NEW ISSUES — BOOK-ENTRY ONLY 2016-0693 and 2016-0694 Rating: Moody’s: “Aa1” (See “MISCELLANEOUS – Rating” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2016 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2016 Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2016 Bonds. See “TAX MATTERS” herein. $8,740,000 2016-0693 $5,905,000 2016-0694 PALOS VERDES PENINSULA PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A General Obligation Refunding Bonds, Series 2016B (Forward Delivery) Dated: Date of Delivery Due: As shown on the inside cover page This cover page is not a summary of this issue; it is only a reference to the information contained in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A (the “Series 2016A Bonds”) are being issued by the Palos Verdes Peninsula Unified School District (the “District”), located in the County of Los Angeles (the “County”), California, (i) to refund, on a current basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2005 (Measure R), Series 2006, (ii) to refund, on a current basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2005 (Measure S), Series 2006, (iii) to refund, on an advance basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2005 (Measure S), Series 2009, and (iv) to pay costs of issuance of the Series 2016A Bonds. See “THE SERIES 2016 BONDS – Outstanding Bonds; Plan of Finance” herein. The Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (the “Series 2016B Bonds”) are being issued by the District (i) to refund, on a current basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (Los Angeles County, California) General Obligation Refunding Bonds, Series 2006, and (ii) to pay costs of issuance of the Series 2016 Bonds. See “THE SERIES 2016 BONDS –Outstanding Bonds; Plan of Finance” herein. The Series 2016A Bonds and the Series 2016B Bonds are collectively referred to herein as the “Series 2016 Bonds.” The Series 2016 Bonds are being issued pursuant to the laws of the State of California (the “State”) and a resolution of the Board of Education of the District, adopted on February 24, 2016. See “THE SERIES 2016 BONDS – Authority for Issuance” herein. Each series of the Series 2016 Bonds is payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series 2016 Bonds, all as more fully described herein. See “SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2016 BONDS” herein. The Series 2016 Bonds will be issued as current interest bonds in denominations of $5,000 principal amount and integral multiples thereof as shown on the inside cover page of this Official Statement. Interest on the Series 2016A Bonds shall be payable on February 1 and August 1 of each year, commencing on August 1, 2016. Interest on the Series 2016B Bonds shall be payable on May 1 and November 1 of each year, commencing on November 1, 2016. Each series of the Series 2016 Bonds will be issued in book-entry form only and will be initially issued and registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Series 2016 Bonds. Individual purchases of Series 2016 Bonds will be made in book-entry form only. Purchasers will not receive physical delivery of the Series 2016 Bonds purchased by them. Payments of the principal of and interest on the Series 2016 Bonds will be made by U.S. Bank National Association, as agent for the County of Los Angeles Treasurer and Tax Collector, the paying agent for each series of the Series 2016 Bonds, to DTC for subsequent disbursement through DTC Participants to the beneficial owners of the Series 2016 Bonds. The Series 2016A Bonds are subject to redemption prior to maturity as described herein. The Series 2016B Bonds are not subject to redemption prior to maturity. See “THE SERIES 2016 BONDS – Redemption/No Early Redemption” herein. Each series of the Series 2016 Bonds will be offered when, as and if issued by the District and received by the Underwriter, subject to the approval of legality by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, and certain other conditions. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District; and for the Underwriter by Kutak Rock LLP, Denver, Colorado, as Underwriter’s Counsel. It is anticipated that the Series 2016A Bonds, in definitive form, will be available for delivery through the facilities of DTC, on or about June 3, 2016. It is anticipated that the Series 2016B Bonds, in definitive form, will be available for delivery through the facilities of DTC, on or about August 4, 2016 in accordance with the Forward Delivery Purchase Contract. See “THE SERIES 2016 BONDS - Forward Delivery of Series 2016B Bonds” herein.
The date of this Official Statement is April 6, 2016. MATURITY SCHEDULE BASE CUSIP1: 697634
$8,740,000 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A
Maturity Principal Interest CUSIP (August 1) Amount Rate Yield Number1 2016 $125,000 2.000% 0.350% G49 2017 45,000 2.000 0.630 D42 2018 550,000 4.000 0.740 D59 2019 740,000 5.000 0.810 D67 2020 245,000 5.000 0.940 D75 2021 305,000 5.000 1.070 D83 2022 365,000 5.000 1.240 D91 2023 375,000 5.000 1.360 E25 2024 315,000 5.000 1.510 E33 2025 120,000 5.000 1.620 E41 2026 150,000 5.000 1.760 E58 2027 180,000 5.000 1.870C E66 2028 455,000 5.000 1.950C E74 2029 520,000 5.000 2.030C E82 2030 600,000 5.000 2.090C E90 2031 670,000 5.000 2.170C F24 2032 900,000 4.000 2.530C F32 2033 990,000 4.000 2.590C F40 2034 1,090,000 3.000 3.000 F57
$5,905,000 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery)
Maturity Principal Interest CUSIP (November 1) Amount Rate Yield Number1 2017 $900,000 5.000% 0.930% F65 2018 475,000 5.000 1.030 F73 2020 1,000,000 4.000 1.260 F81 2021 1,120,000 5.000 1.380 F99 2022 1,245,000 5.000 1.530 G23 2023 1,165,000 5.000 1.660 G31
1 CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2016 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the District, the Underwriter or their agents or counsel assumes responsibility for the accuracy of such numbers. C Yield to call at par on August 1, 2026. PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California)
BOARD OF EDUCATION
Malcolm S. Sharp, President Anthony Collatos, Vice President Linda Reid, Clerk Barbara Lucky, Member Suzanne Seymour, Member
DISTRICT ADMINISTRATORS
Donald B. Austin, Ed.D., Superintendent Lydia Cano, Deputy Superintendent Trent Bahadursingh, Assistant Superintendent, Technology John Bowes, Ed.D., Assistant Superintendent, Human Resources Joanne Culverhouse, Ed.D., Assistant Superintendent, Educational Services Kathy Ueunten, Director, Fiscal Services
PROFESSIONAL SERVICES
Financial Advisor
Piper Jaffray & Co. El Segundo, California
Bond Counsel and Disclosure Counsel
Orrick, Herrington & Sutcliffe LLP Irvine, California
Paying Agent, Authentication Agent, Transfer Agent and Bond Registrar
U.S. Bank National Association, as agent for the County of Los Angeles Treasurer and Tax Collector Los Angeles, California
Escrow Bank
U.S. Bank National Association Los Angeles, California
Escrow Verification
Causey Demgen & Moore P.C. Denver, Colorado TABLE OF CONTENTS
Page
INTRODUCTION ...... 1 General ...... 1 The District ...... 2 THE SERIES 2016 BONDS ...... 2 Authority for Issuance...... 2 Purpose of Issue ...... 2 Forward Delivery of Series 2016B Bonds ...... 2 Form and Registration...... 3 Payment of Principal and Interest ...... 3 Redemption/No Early Redemption ...... 4 Defeasance ...... 5 Unclaimed Moneys ...... 5 Outstanding Bonds; Plan of Finance ...... 5 Debt Service Schedule ...... 11 Aggregate Debt Service ...... 12 Estimated Sources and Uses of Funds ...... 13 SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2016 BONDS ...... 14 General ...... 14 Statutory Lien on Taxes (Senate Bill 222) ...... 14 Pledge of Tax Revenues...... 14 Property Taxation System ...... 15 Assessed Valuation of Property Within the District ...... 15 Tax Rates ...... 21 Tax Charges and Delinquencies ...... 22 Direct and Overlapping Debt ...... 23 TAX MATTERS ...... 24 OTHER LEGAL MATTERS...... 26 Legal Opinion ...... 26 Legality for Investment in California ...... 26 Continuing Disclosure ...... 26 Litigation ...... 27 ESCROW VERIFICATION ...... 27 MISCELLANEOUS ...... 27 Rating ...... 27 Professionals Involved in the Offering ...... 28 Underwriting ...... 28 ADDITIONAL INFORMATION ...... 31
i TABLE OF CONTENTS (continued) Page
APPENDIX A INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET ...... A-1 APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2015 ...... B-1 APPENDIX C THE ECONOMY OF THE DISTRICT ...... C-1 APPENDIX D PROPOSED FORMS OF OPINIONS OF BOND COUNSEL ...... D-1 APPENDIX E FORMS OF CONTINUING DISCLOSURE CERTIFICATES ...... E-1 APPENDIX F THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS ...... F-1 APPENDIX G COUNTY OF LOS ANGELES INVESTMENT POLICY ...... G-1 APPENDIX H BOOK-ENTRY ONLY SYSTEM ...... H-1 APPENDIX I FORM OF DELAYED DELIVERY CONTRACT ...... I-1
ii This Official Statement does not constitute an offering of any security other than the original offering of the Series 2016 Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District.
The Series 2016 Bonds are exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)2 thereof. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy Series 2016 Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation.
The information set forth herein other than that furnished by the District, although obtained from sources which are believed to be reliable, 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 Series 2016 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.
The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The District does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations, or events, conditions or circumstances on which such statements are based, occur.
The District maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2016 Bonds.
In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market prices of the Series 2016 Bonds at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2016 Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. $8,740,000 $5,905,000 PALOS VERDES PENINSULA PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) (County of Los Angeles, California) General Obligation Refunding Bonds, General Obligation Refunding Bonds, Series 2016A Series 2016B (Forward Delivery)
INTRODUCTION
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 Series 2016 Bonds to potential investors is made only by means of the entire Official Statement.
General
This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the sale of (i) $8,740,000 aggregate principal amount of Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A (the “Series 2016A Bonds”), and (ii) $5,905,000 aggregate principal amount of Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery) (the “Series 2016B Bonds”), all as indicated on the inside front cover hereof, to be issued by the Palos Verdes Peninsula Unified School District (the “District”). The Series 2016A Bonds and the Series 2016B Bonds are collectively referred to herein as the “Series 2016 Bonds.”
This Official Statement speaks only as of its date, and the information contained herein is subject to change. The District has no obligation to update the information in this Official Statement, except as required by the Continuing Disclosure Certificates to be executed by the District. See “OTHER LEGAL MATTERS – Continuing Disclosure.”
The purpose of this Official Statement is to supply information to prospective buyers of the Series 2016 Bonds. Quotations from and summaries and explanations of the Series 2016 Bonds, the resolution of the Board of Education of the District, adopted on February 24, 2016, providing for the issuance of each series of the Series 2016 Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof.
Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Series 2016 Bonds.
Copies of documents referred to herein and information concerning the Series 2016 Bonds are available from the District by contacting: Palos Verdes Peninsula Unified School District, 375 Via Almar, Palos Verdes Estates, California 90274, Attention: Deputy Superintendent. The District may impose a charge for copying, handling and mailing such requested documents. The District
The District, unified in 1961, is comprised of an area of approximately 24.4 square miles located in the western portion of the County of Los Angeles (the “County”). The District currently operates ten elementary schools, three intermediate schools, two comprehensive high schools, one continuation high school, an adult education program, a fee-based preschool and a child care program. The District serves the communities of the Palos Verdes Peninsula, consisting of the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates as well as some unincorporated areas on the Palos Verdes Peninsula. The District estimates that total current enrollment is approximately 11,499 students.
For additional information about the District, see APPENDIX A − “INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET,” and APPENDIX B – “FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2015.” See also APPENDIX C − “THE ECONOMY OF THE DISTRICT” for economic and demographic information regarding the region encompassing the District.
THE SERIES 2016 BONDS
Authority for Issuance
Each series of the Series 2016 Bonds is issued by the District pursuant to provisions of Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code and other applicable law, and a resolution adopted by the Board of Education of the District on February 24, 2016, providing for the issuance of each series of the Series 2016 Bonds (the “Resolution”).
Purpose of Issue
Proceeds from the Series 2016A Bonds are expected to be used (i) to refund, on a current basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2005 (Measure R), Series 2006 (as originally issued, the “Measure R Series 2006 Bonds”), (ii) to refund, on a current basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2005 (Measure S), Series 2006 (as originally issued, the “Measure S Series 2006 Bonds”), (iii) to refund, on an advance basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Bonds, Election of 2005 (Measure S), Series 2009 (as originally issued, the “Measure S Series 2009 Bonds”), and (iv) to pay costs of issuance of the Series 2016A Bonds.
Proceeds from the Series 2016B Bonds are expected to be used (i) to refund, on a current basis, a portion of the District’s outstanding Palos Verdes Peninsula Unified School District (Los Angeles County, California) General Obligation Refunding Bonds, Series 2006 (as originally issued, the “Series 2006 Refunding Bonds”), and (ii) to pay costs of issuance of the Series 2016B Bonds.
See “−Outstanding Bonds; Plan of Finance” and “−Estimated Sources and Uses of Funds” below.
Forward Delivery of Series 2016B Bonds
The District will deliver the Series 2016A Bonds on or about June 3, 2016, and the Series 2016B Bonds on or about August 4, 2016, each in book-entry form. The forward delivery of the Series 2016B Bonds is necessary to comply with certain federal income tax requirement under the Code for a current refunding of the Prior 2006 Refunding Bonds (as defined herein; see “– Plan of Refunding” below).
2 There are certain risks associated with the forward delivery of the Series 2016B Bonds. See “MISCELLANEOUS – Underwriting – Series 2016B Bonds – Forward Delivery” herein.
Form and Registration
Each series of the Series 2016 Bonds will be issued in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to purchasers of the Series 2016 Bonds (the “Beneficial Owners”) under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not receive physical delivery of certificates from the District representing their interests in the Series 2016 Bonds being purchased. Payments of the principal of, premium, if any, and interest on the Series 2016 Bonds will be made by U.S. Bank National Association, as agent for the County of Los Angeles Treasurer and Tax Collector, the paying agent for the Series 2016 Bonds (the “Paying Agent”), to DTC, and such payments will be remitted by DTC to the participants in DTC for subsequent disbursement to the Beneficial Owners of the Series 2016 Bonds. See APPENDIX H − “BOOK-ENTRY ONLY SYSTEM.”
Payment of Principal and Interest
The Series 2016A Bonds shall be dated the date of their delivery, and shall bear interest at the rates set forth in the related table on the inside cover page hereof, payable on February 1 and August 1 of each year, commencing on August 1, 2016 (each a “Series 2016A Interest Payment Date”), calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Series 2016B Bonds shall be dated the date of their delivery, and shall bear interest at the rates set forth in the related table on the inside cover page hereof, payable on May 1 and November 1 of each year, commencing on November 1, 2016 (each a “Series 2016B Interest Payment Date” and together with the Series 2016A Interest Payment Date, the “Interest Payment Date”), calculated on the basis of a 360-day year consisting of twelve 30-day months.
Each series of the Series 2016 Bonds shall be issued in denominations of $5,000 or any integral multiples thereof, and shall bear interest from the applicable Interest Payment Date next preceding the date of authentication thereof unless it is authenticated as of a date during the period from the 15th calendar day of the month immediately preceding such Interest Payment Date whether or not such day is a business day (each, a “Record Date”) to such Interest Payment Date, inclusive, in which event it shall bear interest from such Interest Payment Date, or unless it is authenticated on or before the Record Date preceding the first applicable Interest Payment Date for such Series 2016 Bonds, in which event it shall bear interest from its dated date; provided, however, that if, at the time of authentication of any Series 2016 Bond, interest is in default on any outstanding Series 2016 Bonds, such Series 2016 Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the outstanding Series 2016 Bonds.
Interest on each series of the Series 2016 Bonds shall be paid in lawful money of the United States on each applicable Interest Payment Date. Interest shall be paid by check of the Paying Agent mailed on each applicable Interest Payment Date (if a business day, or on the next business day if the Interest Payment Date does not fall on a business day) to the registered owners thereof (the “Owners”) as of the Record Date preceding such Interest Payment Date at their respective addresses shown on the registration books (the “Registration Books”) maintained by the Paying Agent or at such address as the Owner may have filed with the Paying Agent for that purpose, except that the payment shall be made by wire transfer of immediately available funds to any Owner of at least $1,000,000 of outstanding Series 2016 Bonds who shall have requested in writing such method of payment of interest prior to the close of business on the Record Date immediately preceding any applicable Interest Payment Date.
