilized in its preparation. 2. There may be slight differences between the portfolio summary page and the attached exhibits and statements for investments managed by outside contractors or trustees. The variance is due to the timing difference in recording transactions associated with outside contracted parties during interim periods and later transmitted to the appropriate county agency and/or the Treasurer’s Office. In general, the Treasurer’s records reflect booked costs at the beginning of a period. 3. All securities and amounts included in the portfolio are denominated in United States Dollars. 4. The Contra Costa County investment portfolio maintains Standard & Poor's highest credit quality rating of AAAf and lowest volatility of S1+. The portfolio consists of a large portion of short-term investments with credit rating of A-1/P-1 or better. The majority of the long-term investments in the portfolio are rated AA or better. 5. In accordance with Contra Costa County's Investment Policy, the Treasurer's Office has constructed a portfolio that safeguards the principal, meets the liquidity needs and achieves a return. As a result, approximately 83% of the portfolio will mature in less than a year with a weighted average maturity of 231 days. Page 5 MAJOR MARKET AND ECONOMIC DATA
AS OF DECEMBER 31, 2020
TREASURY YIELDS AND FED TARGET RATE CONSUMER PRICE INDEX 7 6
6 5
4 5
3 4 2
Percentage 3 Percentage 1
2 0
1 -1
-2 0 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Dec-18 Dec-20 12/00 12/02 12/04 12/06 12/08 12/10 12/12 12/14 12/16 12/18 12/20 US 2-YR TREASURY YIELD US 5-YR TREASURY YIELD FEDERAL FUND TARGET RATE CPI YoY Change Core CPI YoY Change
GROSS DOMESTIC PRODUCT EMPLOYMENT RELATED RATES 40 20
18 30 16 20 14
10 12
0 10
Percentage 8 Percentage -10 6 -20 4
-30 2
0 -40 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Dec-19 12/31/99 12/31/02 12/31/05 12/31/08 12/31/11 12/31/14 12/31/17 12/31/20 GDP QoQ Change Unemployment Rate Underemployment Rate
Note: All data provided by Bloomberg.