3 The principal of each series of the Series 2016 Bonds is payable in lawful money of the United States of America upon the surrender thereof at the principal corporate trust office of the Paying Agent at the maturity thereof. So long as the Series 2016 Bonds are held by Cede & Co., as nominee of DTC, payment shall be made by wire transfer. See APPENDIX H − “BOOK-ENTRY ONLY SYSTEM.”
Redemption/No Early Redemption
Optional Redemption of Series 2016A Bonds. The Series 2016A Bonds maturing on or after August 1, 2027, are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after August 1, 2026, at a redemption price equal to the principal amount of the Series 2016A Bonds called for redemption, together with interest accrued thereon to the date of redemption, without premium.
No Early Redemption for the Series 2016B Bonds. The Series 2016B Bonds are not subject to redemption prior to their respective stated maturity dates.
Selection of Series 2016A Bonds for Redemption. If less than all of the Series 2016A Bonds are called for redemption, such Series 2016A Bonds shall be redeemed as directed by the District, or if not so directed, in inverse order of maturities. Whenever less than all of the outstanding Series 2016A Bonds of any one maturity are designated for redemption, the Paying Agent shall select the outstanding Series 2016A Bonds of such maturity to be redeemed by lot.
Notice of Redemption. Notice of redemption of any Series 2016A Bond will be given by the Paying Agent not less than 30 nor more than 60 days prior to the redemption date (i) by first class mail to the County and the respective Owners thereof at the addresses appearing on the bond registration books, and (ii) as may be further required in accordance with the applicable Continuing Disclosure Certificate. See APPENDIX E – “FORMS OF CONTINUING DISCLOSURE CERTIFICATES.”
Each notice of redemption will contain the following information: (i) the date of such notice; (ii) the name of the Series 2016A Bonds and the date of issue of the Series 2016A Bonds; (iii) the redemption date; (iv) the redemption price; (v) the dates of maturity or maturities of Series 2016A Bonds to be redeemed; (vi) if less than all of the Series 2016A Bonds of any maturity are to be redeemed, the distinctive numbers of the Series 2016A Bonds of each maturity to be redeemed; (vii) in the case of Series 2016A Bonds redeemed in part only, the respective portions of the principal amount of the Series 2016A Bonds of each maturity to be redeemed; (viii) the CUSIP number, if any, of each maturity of Series 2016A Bonds to be redeemed; (ix) a statement that such Series 2016A Bonds must be surrendered by the Owners at the principal corporate trust office of the Paying Agent, or at such other place or places designated by the Paying Agent; (x) notice that further interest on such Series 2016A Bonds will not accrue after the designated redemption date; and (xi) in the case of a conditional notice, that such notice is conditioned upon certain circumstances and the manner of rescinding such conditional notice.
Effect of Notice of Redemption. The actual receipt by the Owner of any Series 2016A Bond or by any securities depository or information service of notice of redemption shall not be a condition precedent to redemption. Neither the failure to receive the notice of redemption as provided in the Resolution, nor any defect in such notice, shall not affect the sufficiency of the proceedings for the redemption of such Series 2016A Bonds or the cessation of interest on the date fixed for redemption
When notice of redemption has been given substantially as described above and when the redemption price of the Series 2016A Bonds called for redemption is set aside, the Series 2016A Bonds designated for redemption shall become due and payable on the specified redemption date and interest shall cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Series 2016A Bonds at the place specified in the notice of redemption, such Series 2016A Bonds shall be
4 redeemed and paid at the redemption price thereof out of the money provided therefor. The Owners of such Series 2016A Bonds so called for redemption after such redemption date shall look for the payment of such Series 2016A Bonds and the redemption premium thereon, if any, only to moneys on deposit for the purpose in the interest and sinking fund of the District within the County treasury (the “Interest and Sinking Fund”) or the trust fund established for such purpose. All Series 2016A Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued.
Right to Rescind Notice. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption by causing written notice of the rescission to be given to the owners of the Series 2016A Bonds so called for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption moneys are not available in the Interest and Sinking Fund of the District or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Series 2016A Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Series 2016A Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission.
Defeasance
The District may pay and discharge any or all of any series of the Series 2016 Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money and/or non- callable direct obligations of the United States of America (including zero interest bearing State and Local Government Series) or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America, in an amount which will, together with the interest to accrue thereon and available moneys then on deposit in the Interest and Sinking Fund of the District, be fully sufficient to pay and discharge the indebtedness on such Series 2016 Bonds (including all principal and interest) at or before their respective maturity dates.
Unclaimed Moneys
Any money held in any fund created pursuant to the Resolution or by the Paying Agent or an escrow agent in trust for the payment of the principal of or interest on Series 2016 Bonds and remaining unclaimed for two years after the principal of all of such Series 2016 Bonds has become due and payable shall be transferred to the Interest and Sinking Fund of the District for payment of any outstanding bonds of the District payable from said fund; or, if no such bonds of the District are at such time outstanding, said moneys shall be transferred to the general fund of the District as provided and permitted by law.
Outstanding Bonds; Plan of Finance
Outstanding Bonds. Without regard to the Series 2016 Bonds, the District has ten additional outstanding series of bonds, each of which is secured by ad valorem taxes upon all property subject to taxation by the District. On June 6, 2000, more than two-thirds of the registered voters of the District voting on Measure K approved the issuance of bonds of the District in an aggregate principal amount not to exceed $46,000,000 (the “2000 Authorization”). On November 2, 2000, the County, at the request of the District, issued $20,550,000 aggregate principal amount of bonds (the “Series 2000 Bonds”) as the District’s first series under the 2000 Authorization. On April 3, 2002, the County, at the request of the District, issued $15,020,098.45 aggregate initial principal amount of bonds (the “Series 2002 Bonds”) as the District’s second series under the 2000 Authorization. On March 20, 2003, the County, at the request of the District, issued $10,427,361.70 aggregate initial principal amount of bonds (the “Series 2003 Bonds”) as the District’s third and final series under the 2000 Authorization. On January 26, 2005, the District issued $20,400,000 aggregate principal amount of bonds (the “Series 2005 Refunding Bonds”) to
5 advance refund a portion of the outstanding Series 2000 Bonds. The final maturity of the Series 2000 Bonds not refunded by the Series 2005 Refunding Bonds matured on September 1, 2010. On March 28, 2006, the District issued $11,865,000 aggregate principal amount of the Series 2006 Refunding Bonds to advance refund a portion of the outstanding Series 2002 Bonds. On August 6, 2015, the District issued $7,335,000 aggregate principal amount of bonds (the “Series 2015 Refunding Bonds”) to refund, on a current basis, a portion of the outstanding Series 2005 Refunding Bonds. The final maturity of the Series 2005 Refunding Bonds not refunded by the Series 2015 Refunding Bonds matured on November 1, 2015.
At an election held on November 8, 2005, the District received authorization (i) under Measure R, to issue bonds of the District in an aggregate principal amount not to exceed $30,000,000 to finance specific construction, repair and improvement projects for the District’s core academic facilities (the “Measure R Authorization”), and (ii) under Measure S, to issue bonds of the District in an aggregate principal amount not to exceed $10,000,000 to finance specific construction, repair and improvement projects for the District’s co-curricular facilities (the “Measure S Authorization” and together with the Measure R Authorization, the “2005 Authorizations”). Each measure required approval by at least 55% of the votes cast by eligible voters within the District. Measure R received an approval vote of 70.78% and Measure S received an approval vote of 66.99%.
On March 28, 2006, the County, at the request of the District, issued $23,004,232.85 aggregate initial principal amount of the Measure R Series 2006 Bonds, as the District’s first series under the Measure R Authorization, and $2,003,987.65 aggregate initial principal amount of the Measure S Series 2006 Bonds, as the District’s first series under the Measure S Authorization. On October 21, 2009, the County, at the request of the District, issued $6,994,336.95 aggregate initial principal amount of bonds (the “Measure R Series 2009 Bonds”) as the District’s second and final series under the Measure R Authorization, and $7,995,000 aggregate principal amount of the Measure S Series 2009 Bonds as the District’s second and final series under the Measure S Authorization. On March 11, 2014, the District issued $13,010,000 aggregate principal amount of its tax-exempt refunding bonds (the “Series 2014A Refunding Bonds”) to advance refund a portion of the (i) Series 2006 Refunding Bonds, (ii) Measure R Series 2006 Bonds, and (iii) Measure S Series 2006 Bonds. In addition, on March 11, 2014, the District issued $7,885,000 aggregate principal amount of its federally taxable refunding bonds (the “Series 2014B Refunding Bonds”) to advance refund a portion of the Series 2005 Refunding Bonds.
There is less than $3,000 in authorized but unissued principal bond amount for each of the 2000 Authorization, the Measure R Authorization and the Measure S Authorization, and, therefore, the District does not expect to issue bonds for any such remaining amounts.
Plan of Finance. The proceeds of the Series 2016A Bonds are expected to be issued (i) to refund and defease, on a current basis, a portion of the outstanding Measure R Series 2006 Bonds, maturing on September 1 in the years 2018 and 2019 (the “Prior Measure R Series 2006 Bonds”), (ii) to refund and defease, on a current basis, a portion of the outstanding Measure S Series 2006 Bonds, maturing on September 1 in the years 2017, 2020 and 2023 (the “Prior Measure S Series 2006 Bonds”), (iii) to refund and defease, on an advance basis, the District’s outstanding Measure S Series 2009 Bonds maturing on November 1 in the years 2020 through 2027, inclusive, 2029 and 2034 (the “Prior Measure S 2009 Bonds”), as further described in the following tables, and (iv) to pay certain costs of issuance of the Series 2016A Bonds.
The proceeds of the Series 2016B Bonds are expected to be issued (i) to refund, on a current basis, a portion of the outstanding Series 2006 Refunding Bonds, maturing on August 1 in the years 2017, 2018 and 2020 through 2023, inclusive (the “Prior Series 2006 Refunding Bonds”), and (ii) to pay certain costs of issuance of the Series 2016B Bonds. The Prior Measure R Series 2006 Bonds, the Prior Measure S Series 2006 Bonds, the Prior Series 2006 Refunding Bonds and the Prior Measure S Series 2009 Bonds are collectively referred to herein as the “Prior Bonds.”
6 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Prior Bonds to be Refunded
Prior Measure R Series 2006 Bonds Principal CUSIP† Maturities to be Amount to prior to Redemption Redemption Refunded be Refunded Refunding Date Price September 1, 2018 $535,000 697634C43 September 1, 2016 100% September 1, 2019 730,000 697634C50 September 1, 2016 100
Prior Measure S Series 2006 Bonds Principal CUSIP† Maturities to be Amount to prior to Redemption Refunded be Refunded Refunding Redemption Date Price September 1, 2017 $50,000 697634XE8 September 1, 2016 100% September 1, 2020 190,000 697634XF5 September 1, 2016 100 September 1, 2023 270,000 697634XG3 September 1, 2016 100
Prior Measure S Series 2009 Bonds Principal CUSIP† Maturities to be Amount to prior to Redemption Redemption Refunded be Refunded Refunding Date Price August 1, 2020 $200,000 697634YY3 August 1, 2019 100% August 1, 2021 250,000 697634YZ0 August 1, 2019 100 August 1, 2022 300,000 697634ZA4 August 1, 2019 100 August 1, 2023 300,000 697634ZB2 August 1, 2019 100 August 1, 2024 330,000 697634ZC0 August 1, 2019 100 August 1, 2025 115,000 697634ZF3 August 1, 2019 100 August 1, 2026 145,000 697634ZG1 August 1, 2019 100 August 1, 2027 175,000 697634ZH9 August 1, 2019 100 August 1, 2029 1,000,000 697634ZD8 August 1, 2019 100 August 1, 2034 4,415,000 697634ZE6 August 1, 2019 100
† CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers.
7 Prior Series 2006 Refunding Bonds Principal CUSIP† Maturities to be Amount to prior to Redemption Refunded be Refunded Refunding Redemption Date Price November 1, 2017 $915,000 697634B44 November 1, 2016 100% November 1, 2018 480,000 697634B51 November 1, 2016 100 November 1, 2020 1,075,000 697634B69 November 1, 2016 100 November 1, 2021 1,305,000 697634B77 November 1, 2016 100 November 1, 2022 1,435,000 697634B85 November 1, 2016 100 November 1, 2023 1,335,000 697634B93 November 1, 2016 100
The maturities of the District’s outstanding Measure R Series 2006 Bonds listed in the following table will not be refunded with proceeds of the Series 2016A Bonds.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Unrefunded Measure R Series 2006 Bonds
Unrefunded Maturity Maturity Principal Value for Date Amount CABs CUSIP† September 1, 2016 $ 475,000.00 - 697634WE9 September 1, 2028 706,596.00 $2,120,000 697634WQ2 September 1, 2029 2,977,905.15 9,405,000 697634WR0 September 1, 2030 2,998,019.70 9,945,000 697634WS8 September 1, 2031 1,676,712.00 5,700,000 697634WT6
The maturities of the District’s outstanding Measure S Series 2006 Bonds listed in the following table will not be refunded with proceeds of the Series 2016A Bonds.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Unrefunded Measure S Series 2006 Bonds
Unrefunded Maturity Maturity Principal Value for Date Amount CABs CUSIP† September 1, 2016 $45,000.00 - 697634XD0 September 1, 2027 31,882.50 $150,000 697634XJ7 September 1, 2028 30,648.15 155,000 697634XK4 September 1, 2029 30,350.10 165,000 697634XL2 September 1, 2030 29,944.25 175,000 697634XM0 September 1, 2031 16,162.65 105,000 697634XN8
† CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers.
8 The maturities of the District’s outstanding Measure S Series 2009 Bonds listed in the following table will not be refunded with proceeds of the Series 2016A Bonds.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Unrefunded Measure S Series 2009 Bonds
Unrefunded Maturity Principal Date Amount CUSIP† September 1, 2016 $100,000 697634YU1 September 1, 2017 100,000 697634YV9 September 1, 2018 125,000 697634YW7 September 1, 2019 20,000 697634YX5
The maturities of the District’s outstanding Series 2006 Refunding Bonds listed in the following table will not be refunded with proceeds of the Series 2016B Bonds.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Unrefunded Series 2006 Refunding Bonds
Unrefunded Maturity Principal Date Amount CUSIP† November 1, 2016 $830,000 697634YA5
The District and U.S. Bank National Association, as escrow bank (the “Escrow Bank”) will enter into an Escrow Agreement, dated as of June 1, 2016 (the “Measures R/S Escrow Agreement”), with respect to the Prior Measure R Series 2006 Bonds, the Prior Measure S Series 2006 Bonds and the Prior Measure S Series 2009 Bonds being refunded, pursuant to which the District will deposit a portion of the proceeds from the sale of the Series 2016A Bonds into a special fund to be held by the Escrow Bank. The amounts deposited with the Escrow Bank with respect to the Prior Measure R Series 2006 Bonds, the Prior Measure S Series 2006 Bonds and the Prior Measure S Series 2009 Bonds, which will be held pursuant to the Measures R/S Escrow Agreement, will be used to purchase certain United States governmental obligations or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America, the principal of and interest on which (together with any uninvested amount) will be sufficient to enable the Escrow Bank to pay the interest due on such Prior Bonds to their respective first optional redemption date being September 1, 2016 with respect to the Prior Measure R Series 2006 Bonds and the Prior Measure S Series 2006 Bonds, and August 1, 2019 with respect to the Prior Measure S Series 2009 Bonds, and to redeem such Prior Measure R Series 2006 Bonds, Prior Measure S Series 2006 Bonds and Prior Measure S Series 2009 Bonds at a redemption price equal to 100% of the principal amount of such Prior Measure R Series 2006 Bonds, Prior Measure S Series 2006 Bonds and Prior Measure S Series 2009 Bonds being refunded on the applicable redemption date in accordance with the schedule set forth in the Measures R/S Escrow Agreement. See “ESCROW VERIFICATION” herein.
† CUSIP numbers are provided for convenience of reference only. Neither the District nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers.
9 The District and the Escrow Bank will enter into an Escrow Agreement, dated as of August 1, 2016 (the “2006 Escrow Agreement”), with respect to the Prior Series 2006 Refunding Bonds, pursuant to which the District will deposit a portion of the proceeds from the sale of the Series 2016B Bonds into a special fund or funds to be held by the Escrow Bank. The amounts deposited with the Escrow Bank with respect to the Prior Series 2006 Refunding Bonds will be used to purchase certain United States governmental obligations or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America, the principal of and interest on which (together with any uninvested amount) will be sufficient to enable the Escrow Bank to pay the interest due on the Prior Series 2006 Refunding Bonds to their first optional redemption date being November 1, 2016, and to redeem such Prior Series 2006 Refunding Bonds at a redemption price equal to 100% of the principal amount of such Prior Series 2006 Refunding Bonds being refunded on the redemption date in accordance with the schedule set forth in the 2006 Escrow Agreement. See “ESCROW VERIFICATION” herein.
Amounts on deposit with the Escrow Bank pursuant to the Measures R/S Escrow Agreement and the 2006 Escrow Agreement are not available to pay debt service on the Series 2016 Bonds. The Series 2016 Bonds are payable from ad valorem taxes to be levied on property within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series 2016 Bonds. The proceeds of the levy shall be deposited to the credit of the Interest and Sinking Fund of the District. Such proceeds shall be applied for the payment of principal of and interest on the Series 2016 Bonds. Moneys in the Interest and Sinking Fund will be invested on behalf of the District in any one or more investments generally permitted to school districts authorized pursuant to Section 53601 et seq. or Section 53635 et seq. of the California Government Code by the County Treasurer and Tax Collector, and consistent with the investment policy of the County. See APPENDIX F – “THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS” and APPENDIX G − “COUNTY OF LOS ANGELES INVESTMENT POLICY.”
10 Debt Service Schedule
Annual debt service requirements of each series of the Series 2016 Bonds, assuming no early redemptions, is set forth in the following tables.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A
Year Ending Total Debt August 1, Principal Interest Service 2016 $125,000.00 $62,140.55 $187,140.55 2017 45,000.00 383,200.00 428,200.00 2018 550,000.00 382,300.00 932,300.00 2019 740,000.00 360,300.00 1,100,300.00 2020 245,000.00 323,300.00 568,300.00 2021 305,000.00 311,050.00 616,050.00 2022 365,000.00 295,800.00 660,800.00 2023 375,000.00 277,550.00 652,550.00 2024 315,000.00 258,800.00 573,800.00 2025 120,000.00 243,050.00 363,050.00 2026 150,000.00 237,050.00 387,050.00 2027 180,000.00 229,550.00 409,550.00 2028 455,000.00 220,550.00 675,550.00 2029 520,000.00 197,800.00 717,800.00 2030 600,000.00 171,800.00 771,800.00 2031 670,000.00 141,800.00 811,800.00 2032 900,000.00 108,300.00 1,008,300.00 2033 990,000.00 72,300.00 1,062,300.00 2034 1,090,000.00 32,700.00 1,122,700.00 Total: $8,740,000.00 $4,309,340.55 $13,049,340.55
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B
Year Ending Total Debt November 1, Principal Interest Service 2016 - $68,935.42 $68,935.42 2017 $900,000.00 285,250.00 1,185,250.00 2018 475,000.00 240,250.00 715,250.00 2019 - 216,500.00 216,500.00 2020 1,000,000.00 216,500.00 1,216,500.00 2021 1,120,000.00 176,500.00 1,296,500.00 2022 1,245,000.00 120,500.00 1,365,500.00 2023 1,165,000.00 58,250.00 1,223,250.00 Total: $5,905,000.00 $1,382,685.42 $7,287,685.42
11 9,636,800 8,768,300 9,262,300 6,078,371 2,950,550 5,701,103 6,351,930 9,278,300 5,419,504 6,642,994 6,795,550 7,189,050 7,829,800 8,043,800 8,895,300 9,467,700 10,891,800 10,287,800 $5,152,988 Service Aggregate Total Total Debt $144,643,939 ------216,500 715,250 $68,935 Bonds 1,216,500 1,185,250 1,296,500 1,365,500 1,223,250 $7,287,685 Series 2016B Series 811,800 771,800 717,800 675,550 568,300 409,550 428,200 932,300 616,050 660,800 652,550 573,800 363,050 387,050 Bonds Bonds $187,141 1,008,300 1,062,300 1,100,300 1,122,700 Series 2016A Series $13,049,341 ------309,750 309,750 309,750 309,750 309,750 Bonds Bonds 1,749,750 1,747,750 1,747,250 1,743,000 $9,943,450 $1,406,950 Series 2015 Series ------Bonds $261,811 1,676,821 1,677,380 1,451,241 1,546,540 1,678,444 $8,292,236 Refunding Refunding Series 2014B Series ------Bonds Bonds $636,500 1,495,000 1,663,500 1,447,250 1,131,500 1,196,700 1,863,750 1,524,500 1,625,500 1,748,750 1,847,750 1,968,250 Refunding Refunding $18,148,950 Series 2014A Series ------(3) 206,500 113,563 135,563 $283,456 $739,081 Bonds Measure S Measure S Series 2009 Series ------Bonds 7,760,000 8,200,000 8,345,000 $3,020,000 Measure R Series 2009 Series $27,325,000 ------(3) 105,000 175,000 165,000 155,000 150,000 $57,456 $807,456 (County of Los Angeles, California) California) Los Angeles, (County of Bonds Measure S Measure S Series 2006 Series (4) ------(3) General Obligation Bonds - Aggregate Debt Service Service Debt -Bonds Aggregate Obligation General 5,700,000 9,945,000 9,405,000 2,120,000 $519,665 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT DISTRICT SCHOOL UNIFIED PENINSULA PALOS VERDES Bonds Measure R Series 2006 Series $27,689,665 ------(2) Bonds $1,001,073 $1,001,073 Refunding Refunding Series 2006 Series ------905,000 800,000 865,000 Bonds $730,000 1,085,000 1,295,000 1,495,000 1,940,000 1,945,000 2,185,000 1,665,000 6,855,000 Series 2003 Series $21,765,000 ------Bonds Bonds 1,905,000 4,875,000 Debt service on each series of the District’s outstanding Debt bonds,on each service of series the the including outstanding no Series 2016 Bonds, early District’s assuming is redemptions, shown $1,815,000 $8,595,000 Series 2002 Series (1) : (5) in the following table: table: in following the Aggregate Debt Service Service Debt Aggregate 2032 2032 2031 2031 2033 2034 2030 2030 2020 2020 2029 2019 2019 2021 2028 2017 2017 2018 2022 2023 2024 2025 2026 2027 2016 2016 Total The Series 2002 Bonds, Series 2003 Bonds, Series 2006 Refunding Bonds and the Series 2016B Bonds have principal maturing on November 1. The Measure R Series 2006 Bonds, Measure S Series 2006 Bonds and Series 2014 Bonds. 2016B Series the of proceeds from Bonds Refunding 2006 Series Prior the of refunding planned the Reflects 2016A Bonds. Series the of proceeds from Bonds 2009 Series S Measure Prior the and Bonds 2006 S Series Measure the Prior 2006 Bonds, R Series Measure Prior the of refunding planned the Reflects 2031. 1, March is maturity Final to rounding. due components sum of not equal totals may Column Period Period Ending November 1, ______(1) 1. August on maturing principal have Bonds 2016A Series the and 2009 Bonds S Series Measure the Bonds, 2009 Series R Measure 1. The on September maturing principal have Bonds Refunding (2) (3) (4) (5)
12 Estimated Sources and Uses of Funds
The proceeds of the Series 2016A Bonds are expected to be applied as follows:
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A
Estimated Sources and Uses of Funds
Sources of Funds: Principal Amount of Series 2016A Bonds $8,740,000.00 Plus Original Issue Premium 1,467,378.35 Total Sources of Funds $10,207,378.35
Uses of Funds: Escrow Fund $9,998,360.53 Underwriter’s Discount 65,550.00 Costs of Issuance(1) 143,467.82 Total Uses of Funds $10,207,378.35 ______(1) Includes bond counsel fees, disclosure counsel fees, financial advisor and other consultant fees, rating agency fees, initial paying agent fees, printing fees and other miscellaneous fees and expenses.
The proceeds of the Series 2016B Bonds are expected to be applied as follows:
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery)
Estimated Sources and Uses of Funds
Sources of Funds: Principal Amount of Series 2016B Bonds $5,905,000.00 Plus Original Issue Premium 924,521.40 Total Sources of Funds $6,829,521.40
Uses of Funds: Escrow Fund $6,682,873.13 Underwriter’s Discount 44,287.50 Costs of Issuance(1) 102,360.77 Total Uses of Funds $6,829,521.40 ______(1) Includes bond counsel fees, disclosure counsel fees, financial advisor and other consultant fees, rating agency fees, initial paying agent fees, printing fees and other miscellaneous fees and expenses.
13 SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2016 BONDS
General
In order to provide sufficient funds for repayment of principal and interest when due on a school district’s general obligation bonds, the board of supervisors of the county, the superintendent of schools of which has jurisdiction over such school district, is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by such school district, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the school district. The assessor of the county in which the school district lies must annually certify to the board of supervisors the assessed value of all taxable property in the county situated in the school district’s boundaries. The board of supervisors must levy upon the property of the school district within its own county the rate of tax that will be sufficient to raise not less than the amount needed to pay the interest and any portion of the principal of the bonds that is to become due during the year.
Accordingly, the Board of Supervisors of the County must levy upon the property of the District the rate of tax that will be sufficient to provide sufficient funds for repayment of principal and interest when due on the Series 2016 Bonds. When collected, the tax revenues will be deposited by the County in the District’s Interest and Sinking Fund, which is required to be maintained by the County and to be used solely for the payment of bonds of the District. Moneys in the Interest and Sinking Fund will be invested by the County on behalf of the District in any one or more investments generally permitted to school districts authorized pursuant to Section 53601 et seq. or Section 53635 et seq. of the California Government Code by the County Treasurer and Tax Collector, and consistent with the investment policy of the County. See APPENDIX F – “THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS” and APPENDIX G – “COUNTY OF LOS ANGELES INVESTMENT POLICY” herein.
Statutory Lien on Taxes (Senate Bill 222)
Pursuant to Section 53515 of the California Government Code (which became effective on January 1, 2016), all general obligation bonds issued by local agencies, including refunding bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax. Section 53515 provides that the lien will automatically arise, without the need for any action or authorization by the local agency or its governing board, and will be valid and binding from the time the bonds are executed and delivered. Section 53515 further provides that the revenues received pursuant to the levy and collection of the tax will be immediately subject to the lien, and the lien will immediately attach to the revenues and be effective, binding and enforceable against the local agency, its successor, transferees and creditors, and all others asserting rights therein, irrespective of whether those parties have notice of the lien and without the need for physical delivery, recordation, filing or further act.
Pledge of Tax Revenues
The District has pledged all revenues from the ad valorem taxes collected from the levy by the Board of Supervisors of the County for the payment of all bonds, including Series 2016 Bonds (collectively, the “Bonds”), of the District heretofore or hereafter issued pursuant to voter approved measures of the District and amounts on deposit in each Interest and Sinking Fund of the District to the payment of the principal or redemption price of and interest on the related series of Bonds. The Bond Resolution provides that the property taxes and amounts held in each Interest and Sinking Fund shall be immediately subject to this pledge, and the pledge shall constitute a lien and security interest which shall immediately attach to the property taxes and amounts held in each Interest and Sinking Fund to secure the payment of the Bonds and shall be effective, binding, and enforceable against the District, its successors,
14 creditors and all others irrespective of whether those parties have notice of the pledge and without the need of any physical delivery, recordation, filing, or further act. This pledge constitutes an agreement between the District and the owners of Bonds to provide security for the Bonds in addition to any statutory lien that may exist, and the Bonds secured by the pledge are or were issued to finance one or more of the projects specified in the applicable voter-approved measure.
Property Taxation System
Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the District. School districts receive property taxes for payment of voter- approved bonds as well as for general operating purposes.
Local property taxation is the responsibility of various county officers. For each school district located in a county, the county assessor computes the value of locally assessed taxable property. Based on the assessed value of property and the scheduled debt service on outstanding bonds in each year, the county auditor-controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the county board of supervisors for approval. The county treasurer and tax collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the treasurer and tax collector, as ex officio treasurer of each school district located in the county, holds school district funds, including taxes collected for payment of school bonds, and is charged with payment of principal and interest on the bonds when due.
Assessed Valuation of Property Within the District
Taxable property located in the District has a 2015-16 assessed value of $21,525,422,806. All property (real, personal and intangible) is taxable unless an exemption is granted by the California Constitution or United States law. Under the State Constitution, exempt classes of property include household and personal effects, intangible personal property (such as bank accounts, stocks and bonds), business inventories, and property used for religious, hospital, scientific and charitable purposes. The State Legislature may create additional exemptions for personal property, but not for real property. Most taxable property is assessed by the assessor of the county in which the property is located. Some special classes of property are assessed by the State Board of Equalization, as described below.
Taxes are levied for each fiscal year on taxable real and personal property assessed as of the preceding January 1, at which time the lien attaches. The assessed value is required to be adjusted during the course of the year when property changes ownership or new construction is completed. State law also affords an appeal procedure to taxpayers who disagree with the assessed value of any property. When necessitated by changes in assessed value during the course of a year, a supplemental assessment is prepared so that taxes can be levied on the new assessed value before the next regular assessment roll is completed. See “−Appeals of Assessed Valuation; Blanket Reductions of Assessed Values” below.
Under the State Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how those assets are assessed, and which
15 local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property’s value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect: generally reducing the assessed value in the District, as the value is shared among the other jurisdictions in the County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State’s methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District.
Locally taxed property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is “unsecured,” and is assessed on the “unsecured roll.” Secured property assessed by the State Board of Equalization is commonly identified for taxation purposes as “utility” property.
The following table sets forth the assessed valuation of the various classes of property in the District’s boundaries from fiscal year 2006-07 through 2015-16.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Assessed Valuations Fiscal Years 2006-07 through 2015-16
Annual % Fiscal Year Local Secured Utility Unsecured Total Change 2006-07 $15,335,612,483 $448,000 $65,482,185 $15,401,542,668 - 2007-08 16,181,772,306 448,000 74,569,707 16,256,790,013 5.55% 2008-09 17,022,911,505 448,000 80,532,456 17,103,891,961 5.21 2009-10 17,298,583,217 448,000 79,676,130 17,378,707,347 1.61 2010-11 17,475,528,812 448,000 72,206,216 17,548,183,028 0.98 2011-12 17,924,477,448 448,000 99,252,693 18,024,178,141 2.71 2012-13 18,451,188,371 448,000 94,798,065 18,546,434,436 2.90 2013-14 19,409,812,773 448,000 93,545,158 19,503,805,931 5.16 2014-15 20,377,358,541 448,000 95,601,554 20,473,408,095 4.97 2015-16 21,434,104,053 840,000 90,478,753 21,525,422,806 4.88 ______Source: California Municipal Statistics, Inc.; annual percentage change provided by Stifel, Nicolaus & Company, Incorporated.
Assessments may be adjusted during the course of the year when real property changes ownership or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District’s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc. When necessitated by changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year. See also “−Appeals of Assessed Valuation; Blanket Reductions of Assessed Values” below.
16 Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of property tax assessment appeals provided for under State law. The first type of appeal, commonly referred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2% annually unless and until another change in ownership and/or additional new construction or reconstruction activity occurs.
The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8 was approved by the voters in 1978), can result if factors occur causing a decline in the market value of the property to a level below the property’s then current taxable value (escalated base year value). Pursuant to State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owner’s property by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. A property owner desiring a Proposition 8 reduction of the assessed value of such owner’s property in any one year must submit an application to the county assessment appeals board (the “Appeals Board”). Following a review of the application by the county assessor’s office, the county assessor may offer to the property owner the opportunity to stipulate to a reduced assessment, or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than 2%) following the year for which the reduction application is filed. However, the county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then-current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted.
In addition, Article XIIIA of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. This measure is computed on a calendar year basis. According to representatives of the County assessor’s office, the County has in the past, pursuant to Article XIIIA of the State Constitution, ordered blanket reductions of assessed property values and corresponding property tax bills on single family residential properties when the value of the property has declined below the current assessed value as calculated by the County.
No assurance can be given that property tax appeals and/or blanket reductions of assessed property values will not significantly reduce the assessed valuation of property within the District in the future.
See APPENDIX A – “INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET – CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Limitations on Revenues” for a discussion of other limitations on the valuation of real property with respect to ad valorem taxes.
17 Bonding Capacity. As a unified school district, the District may issue bonds in an amount up to 2.50% of the assessed valuation of taxable property within its boundaries. The District’s fiscal year 2015-16 gross bonding capacity (also commonly referred to as the “bonding limit” or “debt limit”) is approximately $538.14 million and its net bonding capacity is approximately $468.8 million (taking into account current outstanding debt before issuance of the Series 2016 Bonds and the refunding of the Prior Bonds). Refunding bonds may be issued without regard to this limitation; however, once issued, the outstanding principal of any refunding bonds is included when calculating the District’s bonding capacity.
Assessed Valuation by Jurisdiction. The following table describes a distribution of taxable real property located in the District by jurisdiction.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) 2015-16 Assessed Valuation by Jurisdiction(1)
% of Assessed Valuation % of Assessed Valuation Jurisdiction in Jurisdiction in District District of Jurisdiction District City of Palos Verdes Estates $6,433,708,879 29.89% $6,433,708,879 100.00% City of Rancho Palos Verdes 10,186,566,727 47.32 $11,257,666,836 90.49 City of Rolling Hills 1,460,366,556 6.78 $1,460,366,556 100.00 City of Rolling Hills Estates 2,928,139,367 13.60 $2,928,139,367 100.00 Unincorporated Los Angeles County 516,641,277 2.40 $94,074,237,523 0.55 Total District $21,525,422,806 100.00%
Los Angeles County $21,525,422,806 100.00% $1,274,286,494,005 1.69% ______(1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc.
18 Assessed Valuation by Land Use. The following table sets forth a distribution of taxable property located in the District on the fiscal year 2015-16 tax roll by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) 2015-16 Assessed Valuation and Parcels by Land Use
2015-16 % of No. of % of Non-Residential: Assessed Valuation(1) Total Parcels Total Commercial $944,514,650 4.41% 257 1.09% Vacant Commercial 70,204,097 0.33 92 0.39 Vacant Industrial 210,935 0.00 6 0.03 Recreational 49,727,135 0.23 41 0.17 Government/Social/Institutional 41,705,196 0.19 288 1.22 Miscellaneous 25,098,466 0.12 57 0.24 Subtotal Non-Residential $1,131,460,479 5.28% 741 3.15%
Residential: Single Family Residence $19,176,157,945 89.47% 20,576 87.52% Condominium/Townhouse 599,040,787 2.79 1,386 5.90 2-4 Residential Units 22,599,726 0.11 27 0.11 5+ Residential Units/Apartments 266,253,508 1.24 41 0.17 Vacant Residential 238,591,608 1.11 740 3.15 Subtotal Residential $20,302,643,574 94.72% 22,770 96.85%
TOTAL $21,434,104,053 100.00% 23,511 100.00% ______(1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.
19 Assessed Valuation of Single-Family Homes. The following table sets forth the assessed valuation of single-family homes in the District’s boundaries for fiscal year 2015–16.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) 2015-16 Per Parcel Assessed Valuation of Single Family Homes
2015-16 Average Assessed Median Assessed No. of Parcels Assessed Valuation Valuation Valuation Single Family Residential 20,576 $19,176,157,945 $931,967 $775,888
2015-16 No. of % of Cumulative % of Cumulative Assessed Valuation Parcels(1) Total % of Total Total Valuation Total % of Total $0 - $99,999 193 0.938% 0.938% $16,397,866 0.086% 0.086% $100,000 - $199,999 3,245 15.771 16.709 477,117,194 2.488 2.574 $200,000 - $299,999 1,360 6.610 23.318 334,310,683 1.743 4.317 $300,000 - $399,999 945 4.593 27.911 330,962,287 1.726 6.043 $400,000 - $499,999 987 4.797 32.708 445,937,423 2.325 8.368 $500,000 - $599,999 1,173 5.701 38.409 646,640,386 3.372 11.740 $600,000 - $699,999 1,318 6.406 44.814 856,423,223 4.466 16.207 $700,000 - $799,999 1,358 6.600 51.414 1,015,801,146 5.297 21.504 $800,000 - $899,999 1,435 6.974 58.388 1,218,584,573 6.355 27.858 $900,000 - $999,999 1,432 6.960 65.348 1,357,717,147 7.080 34.939 $1,000,000 - $1,099,999 1,083 5.263 70.611 1,136,113,834 5.925 40.863 $1,100,000 - $1,199,999 973 4.729 75.340 1,115,338,995 5.816 46.680 $1,200,000 - $1,299,999 803 3.903 79.243 1,000,875,035 5.219 51.899 $1,300,000 - $1,399,999 673 3.271 82.514 907,933,113 4.735 56.634 $1,400,000 - $1,499,999 505 2.454 84.968 731,225,430 3.813 60.447 $1,500,000 - $1,599,999 457 2.221 87.189 707,614,037 3.690 64.137 $1,600,000 - $1,699,999 343 1.667 88.856 564,571,086 2.944 67.081 $1,700,000 - $1,799,999 291 1.414 90.270 509,116,108 2.655 69.736 $1,800,000 - $1,899,999 242 1.176 91.446 447,537,428 2.334 72.070 $1,900,000 - $1,999,999 229 1.113 92.559 446,235,959 2.327 74.397 $2,000,000 and greater 1,531 7.441 100.000 4,909,704,992 25.603 100.000 Total 20,576 100.000% $19,176,157,945 100.000% ______(1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.
20 Largest Taxpayers in District. The following table sets forth the twenty taxpayers with the greatest combined ownership of taxable property in the District on the fiscal year 2015-16 tax roll, and the assessed valuation of all property owned by those taxpayers in all taxing jurisdictions within the District, are shown below.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Largest 2015-16 Local Secured Taxpayers
Primary 2015-16 Assessed Percent of Property Owner Land Use Valuation Total(1) 1. Long Point Development LLC Hotel $439,401,724 2.05% 2. Vestar Peninsula Retail LLC Shopping Center 89,448,496 0.42 3. Pop AIV LLC Shopping Center 86,800,250 0.40 4. PPC Villas RPV LLC Apartments 68,329,619 0.32 5. PV Victoria Apartments LLC Apartments 50,157,730 0.23 6. CPT Vista Catalina LLC Apartments 36,562,167 0.17 7. Tei Fu Chen Residence 32,935,596 0.15 8. Western Riviera Investors Apartments 31,440,822 0.15 9. Golden Cove LLC Shopping Center 29,148,189 0.14 10. Belmont Village RPV LP Rest Home 24,590,655 0.11 11. California Water Service Co. Water Company 24,556,960 0.11 12. John Tu Residence 20,378,726 0.10 13. Taylor Morrison of California LLC Residential Properties 18,665,634 0.09 14. VHPS LLC Residential Properties 18,065,127 0.08 15. Anastasi Development Company LLC Professional Building 17,725,764 0.08 16. Eric C. Johnson Residence 17,502,987 0.08 17. John Z. Blazevich Residence 17,214,872 0.08 18. Masafumi Miyamoto Residence 14,866,239 0.07 19. Yi Lin Residence 13,500,000 0.06 20. Jackson and Julie Yang Residence 13,275,386 0.06 $1,064,566,943 4.97% ______(1) 2015-16 local secured assessed valuation: $21,434,104,053. Source: California Municipal Statistics, Inc.
The more property (by assessed value) owned by a single taxpayer, the more tax collections are exposed to weakness, if any, in such taxpayer’s financial situation and ability or willingness to pay property taxes in a timely manner. Furthermore, assessments may be appealed by taxpayers seeking a reduction as a result of economic and other factors beyond the District’s control. See “−Appeals of Assessed Valuation; Blanket Reductions of Assessed Values” above.
Tax Rates
The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed 1% of the full cash value of the property, and State law requires the full 1% tax to be levied. The levy of special ad valorem property taxes in excess of the 1% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness.
The rate of tax necessary to pay fixed debt service on the Series 2016 Bonds in a given year depends on the assessed value of taxable property in that year. (The rate of tax imposed on unsecured property for repayment of the Series 2016 Bonds is based on the prior year’s secured property tax rate.) Economic and other factors beyond the District’s control, such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or partial destruction of taxable property
21 caused by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc., could cause a reduction in the assessed value of taxable property within the District and necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Series 2016 Bonds. Issuance of additional authorized bonds in the future might also cause the tax rate to increase.
Typical Tax Rate Area. The following table sets forth ad valorem property tax rates for the last five fiscal years in typical Tax Rate Areas of the District (TRA 7090 and TRA 7112). TRA 7090 comprises approximately 13.24% of the total assessed value of the District. TRA 7112 comprises approximately 27.23% of the total assessed value of the District.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Typical Total Tax Rate per $100 of Assessed Valuation Fiscal Years 2011-12 through 2015-16 2011-12 2012-13 2013-14 2014-15 2015-16 General $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 Metropolitan Water District 0.003700 0.003500 0.003500 0.003500 0.003500 Palos Verdes Peninsula USD 0.022511 0.024102 0.023109 0.023289 0.023433 Los Angeles Community College District 0.035296 0.048750 0.044541 0.040174 0.035755 Palos Verdes Library District 0.006359 0.006441 0.006118 0.005854 0.005630 Total Tax Rate $1.067866 $1.082793 $1.077268 $1.072817 $1.068318 ______Source: California Municipal Statistics, Inc.
Tax Charges and Delinquencies
A school district’s share of the 1% countywide tax is based on the actual allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year 1978-79, as adjusted according to a complicated statutory process enacted since that time. Revenues derived from special ad valorem taxes for voter-approved indebtedness, including the Series 2016 Bonds, are reserved to the taxing jurisdiction that approved and issued the debt, and may only be used to repay that debt.
The county treasurer and tax collector prepares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments: the first installment is due on November 1, and becomes delinquent after December 10. The second installment is due on February 1 and becomes delinquent after April 10. If taxes are not paid by the delinquent date, a 10% penalty attaches and a $10 cost is added to unpaid second installments. If taxes remain unpaid by June 30, the tax is deemed to be in default, and a $15 state redemption fee applies. Interest then begins to accrue at the rate of 1.5% per month. The property owner has the right to redeem the property by paying the taxes, accrued penalties, and costs within five years of the date the property went into default. If the property is not redeemed within five years, it is subject to sale at a public auction by the county treasurer and tax collector. The County has not adopted the “Teeter Plan” alternative method for collection of taxes and, therefore, such alternative method is not available to local taxing entities within the County, such as the District. The District’s receipt of property taxes is therefore subject to delinquencies.
Property taxes on the unsecured roll are due in one payment on the lien date, January 1, and become delinquent after August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November 1. To collect unpaid taxes, the county treasurer and tax collector may obtain a judgment lien upon and cause the sale of all property owned by the taxpayer in the county, and may seize and sell personal property, improvements and possessory interests of the taxpayer. The county treasurer and tax collector may also bring a civil suit against the taxpayer for payment.
22 The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed.
The following table sets forth a recent history of real property tax collections and delinquencies in the District with respect to the bond debt service levy.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Secured Tax Charges and Delinquencies Fiscal Years 2010-11 through 2014-15
Secured Tax Amount Delinquent % Delinquent Charge(1) June 30 June 30 2010-11 $3,950,431.73 $54,988.46 1.39% 2011-12 4,001,893.34 51,914.96 1.30 2012-13 4,461,099.41 53,641.70 1.20 2013-14 4,491,660.84 73,539.95 1.64 2014-15 4,742,528.10 42,232.73 0.89 ______(1) Bond debt service levy only. Source: California Municipal Statistics, Inc.
Certain counties in the State operate under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the county. The County has not adopted the Teeter Plan, and consequently the Teeter Plan is not available to local taxing entities within the County, such as the District. The District’s receipt of property taxes is therefore subject to delinquencies.
Direct and Overlapping Debt
Set forth below is a schedule of direct and overlapping debt prepared by California Municipal Statistics Inc. effective March 1, 2016 for debt issued as of March 1, 2016. The table is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which has outstanding debt as of the date of the schedule and whose territory overlaps the District in whole or in part. Column two shows the percentage of each overlapping agency’s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in column three, which is the apportionment of each overlapping agency’s outstanding debt to taxable property in the District.
The schedule generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District. 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.
23 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Statement of Direct and Overlapping Bonded Debt
2015-16 Assessed Valuation: $21,525,422,806
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/16 Los Angeles County Flood Control District 1.723% $217,615 Metropolitan Water District 0.878 815,355 Los Angeles Community College District 3.055 112,149,050 Palos Verdes Peninsula Unified School District 100.000 69,330,015(1) Palos Verdes Library District 95.260 1,185,987 Los Angeles County Regional Park and Open Space Assessment District 1.689 854,803 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $184,552,825
OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 1.689% $30,107,788 Los Angeles County Superintendent of Schools Certificates of Participation 1.689 134,180 City of Rolling Hills Estates Pension Obligation Bonds 100.000 1,242,000 Los Angeles County Sanitation District No. 5 Authority 15.337 4,227,026 Los Angeles County Sanitation District South Bay Cities Authority 20.335 954,895 TOTAL OVERLAPPING GENERAL FUND DEBT $36,665,889
GROSS COMBINED TOTAL DEBT $221,218,714(2)
Ratios to 2015-16 Assessed Valuation: Direct Debt ($69,330,015) ...... 0.32% Total Direct and Overlapping Tax and Assessment Debt ...... 0.86% Combined Total Debt ...... 1.03% ______(1) Does not include accreted value amounts. Excludes the Series 2016 Bonds, but includes the Prior Bonds to be refunded. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc.
TAX MATTERS
In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2016 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2016 Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed forms of opinions of Bond Counsel is set forth in Appendix D hereto.
To the extent the issue price of any maturity of the Series 2016 Bonds is less than the amount to be paid at maturity of such Series 2016 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2016 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2016 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2016 Bonds is the first price at which a substantial amount of such maturity of the Series 2016 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue
24 discount with respect to any maturity of the Series 2016 Bonds accrues daily over the term to maturity of such Series 2016 Bonds on the basis of a constant interest rate compounded semiannually (with straight- line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2016 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2016 Bonds. Beneficial Owners of the Series 2016 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2016 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2016 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2016 Bonds is sold to the public.
Series 2016 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of obligations, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2016 Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2016 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2016 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2016 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Series 2016 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2016 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.
Although Bond Counsel is of the opinion that interest on the Series 2016 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2016 Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2016 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, the Obama Administration’s budget proposals in recent years have proposed legislation that would limit the exclusion from gross income of interest on the Series 2016 Bonds to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2016 Bonds. Prospective purchasers of the Series 2016 Bonds should consult
25 their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.
The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2016 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code.
Bond Counsel’s engagement with respect to the Series 2016 Bonds ends with the issuance of the Series 2016 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Series 2016 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2016 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2016 Bonds, and may cause the District or the Beneficial Owners to incur significant expense.
OTHER LEGAL MATTERS
Legal Opinion
The validity of the Series 2016 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District. Bond Counsel expects to deliver opinions at the time of issuance of the Series 2016 Bonds substantially in the forms set forth in Appendix D hereto. Bond Counsel, as such, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel to the District; and for the Underwriter by Kutak Rock LLP, Denver, Colorado.
Legality for Investment in California
Under the provisions of the California Financial Code, the Series 2016 Bonds are legal investments for commercial banks in California to the extent that the Series 2016 Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and, under provisions of the California Government Code, the Series 2016 Bonds are eligible securities for deposit of public moneys in the State.
Continuing Disclosure
The District has covenanted for the benefit of the holders and beneficial owners of the Series 2016 Bonds to provide, or to cause to be provided, to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system or such other electronic system designated by the Municipal Securities Rulemaking Board (the “EMMA System”) certain annual financial information and operating data relating to the District (the “Annual Report”) by not later than nine months following the end of the District’s fiscal year (currently ending June 30), commencing with the report for the 2015-16 fiscal year (which is due no later than April 1, 2017) and notice of the occurrence of certain enumerated
26 events (“Notice Events”) in a timely manner not in excess of ten business days after the occurrence of such a Notice Event. The specific nature of the information to be contained in the Annual Report and the notices of Notice Events is set forth in APPENDIX E − “FORMS OF CONTINUING DISCLOSURE CERTIFICATES.” These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). In the preceding five years, the District has not failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of Notice Events.
Litigation
No litigation is pending or threatened concerning or contesting the validity of the Series 2016 Bonds or the District’s ability to receive ad valorem taxes and to collect other revenues, or contesting the District’s ability to issue and retire the Series 2016 Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District officers who will execute the Series 2016 Bonds or District or County officials who will sign certifications relating to the Series 2016 Bonds, or the powers of those offices. A certificate (or certificates) to that effect will be furnished to the Underwriter at the time of the original delivery of the Series 2016 Bonds.
The District is occasionally subject to lawsuits and claims. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under these lawsuits and claims will not materially affect the financial position or operations of the District.
ESCROW VERIFICATION
The arithmetical accuracy of certain computations included in the schedules provided by the Underwriter relating to the computation of the projected payments of principal and interest to retire the Prior Bonds will be verified by Causey Demgen & Moore P.C., Denver, Colorado (the “Verification Agent”). Such computations will be based solely on assumptions and information supplied by the District and the Underwriter. The Verification Agent will restrict its procedures to verifying the arithmetical accuracy of certain computations and will not make any study to evaluate the assumptions and information on which the computations are based, and will express no opinion on the data used, the reasonableness of the assumptions or the achievability of the projected outcome.
MISCELLANEOUS
Rating
Moody’s Investors Service, Inc. has assigned its rating of “Aa1” to the Series 2016 Bonds. Rating agencies generally base their ratings on their own investigations, studies and assumptions. The rating reflects only the view of the rating agency furnishing the same, and any explanation of the significance of such rating should be obtained only from the rating agency providing the same. Such rating is not a recommendation to buy, sell or hold the Series 2016 Bonds. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency providing the same, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Series 2016 Bonds. Neither the Underwriter nor the District has undertaken any responsibility after the offering of the Series 2016 Bonds to assure the maintenance of the rating or to oppose any such revision or withdrawal.
27 Professionals Involved in the Offering
Piper Jaffray & Co. has been engaged by the District to perform financial advisory services in connection with the issuance of the Series 2016 Bonds and certain other financial matters. Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel and Disclosure Counsel with respect to the Series 2016 Bonds. The Financial Advisor, Bond Counsel and Disclosure Counsel will receive compensation from the District contingent upon the sale and delivery of the Series 2016 Bonds. Kutak Rock LLP is acting as Underwriter’s Counsel with respect to the Series 2016 Bonds and will receive compensation from the Underwriter contingent upon the sale and delivery of the Series 2016 Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Series 2016 Bonds.
Underwriting
Series 2016A Bonds. The Series 2016A Bonds are being purchased for reoffering to the public by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”), pursuant to the terms of a bond purchase agreement executed on April 6, 2016, by and between the Underwriter and the District (the “Series 2016A Purchase Agreement”). The Underwriter has agreed to purchase the Series 2016A Bonds at a price of $10,141,828.35 (representing the principal amount of the Series 2016A Bonds, plus original issue premium of $1,467,378.35, and less an Underwriter’s discount of $65,550.00). The Series 2016A Purchase Agreement provides that the Underwriter will purchase all of the Series 2016A Bonds, subject to certain terms and conditions set forth in the Series 2016A Purchase Agreement, including the approval of certain legal matters by counsel.
Series 2016B Bonds. The Series 2016B Bonds are being purchased for reoffering to the public by the Underwriter pursuant to the terms of a forward delivery purchase agreement executed on April 6, 2016, by and between the District and the Underwriter (the “Forward Delivery Purchase Agreement”) for delivery of the Series 2016B Bonds on or after August 4, 2016 (the “Settlement Date”). The Underwriter has agreed to purchase the Series 2016B Bonds at a price of $6,785,233.90 (representing the principal amount of the Series 2016B Bonds, plus original issue premium of $924,521.40, and less an Underwriter’s discount of $44,287.50). The Forward Delivery Purchase Agreement provides that the Underwriter will purchase all of the Series 2016B Bonds if any are purchased, subject to certain terms and conditions set forth in the Forward Delivery Purchase Agreement as described below.
Certain Terms Concerning Forward Delivery. Under the Forward Delivery Purchase Agreement, the Underwriter is not required to purchase the Series 2016B Bonds if, among other conditions, (1) there has been a Change in Law (as defined below), (2) legislation is enacted, or a decision by a court of the United States is rendered, or any action is taken by, or on behalf of, the Securities and Exchange Commission which has the effect of requiring the Series 2016B Bonds to be registered under, or the sale thereof to be in violation of, the Securities Act of 1933, as amended or has the effect of requiring the Refunding Resolution to be qualified under the Trust Indenture Act of 1939, as amended, or, in each case, any law analogous thereto relating to governmental bodies; (3) as a result of any legislation, regulation, ruling, order, release, court decision or judgment or action by the U.S. Department of Treasury, the Internal Revenue Service, or any agency of the State either enacted, issued, effective, adopted or proposed, or for any other reason, Bond Counsel cannot issue an opinion to the effect that (i) the interest on the Series 2016B Bonds is not subject to federal income tax under Section 103 of the Code (or comparable provisions of any successor federal tax laws) and (ii) the interest on the Series 2016B Bonds is exempt from the State of California income taxation; (4) the Official Statement as of the date of issuance of the Series 2016B Bonds contained an untrue statement or misstatement of material fact or omitted to state a material fact necessary in order to make the statements and information contained therein not misleading in any material respect, or the updated Official Statement to be provided by the District pursuant to the terms of the Forward Delivery Purchase Agreement as of the Settlement Date contains an untrue statement or misstatement of material fact or omits to state a material fact necessary in
28 order to make the statements and information contained therein not misleading in any material respect; or (5) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange.
A “Change in Law” means (1) any change in or addition to applicable federal or state law, whether statutory or as interpreted by the courts or by federal or state agencies, including any changes in or new rules, regulations or other pronouncements or interpretations by federal or state agencies; (2) any legislation enacted by the Congress of the United States (if such enacted legislation has an effective date which is on or before the Settlement Date), (3) any law, rule or regulation enacted by any governmental body, department or agency (if such enacted law, rule or regulation has an effective date which is on or before the Settlement Date) or (4) any judgment, ruling or order issued by any court or administrative body, which in any such case would, (i) as to the Underwriter, prohibit the Underwriter from completing the underwriting of the Series 2016B Bonds or selling the Series 2016B Bonds, or beneficial ownership interests therein to the public, as provided in the Forward Delivery Purchase Agreement, or (ii) as to the District, would make the completion of the issuance, sale or delivery of the Series 2016B Bonds illegal.
Delayed Delivery Contract. The Underwriter has advised the District that the Series 2016B Bonds may be sold to investors who execute the Delayed Delivery Contract in substantially the form attached hereto as Appendix I (the “Delayed Delivery Contract”). The Delayed Delivery Contract sets forth certain terms, conditions and representations of the investors who commit thereunder to purchase the Series 2016B Bonds from the Underwriter if and when they are issued. The proposed form of Delayed Delivery Contract is attached as Appendix I at the request and for the convenience of the Underwriter. The District will not be a party to any Delayed Delivery Contract, and the District is not in any way responsible for the performance thereof or for any representations or warranties contained therein. The rights and obligations under the Forward Delivery Purchase Agreement are not conditioned or dependent upon the performance of any Delayed Delivery Contract.
Certain Considerations. Issuance and delivery of the Series 2016B Bonds will be dependent on receipt by the District of the opinion of Bond Counsel with respect to Series 2016B Bonds substantially in the form set forth in Appendix D and of certain other documents required by the Forward Delivery Purchase Agreement, and payment of the purchase price by the Underwriter in accordance with the Forward Delivery Purchase Agreement.
Bond Counsel could be prevented from rending its opinion on the Settlement Date with respect to the Series 2016B Bonds as a result of (i) changes or proposed changes, prior to the Settlement Date, in federal or State laws, court decisions, regulations or proposed regulations, or rulings of administrative agencies or (ii) the failure of the District to provide closing documents, satisfactory to Bond Counsel, of the type customarily required in connection with the issuance of tax-exempt bonds, such as certificates to the effect that the proceedings of the District with respect to the issuance of the Series 2016B Bonds have not been amended or repealed, in a manner detrimental to holders of the Series 2016B Bonds, by executive, legislative or administrative action.
During the period of time between the date hereof and the Settlement Date (the “Delayed Delivery Period”), certain information contained in this Official Statement may change in a material respect. The District has agreed to amend this Official Statement to the extent necessary to assure its accuracy as of a date not later than fourteen days prior to the Settlement Date and to provide a reasonable number of copies of the amended Official Statement, if any, to the Underwriter at such time. With this exception, the District and the Underwriter have not agreed to, nor are they obligated to provide updates to the information contained in this Official Statement during the Delayed Delivery Period.
29 Rating Risk. Moody’s has issued its rating for the Series 2016B Bonds. No assurance can be given that at the Settlement Date of the Series 2016B Bonds, such rating will continue to be in effect. See “MISCELLANEOUS – Rating” herein.
Secondary Market Risk. The Underwriter is not obligated to make a secondary market in the Series 2016B Bonds and no assurance can be given that a secondary market will exist for the Series 2016B Bonds, including during the Delayed Delivery Period. Prospective purchasers of the Series 2016B Bonds should assume that there will be no secondary market during the Delayed Delivery Period.
Market Value Risk. The market value of the Series 2016B Bonds as of the Settlement Date may be affected by a variety of factors including, without limitation, general market conditions, the rating on the Series 2016B Bonds, the financial condition and business operations of the District and federal and state income tax and other laws. Thus, the market value of the Series 2016B Bonds on the Settlement Date could be greater or less than the agreed purchase price. Neither the District nor the Underwriter makes any representation as to the market value of the Series 2016B Bonds as of the Settlement Date.
Federal Tax Proposals. The Forward Delivery Purchase Agreement obligates the District to deliver and the Underwriter to acquire the Series 2016B Bonds if the District delivers an opinion of Bond Counsel substantially in the form set forth in Appendix D hereto to the effect that the interest on the Series 2016B Bonds is not subject to inclusion in gross income for federal income tax purposes. It is possible that certain bills could be introduced (or that bills previously introduced could be amended) in the U.S. Congress that, if adopted, would reform the system of federal taxation. Those bills, if any, could (i) eliminate the tax exemption granted to interest payable on “state or local bonds” such as the Series 2016B Bonds, or (ii) diminish the value of the federal tax exemption granted interest on such bonds under the current system of federal income taxation. Notwithstanding that the enactment of certain of those bills could diminish the value of the federal exemption for interest payable on “state or local bonds,” the District might be able to satisfy the requirements for the delivery of the Series 2016B Bonds. In such event, the purchasers would be required to accept delivery of the Series 2016B Bonds. Prospective purchasers are encouraged to consult their tax advisors regarding the likelihood that such bills would be introduced or amended or enacted and the consequences of such enactment to the purchasers.
General. The Underwriter may offer and sell the Series 2016 Bonds to certain dealers and others at prices lower than the public offering prices shown on the inside front cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter.
30 ADDITIONAL INFORMATION
The purpose of this Official Statement is to supply information to purchasers of the Series 2016 Bonds. Quotations from and summaries and explanations of the Series 2016 Bonds and of the statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for full and complete statements of their provisions.
Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Series 2016 Bonds.
The District has duly authorized the delivery of this Official Statement.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
By: /s/ Donald B. Austin, Ed.D. Superintendent
31 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A
INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET
The information in this appendix concerning the operations of the Palos Verdes Peninsula Unified School District (the “District”), the District’s finances, and State of California (the “State”) funding of education, 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 Series 2016 Bonds is payable from the general fund of the District or from State revenues. Each series of the Series 2016 Bonds is payable from the proceeds of an ad valorem tax approved by the voters of the District pursuant to all applicable laws and State Constitutional requirements, and required to be levied by the County of Los Angeles on property within the District in an amount sufficient for the timely payment of principal of and interest on each series of the Series 2016 Bonds. See “SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2016 BONDS” in the front portion of this Official Statement.
THE DISTRICT
Introduction
The District, unified in 1961, is comprised of an area of approximately 24.4 square miles located in the western portion of the County. The District currently operates ten elementary schools, three intermediate schools, two comprehensive high schools, one continuation high school, an adult education program, a fee-based preschool and a child care program. The District serves the communities of the Palos Verdes Peninsula, consisting of the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates as well as some unincorporated areas on the Palos Verdes Peninsula. The District estimates that total current enrollment is approximately 11,499 students.
Board of Education
The governing board of the District is the Board of Education of the Palos Verdes Peninsula Unified School District (the “Board”). The Board generally consists of five members who are elected to staggered four-year terms where two or three of the members, on an alternating basis, are elected in each odd-numbered year. If a vacancy arises four or more months before the end of a member’s term, the vacancy is filled either by an election or by a provisional appointment, unless a special election is required. If a vacancy occurs less than four months before the end of a member’s term, no action is taken to fill the vacancy prior to the scheduled election. A special election is required if the vacancy occurs six months to 130 days before a regularly scheduled board election at which the position is not scheduled to be filled. Each December, the Board elects a President, Vice President and a Clerk to serve one-year terms. The name, office and the month and year of the expiration of the term of each member of the Board is described below.
A-1 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Board of Education Name Office Term Expires Malcolm S. Sharp President December 2017 Anthony Collatos Vice President December 2017 Linda Reid Clerk December 2019 Barbara Lucky Member December 2017 Suzanne Seymour Member December 2019
Superintendent and Financial and Fiscal Administrative Personnel
The Superintendent of the District is appointed by the Board and reports to the Board. The Superintendent is responsible for management of the District’s day-to-day operations and supervises the work of other key District administrators. Information concerning the Superintendent and certain other key administrative personnel is set forth below.
Donald Austin, Ed.D., Superintendent. Dr. Austin was appointed Superintendent of the District in August of 2014. Dr. Austin previously served as the Assistant Superintendent, Educational Services for the Huntington Beach Union High School District. During his 21-year career, Dr. Austin has also served as the principal of two comprehensive high schools. Dr. Austin earned his doctorate degree at Azusa Pacific University.
Lydia Cano, Deputy Superintendent. Ms. Cano joined the District in January 2012. Prior to her employment at the District, she served as the Assistant Superintendent of Business Services at El Rancho Unified School District for sixteen years, and Director of Fiscal Services for Little Lake City School District for two years. Prior to working in the public education sector, Ms. Cano worked as an Accountant in the private sector for eight years. She received her Bachelor of Science degree from Azusa Pacific University.
Trent Bahadursingh, Assistant Superintendent, Technology. Mr. Bahadursingh has worked for the District since October 2004. Prior to his employment at the District, he served as the Coordinator of Technology Services for the Little Lake City School District and as a teacher on Special Assignment for the Hacienda La Puente Unified School District. Mr. Bahadursingh has California Administrative Services and Teaching credentials. He received a Master of Arts, Educational Administration from California State University, Los Angeles and a Bachelor of Science, Communications from California State Polytechnic University, Pomona.
Joanne Culverhouse, Ed.D., Assistant Superintendent, Educational Services. Dr. Culverhouse joined the District in August 2014. She is entering her 34th year in education and has served in the role of a teacher and principal. Dr. Culverhouse has been a principal at the elementary, middle and high school level which provides her the unique qualifications of overseeing the District’s Educational Services Department. She received her undergraduate and two Master Degrees at the University of Nevada, Reno. She earned her Doctorate of Education at the University of California, Los Angeles in 1998.
John Bowes, Ed.D., Assistant Superintendent, Human Resources. Dr. Bowes joined the District in March 2014 after serving 24 years in the Los Angeles Unified School District as a teacher, principal, Director of School Services, Assistant Chief Human Resources Officer and Director of Labor Relations. Dr. Bowes earned B.S. degrees in both Finance and Management along with minors in English and Sociology from Virginia Tech. He holds an M.A. in Educational Leadership from California Lutheran University, an Ed.D. in Educational Leadership from University of California, Los Angeles, and recently
A-2 completed his Chief Business Official Certification from the University of Southern California. Dr. Bowes also holds a California Professional Administrative Credential, a California Multiple Subject Clear Credential and a California Bilingual (Spanish) Cross-cultural Specialist Credential.
Kathy Ueunten, Director of Fiscal Services. Ms. Ueunten began her public education career in 2001 with Lawndale Elementary School District. She came to the District in July 2007, as the Assistant Director of Fiscal Services and was promoted to Director of Fiscal Services in July 2014. Ms. Ueunten received her Bachelor of Science degree from California State University, Dominguez Hills.
DISTRICT FINANCIAL MATTERS
State Funding of Education; State Budget Process
General. As is true for all school districts in California, the District’s operating income consists primarily of two components: a State portion funded from the State’s general fund in accordance with the Local Control Funding Formula (see “− Allocation of State Funding to School Districts; Local Control Funding Formula” herein) and a local portion derived from the District’s share of the 1% local ad valorem tax authorized by the State Constitution (see “− Local Sources of Education Funding” herein). In addition, school districts may be eligible for other special categorical funding from State and federal government programs. The District projects to receive approximately 48% of its general fund revenues from State funds (not including the local portion derived from the District’s share of the local ad valorem tax), projected at approximately $56.6 million in fiscal year 2015-16. Such amount includes both the State funding provided under the LCFF as well as other State revenues (see “−Allocation of State Funding to School Districts; Local Control Funding Formula – Attendance and LCFF” and “−Other District Revenues – Other State Revenues” below). As a result, decreases or deferrals in State revenues, or in State legislative appropriations made to fund education, may significantly affect the District’s revenues and operations.
Under Proposition 98, a constitutional and statutory amendment adopted by the State’s voters in 1988 and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the Constitution), a minimum level of funding is guaranteed to school districts, community college districts, and other State agencies that provide direct elementary and secondary instructional programs. Recent years have seen frequent disruptions in State personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing for other fixed State costs and priority programs and services. Because education funding constitutes such a large part of the State’s general fund expenditures, it is generally at the center of annual budget negotiations and adjustments.
Beginning in fiscal year 2011-12, local property tax dollars applicable to the District’s revenue limit funding were used to backfill certain cities and counties, resulting in a negative Educational Revenue Augmentation Fund. Such negative Educational Revenue Augmentation Fund is repaid to the District with State aid dollars. See “– Local Sources of Education Funding” below for information.
In connection with the State Budget Act for fiscal year 2013-14, the State and local education agencies therein implemented a new funding formula for school finance system called the Local Control Funding Formula (the “Local Control Funding Formula” or “LCFF”). Funding from the LCFF replaced the revenue limit funding system and most categorical programs. See “– Allocation of State Funding to School Districts; Local Control Funding Formula” herein for more information.
A-3 State Budget Process. According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for passage. However, on November 2, 2010, the State’s voters approved Proposition 25, which amended the State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two–thirds to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement also applies to trailer bills that appropriate funds and are identified by the State Legislature “as related to the budget in the budget bill.” The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two–thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. The Governor signed the fiscal year 2015-16 State budget on June 24, 2015.
When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district’s State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. Should the State Legislature fail to pass a budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. The District is authorized to borrow temporary funds to cover its annual cash flow deficits, and as a result of the White v. Davis decision, the District might find it necessary to increase the size or frequency of its cash flow borrowings, or to borrow earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operating budgets.
Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, and other factors. The State’s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year’s budget, from the Governor’s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow.
If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as “settle-up.” If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the
A-4 Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as “maintenance factor.”
Although the California Constitution requires the State to approve a balanced State Budget Act each fiscal year, the State’s response to fiscal difficulties in some years has had a significant impact upon the Proposition 98 minimum guarantee and the treatment of settle-up payments with respect to years in which the Proposition 98 minimum guarantee was suspended. The State has sought to avoid or delay paying settle-up amounts when funding has lagged the guaranteed amount. In response, teachers’ unions, the State Superintendent and others sued the State or Governor in 1995, 2005, 2009 and 2011 to force them to fund schools in the full amount required. The settlement of the 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts.
The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years’ Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportionments of Proposition 98 funds from one fiscal year to the next; by suspending Proposition 98, as the State did in fiscal year 2004-05, fiscal year 2010-11, fiscal year 2011-12 and fiscal year 2012-13; and by proposing to amend the State Constitution’s definition of the guaranteed amount and settle-up requirement under certain circumstances.
The District cannot predict how State income or State education funding will vary over the term to maturity of the Series 2016 Bonds, and the District takes no responsibility for informing owners of the Series 2016 Bonds as to actions the State Legislature or Governor may take affecting the current year’s budget after its adoption. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.
Rainy Day Fund; SB 858. In connection with the 2014-15 State Budget, the Governor proposed certain constitutional amendments (“Proposition 2”) to the rainy day fund (the “Rainy Day Fund”) for the November 2014 Statewide election. Senate Bill 858 (2014) (“SB 858”) amends the Education Code to, among other things, limit the amount of reserves that may be maintained by a school district subject to certain State budget matters. Upon the approval of Proposition 2, SB 858 became operational. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Proposition 2” herein.
AB 1469. As part of the 2014-15 State Budget, the Governor signed Assembly Bill 1469 (“AB 1469”) which implements a new funding strategy for the California State Teachers’ Retirement System (“CalSTRS”), increasing the employer contribution rate in fiscal year 2014-15 from 8.25% to 8.88% of
A-5 covered payroll. See “– Retirement Benefits – CalSTRS” herein for more information about CalSTRS and AB 1469.
2015-16 State Budget. The Governor signed the fiscal year 2015-16 State budget (the “2015-16 State Budget”) on June 24, 2015. The 2015-16 State Budget represents a multiyear plan that is balanced and that continues to focus on paying down budgetary debt from prior years and setting aside reserves. The 2015-16 State Budget increases spending on education, health care, in-home supportive services, workforce development, drought assistance and the judiciary. The 2015-16 State Budget projects $115 billion in revenues and transfers, a 3% increase over fiscal year 2014-15. By the end of fiscal year 2015- 16, the State’s Rainy Day Fund is expected to have a balance of approximately $3.5 billion. Under the 2015-16 State Budget, the State is expected to repay the remaining $1 billion in deferrals to schools and community colleges, make the final payment on the $15 billion in Economic Recovery Bonds used to cover budget deficits since 2002, and reduce outstanding mandate liabilities owed to schools and community colleges by $3.8 billion.
As it relates to K-12 education, the 2015-16 State Budget provides total funding of $83.2 billion ($49.7 billion in general funds and $33.5 billion in other funds). The 2015-16 State Budget provides Proposition 98 funding for all K-14 education of $68.4 billion, an increase of $7.6 billion over fiscal year 2014-15. Since fiscal year 2011-12, Proposition 98 funding for K-12 education has grown by more than $18.6 billion, representing an increase of more than $3,000 per student.
Certain budget adjustments for K-12 programs include the following:
• Local Control Funding Formula. An increase of $6 billion in Proposition 98 general funds to continue the State’s transition to the Local Control Funding Formula. This formula commits most new funding to districts serving English language learners, students from low-income families and youth in foster care. This increase will close the remaining funding implementation gap by more than 51%.
• Career Technical Education. The 2015-16 State Budget establishes the Career Technical Education (“CTE”) Incentive Grant Program and provides $400 million, $300 million and $200 million Proposition 98 general funds in fiscal years 2015-16, 2016-17, and 2017-18, respectively, for local education agencies to establish new or expand high quality CTE programs.
• Educator Support. An increase of $500 million in one-time Proposition 98 general funds for educator support. Of this amount, $490 million is for activities that promote educator quality and effectiveness, including beginning teacher and administrator support and mentoring, support for teachers who have been identified as needing improvement, and professional development aligned to the State academic content standards. These funds will be allocated to school districts, county offices of education, charter schools, and the State special schools in an equal amount per certificated staff and are available for expenditure over the next three years.
• Special Education. The 2015-16 State Budget includes $60.1 million in Proposition 98 general funds ($50.1 million ongoing and $10 million one time) to implement selected program changes recommended by the task force, making targeted investments that improve service delivery and outcomes for all disabled students, with a particular emphasis on early education.
A-6 • K-12 High-Speed Internet Access. An increase of $50 million in one-time Proposition 98 funds to support additional investments in internet connectivity and infrastructure, building on the $26.7 million in one time Proposition 98 funding that was provided in fiscal year 2014-15. This second installment of funding will further upgrade internet infrastructure to reflect the increasing role that technology plays in classroom operations to support teaching and learning.
• K-12 Mandates. An increase of $3.2 billion in one time Proposition 98 general funds to reimburse K-12 local educational agencies for the costs of State mandated programs. These funds are expected to provide a significant down payment on outstanding mandate debt, while providing school districts, county offices of education and charter schools with discretionary resources to support critical investments such as Common Core implementation.
• K-12 Deferrals. The 2015-16 State Budget provides $897 million Proposition 98 in general funds to eliminate deferrals consistent with the revenue trigger included in the fiscal year 2014-15 State budget.
The complete 2015-16 State Budget is available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.
Proposed 2016-17 State Budget. The Governor released his proposed fiscal year 2016-17 State budget (the “2016-17 Proposed State Budget”) on January 7, 2016. The 2016-17 Proposed State Budget proposes a balanced budget for Fiscal Year 2016-17. The Governor proposes to use funds to pay down outstanding budgetary borrowing including loans from special funds, Proposition 98 settle up obligations, transportation loans, and pension liabilities related to University of California employees. The 2016-17 Proposed State Budget estimates that total resources available in fiscal year 2015-16 will be approximately $121.2 billion (including a prior year balance of $3.7 billion) and total expenditures in fiscal year 2015-16 will be approximately $116.1 billion. The 2016-17 Proposed State Budget projects total resources available for fiscal year 2016-17 of $125.8 billion, inclusive of revenues and transfers of $120.6 billion and a prior year balance of $5.17 billion. The 2016-17 Proposed State Budget projects total expenditures of $122.6 billion, inclusive of non-Proposition 98 expenditures of $71.6 billion and Proposition 98 expenditures of $50.97 billion. The 2016-17 Proposed State Budget proposes to allocate $966 million of the State general fund’s projected fund balance to the Reserve for Liquidation of Encumbrances and $2.2 billion of such fund balance to the State’s Special Fund for Economic Uncertainties.
The 2016-17 Proposed State Budget prioritizes a balanced budget for the long term and fully funding the State’s Rainy Day Fund (the “Rainy Day Fund”). The Governor projects that the Rainy Day Fund will have a balance of approximately $6 billion in fiscal year 2016-17. The 2016-17 Proposed State Budget proposes to make an additional $2 billion deposit during fiscal year 2016-17 to bring the balance of the Rainy Day Fund to $8 billion, which is approximately 65% of the target balance. For more information about the Rainy Day Fund, see “– 2015-16 State Budget – Rainy Day Fund” above.
Despite budgetary improvements as compared to recent years, the 2016-17 Proposed State Budget acknowledges that the additional tax revenues from capital gains are temporary in nature and that the additional revenues from Proposition 30 will expire in 2016 (with respect to the sales tax increase) and 2018 (with respect to the income tax increase). Further, the 2016-17 Proposed State Budget cautions that the State should address several risks, including: the inevitable occurrence of another recession,
A-7 ongoing fiscal challenges of the federal government, the budget’s heavy dependency on the performance of the stock market, the high levels of State debts and liabilities, including unfunded retirement liabilities, and deferred maintenance of the State’s roads and other infrastructure.
Certain workload adjustments and budgetary proposals for K-12 education set forth in the 2016- 17 Proposed State Budget include the following:
• School District Local Control Funding Formula. The 2016-17 Proposed State Budget proposes to provide $2.8 billion to continue the implementation of the Local Control Funding Formula. The 2016-17 Proposed State Budget proposes to eliminate almost 50% of the remaining funding gap between actual funding and the target level of funding. The Governor estimates that total Local Control Funding Formula implementation is now 95%.
• County Offices of Education Local Control Funding Formula. An increase of $1.7 million Proposition 98 General Fund to support a cost-of-living adjustment and A.D.A. changes for county offices of education.
• Proposition 98 Minimum Guarantee. The 2016-17 Proposed State Budget proposes Proposition 98 funding of $71.6 billion, inclusive of State and local funds, for fiscal year 2016-17 which is expected to satisfy the Proposition 98 minimum guarantee.
• Early Education Block Grant. The 2016-17 Proposed State Budget proposes a $1.6 billion early education block grant for local educational agencies that will combine Proposition 98 funding from the State Preschool Program, transitional kindergarten, and the preschool Quality Rating and Improvement System Grant.
• Mandate Claims. The 2016-17 Proposed State Budget proposes to allocate approximately $1.28 billion in one-time moneys to reduce outstanding mandate claims by school districts charter schools, and county offices of education.
• Career Technical Education. The 2015-16 State Budget included resources to support the first year of the Career Technical Education Incentive Grant program, a transitional education and workforce development initiative administered by the California Department of Education. Pursuant to the program, the State will allocate $400 million in fiscal year 2015-16, $300 million in fiscal year 2016-17, and $200 million in 2017-18 in the form of competitive matching grants to school districts, county offices, of education, and charter schools.
• One-Time Discretionary Funding. The 2016-17 Proposed State Budget proposes an increase of more than $1.2 billion in one-time Proposition 98 General Fund for school districts, charter schools and county offices of education to use at local discretion.
• Charter School Growth. The 2016-17 Proposed State Budget proposes an increase of $61 million Proposition 98 General Fund to support projected charter school A.D.A. growth.
• Charter School Startup Grants. The 2016-17 Proposed State Budget proposes an increase of $20 million one-time Proposition 98 General Fund to support operational startup costs for new charter schools in 2016 and 2017, which is expected to partially offset the loss of federal funding previously available for such purpose.
A-8 • Systems of Learning and Behavioral Supports. The 2016-17 Proposed State Budget proposes an increase of $30 million one-time Proposition 98 General Fund resources to build upon the $10 million investment included in the 2015-16 State Budget for an increased number of local educational agencies to provide academic and behavioral supports in a coordinated and systematic way.
• Special Education. The 2016-17 Proposed State Budget proposes a decrease of $15.5 million Proposition 98 General Fund to reflect a projected decrease in Special Education A.D.A.
• Cost-of-Living Adjustment Increases. The 2016-17 Proposed State Budget proposes an increase of $22.9 million Proposition 98 General Fund to support a 0.47% cost-of-living adjustment for categorical programs, including Special Education, Child Nutrition, Foster Youth, Preschool, American Indian Education Centers, and the American Indian Early Childhood Education Program, which are not funded within the Local Control Funding Formula.
• Local Property Tax Adjustments. The 2016-17 Proposed State Budget proposes a decrease of $149.4 million Proposition 98 General Fund for school districts and county offices of education in fiscal year 2015-16 as a result of higher offsetting property tax revenues. In addition, the Governor proposes a decrease of $1.2 billion in Proposition 98 General Fund for school districts and county offices of education in fiscal year 2016-17 as a result of increased offsetting local property tax revenues due to, principally, the end of the “triple flip.”
• School District Average Daily Attendance. As a result of a decrease in projected ADA from the 2015-16 State Budget, the 2016-17 Proposed Budget proposes a decrease of $150.1 million in 2015-16 for school districts and a decrease of $34.1 million in fiscal year 2016-17 for school districts.
• Proposition 39. Proposition 39, the California Clean Energy Jobs Act of 2012, has provided increased corporate tax revenues in the State. For fiscal year 2013-14 through fiscal year 2017-18, Proposition 39 requires half of the increased revenues, up to $550 million per year, to be used to support energy efficiency. The 2016-17 Proposed State Budget proposes to allocate $365.4 million to support school district and charter school energy efficiency projects in fiscal year 2016-17.
• Proposition 47. Proposition 47 (2014) requires a portion of any State savings which have resulted from the State’s reduced penalties for certain non-serious and non-violent property and drug offenses, to be allocated to K-12 truancy and dropout prevention, victim services, and mental health and drug treatment. The 2016-17 Proposed State Budget proposes to allocate approximately $7.3 million of such funds to, among other things, truancy reduction, dropout prevention and crime prevention efforts relating to K- 12 students. The Governors expects to count such funds towards the Proposition 98 minimum guarantee.
The complete 2016-17 Proposed State Budget is available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.
A-9 LAO Overview of 2016-17 Proposed State Budget. The Legislative Analyst’s Office (“LAO”), a nonpartisan State office which provides fiscal and policy information and advice to the State Legislature, released its report on the 2016-17 Proposed State Budget entitled “The 2016-17 Budget: Overview of the Governor’s Budget” on January 11, 2016 (the “2016-17 Proposed Budget Overview”), in which the LAO commends the State for its emphasis on increasing it budget reserves. The LAO notes that such an approach is prudent, as a large reserve may be essential to weathering the next recession. Further, the LAO is generally supportive of the Governor’s priorities and the 2016-17 Proposed State Budget’s focus on infrastructure, which the LAO notes is aging and in need of renovation and improvements. Nevertheless, the LAO warns that budget vulnerability remains and that cautious budgetary decision making is necessary. For example, the LAO suggests the State begin with robust targets for fiscal year 2016-17 budget reserves and take a measured approach to spending in order to better position the State for any near-term economic downturn.
With respect to the Proposition 98 budget plan in the 2016-17 Proposed State Budget, the LAO believes the Governor’s estimated local property tax revenue counting toward Proposition 98 is approximately $1 billion less than its estimate for 2015-16 and 2016-17. If local property tax revenue comes in higher than the Governor’s administration expects, Proposition 98 General Fund costs will be correspondingly lower. However, the LAO cautions that the proposed use of Proposition 98 funding in fiscal year 2016-17 may provide inadequate protection against economic downturn. Thus, the LAO advises against committing all available 2016-17 Proposition 98 funds to ongoing purposes, as a sustained economic slowdown could force the State to cut programs and potentially backpedal in its implementation of the Local Control Funding Formula.
The 2016-17 Budget Overview is available on the LAO website at www.lao.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.
Changes in State Budget. The final fiscal year 2016-17 State budget, which requires approval by a majority vote of each house of the State Legislature, may differ substantially from the Governor’s budget proposal. Accordingly, the District cannot provide any assurances that there will not be any changes in the final fiscal year 2016-17 State budget from the 2016-17 Proposed State Budget. Additionally, the District cannot predict the impact that the final fiscal year 2016-17 State Budget, or subsequent budgets, will have on its finances and operations. The final fiscal year 2016-17 State Budget may be affected by national and State economic conditions and other factors which the District cannot predict.
Prohibitions on Diverting Local Revenues for State Purposes. Beginning in 1992-93, the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and community college districts through a local Educational Revenue Augmentation Fund (“ERAF”) in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State’s voters approved as Proposition 1A at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as “Proposition 22.”
The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting
A-10 property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local government revenue sources by restricting the State’s control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education.
Prior to the passage of Proposition 22, the State invoked Proposition 1A to divert $1.935 billion in local property tax revenues in 2009-10 from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted 2009-10 State budget of $1.7 billion in local property tax revenues from local redevelopment agencies, which local redevelopment agencies have now been dissolved (see “−Dissolution of Redevelopment Agencies” below). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, 2010. Because Proposition 22 reduces the State’s authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years—such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State’s general fund.
Dissolution of Redevelopment Agencies. The adopted State budget for fiscal 2011-12, as signed by the Governor of the State on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordinary Session) (“AB1X 26”) and Assembly Bill No. 27 (First Extraordinary Session) (“AB1X 27”), which the Governor signed on June 29, 2011. AB1X 26 suspended most redevelopment agency activities and prohibited redevelopment agencies from incurring indebtedness, making loans or grants, or entering into contracts after June 29, 2011. AB1X 26 dissolved all redevelopment agencies in existence and designated “successor agencies” and “oversight boards” to satisfy “enforceable obligations” of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. Certain provisions of AB1X 26 are described further below.
In July 2011, various parties filed an action before the Supreme Court of the State of California (the “Court”) challenging the validity of AB1X 26 and AB1X 27 on various grounds (California Redevelopment Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of AB1X 26 and invalidating AB1X 27. In its decision, the Court also modified various deadlines for the implementation of AB1X 26. The deadlines for implementation of AB1X 26 below take into account the modifications made by the Court in Matosantos.
On February 1, 2012, and pursuant to Matosantos, AB1X 26 dissolved all redevelopment agencies in existence and designated “successor agencies” and “oversight boards” to satisfy “enforceable obligations” of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB1X 26.
AB1X 26 requires redevelopment agencies to continue to make scheduled payments on and perform obligations required under its “enforceable obligations.” For this purpose, AB1X 26 defines “enforceable obligations” to include “bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of outstanding bonds of the former redevelopment agency” and “any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy.” AB1X 26 specifies that only payments included on an “enforceable obligation payment schedule” adopted by a
A-11 redevelopment agency shall be made by a redevelopment agency until its dissolution. However, until a successor agency adopts a “recognized obligation payment schedule” the only payments permitted to be made are payments on enforceable obligations included on an enforceable obligation payment schedule. A successor agency may amend the enforceable obligation payment schedule at any public meeting, subject to the approval of its oversight board.
Under AB1X 26, commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a “redevelopment property tax trust fund” created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in AB1X 26. AB1X 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and each January 16 and June 1 (now each January 2 and June 1 pursuant to AB 1484, as described below) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller’s administrative costs, in the following order of priority:
• To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditor- controller and State Controller verify such determination, pass-through payments that had previously been subordinated to debt service may be reduced;
• To the former redevelopment agency’s successor agency for payments listed on the successor agency’s recognized obligation payment schedule for the ensuing six-month period;
• To the former redevelopment agency’s successor agency for payment of administrative costs; and
• Any remaining balance to school entities and local taxing agencies.
It is possible that there will be additional legislation proposed and/or enacted to “clean up” various inconsistencies contained in AB1X 26 and there may be additional legislation proposed and/or enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by AB1X 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of AB1X 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a “tax claw back” provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This “tax claw back” provision has been challenged in court by certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District.
Future Budgets and Budgetary Actions. The District cannot predict what future actions will be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors beyond the District’s ability to predict or control. Certain actions could result in a significant shortfall of revenue and
A-12 cash, and could impair the State’s ability to fund schools during future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District.
Allocation of State Funding to School Districts; Local Control Funding Formula. Prior to the implementation of the Local Control Funding Formula in fiscal year 2013-14, under California Education Code Section 42238 and following, each school district was determined to have a target funding level: a “base revenue limit” per student multiplied by the district’s student enrollment measured in units of average daily attendance. The base revenue limit was calculated from the district’s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district was the amount needed to reach that district’s base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State “equalization aid.” To the extent local tax revenues increased due to growth in local property assessed valuation, the additional revenue was offset by a decline in the State’s contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State equalization aid, and received only its special categorical aid, which is deemed to include the “basic aid” of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as “basic aid districts,” which are now referred to as “community funded districts.” School districts that received some equalization aid were commonly referred to as “revenue limit districts,” which are now referred to as “LCFF districts.” The District is an LCFF district.
Beginning in fiscal year 2013-14, the LCFF replaced the revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a base grant (“Base Grant”) per unit of average daily attendance (“A.D.A.”) with additional supplemental funding (the “Supplemental Grant”) allocated to local educational agencies based on their proportion of English language learners, students from low-income families and foster youth. The LCFF has an eight year implementation program to incrementally close the gap between actual funding and the target level of funding, as described below. The LCFF includes the following components:
• A Base Grant for each local education agency. The Base Grants are based on four uniform, grade-span base rates. For Fiscal Year 2015-16, the LCFF provided to school districts and charter schools: (a) a Target Base Grant for each LEA equivalent to $7,820 per ADA for kindergarten through grade 3; (b) a Target Base Grant for each LEA equivalent to $7,189 per ADA for grades 4 through 6; (c) a Target Base Grant for each LEA equivalent to $7,403 per ADA for grades 7 and 8; (d) a Target Base Grant for each LEA equivalent to $8,801 per ADA for grades 9 through 12. However, the amount of actual funding allocated to the Base Grant, Supplemental Grants and Concentration Grants will be subject to the discretion of the State. This amount includes an adjustment of 10.4% to the Base Grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in grades 9-12.
• A 20% Supplemental Grant for the unduplicated number of English language 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 language learners, students from low-income
A-13 families and foster youth served by the local education agency that comprise more than 55% of enrollment.
• An Economic Recovery Target (the “ERT”) that is intended to ensure that almost every local education agency receives at least their pre-recession funding level (i.e., the fiscal year 2007-08 revenue limit per unit of A.D.A.), adjusted for inflation, at full implementation of the LCFF. Upon full implementation, local education agencies would receive the greater of the Base Grant or the ERT.
Under the new formula, for community funded districts, local property tax revenues would be used to offset up to the entire allocation under the new formula. However, community funded districts would continue to receive the same level of State aid as allocated in fiscal year 2012-13.
Local Control Accountability Plans. A feature of the LCFF is a system of support and intervention for local educational agencies. School districts, county offices of education and charter schools are required to develop, implement and annually update a three-year local control and accountability plan (“LCAP”). Each LCAP must be developed with input from teachers, parents and the community, and should describe local goals as they pertain to eight areas identified as state priorities, including student achievement, parent engagement and school climate, as well as detail a course of action to attain those goals. Moreover, the LCAPs must be designed to align with the district’s budget to ensure adequate funding is allocated for the planned actions.
Each school district must submit its LCAP annually on or before July 1 for approval by its county superintendent. The county superintendent then has until August 15 to seek clarification regarding the contents of the LCAP, and the school district must respond in writing. The county superintendent can submit recommendations for amending the LCAP, and such recommendations must be considered, but are not mandatory. A school district’s LCAP must be approved by its county superintendent by October 8 of each year if such superintendent finds (i) the LCAP adheres to the State template, and (ii) the district’s budgeted expenditures are sufficient to implement the strategies outlined in the LCAP.
Performance evaluations are to be conducted to assess progress toward goals and guide future actions. County superintendents are expected to review and provide support to the school districts under their jurisdiction, while the State Superintendent of Public Instruction performs a corresponding role for county offices of education. The California Collaborative for Education Excellence (the “Collaborative”), a newly established body of educational specialists, was created to advise and assist local education agencies in achieving the goals identified in their LCAPs. For local education agencies that continue to struggle in meeting their goals, and when the Collaborative indicates that additional intervention is needed, the State Superintendent of Public Instruction would have authority to make changes to a local education agency’s LCAP.
Attendance and Base Revenue Limit. The following table sets forth the District’s actual A.D.A., enrollment and base revenue limit per unit of A.D.A. for fiscal years 2011-12 and 2012-13, for grades K-12, including special education (but excluding adult education and regional occupation program attendance).
A-14 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Average Daily Attendance, Enrollment And Base Revenue Limit Fiscal Years 2011-12 through 2012-13
Base Revenue Limit Average Daily Per Unit of Average Fiscal Year Attendance(1) Enrollment(2) Daily Attendance 2011-12(3) 11,492 11,764 $6,488 2012-13(4) 11,469 11,809 6,700 ______(1) A.D.A. for the second period of attendance, typically in mid-April of each school year. (2) Reflects enrollment as of October report submitted to the California Basic Educational Data System (“CEBEDS”) in each school year. (3) The District had a 20.602% base revenue limit deficit factor and a 2.24% cost of living adjustment in fiscal year 2011-12, which resulted in a funded base revenue limit of $5,151. (4) The District had a 22.272% base revenue limit deficit factor and a 3.243% cost of living adjustment in fiscal year 2012-13, which resulted in a funded base revenue limit of $5,225. Source: Palos Verdes Peninsula Unified School District.
A-15 Attendance and LCFF. The following table sets forth the District’s actual and budgeted A.D.A., enrollment (including percentage of students who are English language learners, from low-income families and/or foster youth (collectively, “EL/LI Students”)), and targeted Base Grant per unit of A.D.A. for fiscal years 2013-14 through 2015-16, respectively. The A.D.A. and enrollment numbers reflected in the following table include special education but exclude adult education and regional occupation program attendance.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Average Daily Attendance, Enrollment and Targeted Base Grant Fiscal Years 2013-14 through 2015-16
A.D.A./Base Grant Enrollment Enrollment(5) Unduplicated Percent of Fiscal Total Total EL/LI Year K-3 4-6 7-8 9-12 A.D.A. Enrollment Students
2013-14 A.D.A.(2): 2,837.34 2,550.56 1,833.96 4,288.20 11,510.06 11,713 9.63% Targeted Base Grant(3): $7,675 $7,056 $7,266 $8,638 ------
2014-15 A.D.A.(2): 2,824.86 2,425.33 1,902.95 4,267.87 11,421.01 11,632 9.91% Targeted Base Grant(3)(4): $7,740 $7,116 $7,328 $8,712 ------
2015-16(1) A.D.A.(2): 2,830.16 2,455.18 1,807.46 4,237.64 11,330.44 11,499 9.91% Targeted Base Grant(3)(5): $7,820 $7,189 $7,403 $8,801 ------
______(1) Figures are projections. (2) Funded A.D.A. for the second period of attendance, typically in mid-April of each school year. (3) Such amounts represent the targeted amount of Base Grant per unit of A.D.A., and do not include any supplemental and concentration grants under the LCFF. Such amounts are not expected to be fully funded in fiscal years 2013-14 and 2014-15. (4) Targeted fiscal year 2014-15 Base Grant amounts reflect a 0.85% cost of living adjustment from targeted fiscal year 2013-14 Base Grant amounts. (5) Targeted fiscal year 2015-16 Base Grant amounts reflect a 1.02% cost of living adjustment from targeted fiscal year 2014-15 Base Grant amounts. (6) Reflects enrollment as of October report submitted to the CBEDS in each school year. For purposes of calculating Supplemental and Concentration Grants, a school district’s fiscal year 2013-14 percentage of unduplicated EL/LI Students will be expressed solely as a percentage of its fiscal year 2013-14 total enrollment. For fiscal year 2014-15, the percentage of unduplicated EL/LI Students enrollment will be based on the two-year average of EL/LI Students enrollment in fiscal years 2013-14 and 2014-15. Beginning in fiscal year 2015-16, a school district’s percentage of unduplicated EL/LI Students will be based on a rolling average of such school district’s EL/LI Students enrollment for the then-current fiscal year and the two immediately preceding fiscal years. Source: Palos Verdes Peninsula Unified School District.
The District received approximately $76.2 million in aggregate revenues reported under LCFF sources in fiscal year 2014-15, and is projected to receive approximately $84.1 million in aggregate revenues under the LCFF in fiscal year 2015-16 (or approximately 71.7% of its general fund revenues in fiscal year 2015-16). Such amount includes supplemental grants and concentration grants projected to be approximately $871,177, collectively, in fiscal year 2014-15, and projected to be $1,350,406, collectively, in fiscal year 2015-16.
Local Sources of Education Funding
The principal component of local revenues is a school district’s property tax revenues, i.e., each 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. California Education Code Section 42238(h) itemizes the local revenues that are counted towards the amount allocated under the LCFF (and
A-16 formerly, the base revenue limit) before calculating how much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to receive. Prior to the implementation of the LCFF, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State aid, and received only its special categorical aid which is deemed to include the “basic aid” of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts were known as “basic aid districts.” School districts that received some State aid were commonly referred to as “revenue limit districts.” The District was a revenue limit district and is now referred to as an LCFF district.
Under the LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula; however, community funded districts would continue to receive, at a minimum, the same level of State aid as allotted in fiscal year 2012-13. See “−Allocation of State Funding to School Districts: Local Control Funding Formula” herein for more information.
Local property tax revenues account for approximately 53.7% of the District’s aggregate revenues reported under LCFF sources, and are projected to be approximately $45.1 million, or 38.5% of total general fund revenues in fiscal year 2015-16.
For a discussion of legal limitations on the ability of the District to raise revenues through local property taxes, see “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” below.
Effect of Changes in Enrollment. Changes in local property tax income and A.D.A. affect LCFF districts and community funded districts differently.
In an LCFF district, such as the District, increasing enrollment increases the total amount distributed under the LCFF and thus generally increases a district’s entitlement to State equalization aid, while increases in property taxes do nothing to increase district revenues, but only offset the State funding requirement of equalization aid. Operating costs increase disproportionately slowly to enrollment growth; and only at the point where additional teachers and classroom facilities are needed. Declining enrollment has the reverse effect on LCFF districts, generally resulting in a loss of State equalization aid, while operating costs decrease slowly and only when, for example, the district decides to lay off teachers or close schools.
In community funded districts, the opposite is generally true: increasing enrollment increases the amount to which the district would be entitled were it an LCFF district, but since all LCFF income (and more) is already generated by local property taxes, there is no increase in State income, other than the $120 per student in basic aid, as described above. Meanwhile, as new students impose increased operating costs, property tax income is stretched further. Declining enrollment does not reduce property tax income, and has a negligible impact on State aid, but eventually reduces operating costs, and thus can be financially beneficial to a community funded district.
Other District Revenues
Federal Revenues. The federal government provides funding for several District programs, including special education programs. Federal revenues, most of which are restricted, comprise approximately 2.3% (or approximately $2.7 million) of the District’s general fund projected revenues for fiscal year 2015-16.
Other State Revenues. In addition to State apportionments for Proposition 98 funding through the Local Control Funding Formula, the District receives other State revenues which comprise approximately
A-17 14.34% (or approximately $16.82 million) of the District’s general fund projected revenues for fiscal year 2015-16. A significant portion of such other State revenues are amounts the District expects to receive from State lottery funds, which may not be used for non-instructional purposes, such as the acquisition of real property, the construction of facilities, or the financing of research. School districts receive lottery funds proportional to their total A.D.A. The District’s State lottery revenue is projected at approximately $2.12 million for fiscal year 2015-16.
Other Local Revenues. In addition to ad valorem property taxes, the District receives additional local revenues from items such as interest earnings and other local sources. Other local revenues comprise approximately 11.65% (or approximately $13.66 million) of the District’s general fund projected revenues for fiscal year 2015-16. Such amount includes parcel tax revenues, as described below.
Parcel Taxes
In 2003, voters in the District approved a qualified special tax (parcel tax) of $173 per parcel within the boundaries of the District for five years with a 72.76% passage rate. The parcel tax was scheduled to expire on June 30, 2008. However, on June 5, 2007, voters in the District approved an increase to and extension of the parcel tax, to $209 per parcel, beginning on July 1, 2008, and scheduled to expire on June 30, 2013 (the “Measure P Parcel Tax”), with a 79.9% passage rate. Revenues from the Measure P Parcel Tax were authorized to fund educational programs, materials and equipment; the preservation of small class sizes; the retention of highly qualified teachers and employees; up-to-date textbooks and instructional materials; and advances in classroom technology. On June 23, 2009, voters in the District approved an additional parcel tax of $165 per parcel, beginning on July 1, 2009 and scheduled to expire on June 30, 2013 (the “Measure V Parcel Tax”) with a 68.89% passage rate. Revenues from the Measure V Parcel Tax were authorized to fund educational programs including math, science, technology, physical education, music and art; retain qualified teachers and school employees; keep school facilities well-maintained; and continue programs that promote student achievement and success in college/careers.
In November 2011, voters in the District approved a special parcel tax of $374 per parcel, adjusted annually for inflation, with a 68.85% passage rate (the “Measure M Parcel Tax”). The levy of the Measure M Parcel Tax began on July 1, 2012 and replaced both the Measure P Parcel Tax and the Measure V Parcel Tax. The Measure M Parcel Tax has no set expiration date. Revenues from the Measure M Parcel Tax are authorized to fund advanced programs in math, science and technology, keep classroom technology up-to-date, attract and retain highly qualified teachers and maintain manageable class sizes. In fiscal year 2015-16, the District expects to receive approximately $8.0 million in revenues from the Measure M Parcel Tax.
Significant Accounting Policies and Audited Financial Reports
The State Department of Education imposes by law uniform financial reporting and budgeting requirements for K-12 school districts. Financial transactions are accounted for in accordance with the Department of Education’s California School Accounting Manual. This manual, according to Section 41010 of the Education Code, is to be followed by all California school districts, including the District. Significant accounting policies followed by the District are explained in Note 1 to the District’s audited financial statements for the fiscal year ended June 30, 2015, which are included as Appendix B.
Independently audited financial reports are prepared annually in conformity with generally accepted accounting principles for educational institutions. The annual audit report is generally available about six months after the June 30 close of each fiscal year. The following tables contain data abstracted from financial statements prepared by the District’s independent auditor, Vavrinek, Trine, Day & Co.,
A-18 LLP, Certified Public Accountants, Rancho Cucamonga, California, for fiscal years 2010-11 through 2014-15.
Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, has not been requested to consent to the use or to the inclusion of its reports in this Official Statement, and it has not audited or reviewed this Official Statement. The District is required by law to adopt its audited financial statements after a public meeting to be conducted no later than January 31 following the close of each fiscal year.
The following table shows the statement of revenues, expenditures and changes in fund balances for the District’s general fund for fiscal years 2010-11 through 2014-15.
A-19 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years 2010-11 through 2014-15
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2010-11 2011-12 2012-13 2013-14 2014-15 REVENUES Actuals Actuals Actuals Actuals Actuals Revenue Limit Sources/LCFF Sources(1) $61,133,756 $60,691,239 $61,065,924 $70,479,820 $76,554,746 Federal sources 7,133,956 3,186,815 3,331,057 2,649,265 2,402,958 Other State sources 15,393,467 17,012,905 16,211,793 12,140,485 10,430,052 Other local sources(2) 14,998,522 15,379,924 15,996,803 14,954,227 15,510,311 Total Revenues 98,659,701 96,270,883 96,605,577 100,223,797 104,898,067 EXPENDITURES Current: Instruction 66,121,038 66,022,085 65,403,812 67,997,389 73,334,130 Instruction-Related activities: Supervision of instruction 1,034,979 1,066,641 1,031,122 1,290,430 1,889,176 Instructional library, media and 395,992 407,972 433,671 325,433 439,267 technology School site administration 5,566,395 5,501,382 5,687,614 5,821,434 6,110,564 Pupil services: Home-to-school transportation 782,142 708,100 785,618 863,878 1,007,690 Food services - - - - - All other pupil services 4,735,595 4,723,916 5,131,960 5,279,452 5,695,097 Administration: Data processing 873,724 1,052,913 1,035,060 820,959 1,149,799 All other information 3,601,495 4,525,010 4,126,508 4,289,736 4,604,902 Plant services 8,928,325 9,008,785 9,746,733 9,518,560 10,881,056 Facility acquisition and construction 42,526 857,879 309,279 59,124 132,228 Ancillary services 2,498,091 2,471,921 2,186,168 2,142,960 1,980,396 Community services 759,692 2,055 1,752 2,637 88,472 Other outgo 7,883 980,706 1,105,461 750,685 828,571 Debt service Principal - 61,906 47,793 56,166 87,000 Interest and other 211,629 110,141 240,546 181,121 55,596 Total Expenditures 95,559,506 97,501,412 97,273,097 99,399,964 108,283,944 Excess (Deficiency) of Revenues Over (Under) 3,100,195 (1,230,529) (667,520) 823,833 (3,385,877) Expenditures OTHER FINANCING SOURCES (USES) Transfers in 47,473 - 309,607 870,043 870,043 Other sources - 762,804 309,279 - - Transfers out (1,464,597) (300,000) (1,324,555) (300,000) (300,000) Net Financing Sources (Uses) (1,417,124) 462,804 (705,669) 570,043 570,043 NET CHANGE IN FUND BALANCES 1,683,071 (767,725) (1,373,189) 1,393,876 (2,815,834) Fund Balances, July 1 8,810,243 16,385,887 15,618,162 14,244,973 15,638,849 Prior Period Restatement 5,892,573(3) - - - - Fund Balances, June 30 $16,385,887 $15,618,162 $14,244,973 $15,638,849 $12,823,015 ______(1) The LCFF was implemented beginning in fiscal year 2013-14. (2) Includes revenues from the Measure P Parcel Tax and the Measure V Parcel Tax, both of which expired with the levy of the Measure M Parcel Tax beginning on July 1, 2012. (3) The District’s fund balances were restated to conform to Governmental Accounting Standards Board (“GASB”) Statement No. 54. Accordingly, the beginning fund balances for Fund 17 (Special Reserve Fund for Other Than Capital Outlay Projects) (“Fund 17”) and Fund 20 (Special Reserve Fund for Postemployment Benefits) (“Fund 20”) are reported as a restatement to the beginning fund balance of the District’s general fund. Source: Palos Verdes Peninsula Unified School District Audited Financial Reports for fiscal years 2010-11 through 2014-15.
A-20 The following table shows the general fund balance sheet of the District for fiscal years 2010-11 through 2014-15.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Summary of General Fund Balance Sheet Fiscal Years 2010-11 Through 2014-15
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2010-11 2011-12 2012-13 2013-14 2014-15 Assets Cash, Deposits and Investments $15,350,744 $12,341,554 $21,267,226 $19,280,449 $19,617,996 Accounts Receivable 12,074,960 16,899,062 9,621,266 7,520,145 3,101,586 Due from Other Funds 78,674 - 107,664 - - Prepaid expenditures 1,950 390 50,634 27,804 39,353 Stores inventories 133,581 195,775 85,770 79,227 25,602 Total Assets $27,639,909 $29,436,781 $31,132,560 $26,907,625 $22,784,537
Liabilities and Fund Balances Liabilities Accounts payable and accrued $7,666,100 $8,776,432 $11,828,036 $11,241,471 $9,877,005 liabilities Due to Other Funds - - - - - Current loan 3,300,000 5,000,000 5,000,000 - - Deferred Revenue 287,922 42,187 59,551 27,305 84,517 Total Liabilities 11,254,022 13,818,619 16,887,587 11,268,776 9,961,522
Fund Balances Nonspendable 145,531 206,165 146,404 117,031 74,955 Restricted 1,570,239 226,122 178,439 1,951,517 604,110 Committed - - - - - Assigned 5,409,834 5,855,395 10,384,350 10,661,601 8,962,713 Unassigned 9,260,283 9,330,480 3,535,780 2,908,700 3,181,237 Total Fund Balances 16,385,887 15,618,162 14,244,973 15,638,849 12,823,015 Total Liabilities and Fund Balances $27,639,909 $29,436,781 $31,132,560 $26,907,625 $22,784,537 ______Source: Palos Verdes Peninsula Unified School District Audited Financial Reports for fiscal years 2010-11 through 2014-15.
District Budget Process and County Review
State law requires school districts to adopt 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 County of Los Angeles Superintendent of Schools.
The county superintendent must review and approve, conditionally 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
A-21 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 the subsequent year’s 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) develop and impose, after also consulting with the district’s governing board, 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 (known as “A.B. 1200”) imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of A.B. 1200, each school district is required to file interim certifications with the county superintendent (on December 15, for the period ended October 31, and by mid-March for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then- current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the county superintendent in that fiscal year or in the next succeeding year.
For school districts under fiscal distress, the county superintendent of schools is authorized to take a number of actions to ensure that the school district meets its financial obligations, including budget revisions. However, the county superintendent is not authorized to approve any diversion of revenue from ad valorem taxes levied to pay debt service on district general obligation bonds. A school district that becomes insolvent may, upon the approval of a fiscal plan by the county superintendent of schools, receive an emergency appropriation from the State, the acceptance of which constitutes an agreement to submit to management of the school district by an administrator appointed by the State Superintendent.
In the event the State elects to provide an emergency appropriation to a school district, such appropriation may be accomplished through the issuance of “State School Fund Apportionment Lease Revenue Bonds” to be issued by the California Infrastructure and Economic Development Bank, on behalf of the school district. State law provides that so long as such bonds are outstanding, the recipient school district (via its State-appointed administrator) cannot file for bankruptcy.
The District has never received a qualified or negative certification. The following table sets forth the District’s adopted general fund budgets for fiscal years 2013-14 through 2015-16, unaudited actuals for fiscal years 2013-14 and 2014-15, and second interim report for fiscal year 2015-16.
A-22 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) General Fund Budgets for Fiscal Years 2013-14 through 2015-16, Unaudited Actuals for Fiscal Years 2013-14 and 2014-15 and Second Interim Report for Fiscal Year 2015-16
2013-14 2013-14 2014-15 2014-15 2015-16 2015-16 Original Adopted Unaudited Original Adopted Unaudited Original Adopted Second Interim Budget Actuals Budget Actuals Budget Report(1)
REVENUES Revenue Limit /LCFF Sources(2) $63,626,703.00 $70,479,821.71 $76,323,627.00 $76,554,746.39 $84,303,619.00 $84,067,945.00 Federal Revenue 2,758,064.00 2,649,264.38 2,614,647.00 2,402,958.42 2,679,628.00 2,696,023.00 Other State Revenue 13,901,247.00 9,681,380.12 6,697,913.00 7,887,336.73 13,407,597.00 16,816,926.00 Other Local Revenue(3) 14,192,005.00 14,652,803.17 11,648,213.00 15,204,863.21 12,408,823.00 13,659,863.00 TOTAL REVENUES 94,478,019.00 97,463,269.38(4) 97,284,400.00 $102,049,904.75 112,799,667.00 117,240,757.00 EXPENDITURES Certificated Salaries 45,293,703.00 46,883,622.74 47,235,458.00 50,965,838.35 50,776,867.00 53,564,681.00 Classified Salaries 17,819,160.00 17,378,853.76 18,258,500.00 19,187,452.40 19,930,270.00 21,002,492.00 Employee Benefits 14,397,230.00 14,119,161.15 15,199,654.00 15,713,415.37 16,088,932.00 20,237,215.00 Books and Supplies 2,702,816.00 4,168,901.10 5,482,577.00 4,753,904.38 3,518,054.00 6,146,340.00 Services, Other Operating Expenses 13,992,793.00 13,449,537.44 12,661,515.00 14,052,606.16 13,786,897.00 14,273,866.00 Capital Outlay 174,494.00 134,031.78 220,036.00 185,877.26 51,353.00 590,170.00 Other Outgo (excluding Direct Support/Indirect Costs) 996,886.00 522,552.77 682,909.00 888,241.98 842,822.00 1,102,300.00 Other Outgo - Transfers of Indirect Costs (77,158.00) - (77,158.00) (6,107.06) (6,457.00) (6,778.00) TOTAL EXPENDITURES 95,299,924.00 96,656,660.74(4) 99,663,491.00 105,741,228.84 104,988,738.00 116,910,286.00 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (821,905.00) 806,608.64 (2,379,091.00) (3,691,324.09) 7,810,929.00 330,471.00 OTHER FINANCING SOURCES (USES) Inter-fund Transfers In 1,218,475.00 1,798,439.00 1,823,327.00 1,823,327.00 1,823,327.00 1,853,371.00 Inter-fund Transfers Out (300,000.00) (300,000.00) (717,941.00) (300,000.00) (587.979.00) (300,000.00) Other Sources (Uses) ------Contributions ------TOTAL, OTHER FINANCING SOURCES (USES) 918,475.00 1,498,439.00 1,105,386.00 1,523,327.00 1,235.348.00 1,553,371.00 NET INCREASE (DECREASE) IN FUND BALANCE 96,570.00 2,305,047.64 (1,273,705.00) (2,167,997.09) 9,046,277.00 1,883,842.00 BEGINNING BALANCE, as of July 1 5,498,444.00 9,196,015.75 9,067,056.75 11,501,063.39 5,553,229.39 9,333,066.30 Audit Adjustments ------As of July 1 – Audited 5,498,444.00 9,196,015.75 9,067,056.75 11,501,063.39 5,553,229.39 9,333,066.30 Other Restatements ------Adjusted beginning Balance 5,498,444.00 9,196,015.75 9,067,056.75 11,501,063.39 5,553,229.39 9,333,066.30 ENDING BALANCE $5,595,014.00 $11,501,063.39 $7,793,351.75 $9,333,066.30 $14,599,506.39 $11,216,908.30 Unrestricted Balance $5,415,793.00 $9,547,982.31 $7,793,350.41 $8,728,956.25 $14,599,506.31 $10,354,092.25 Restricted Balance $82,651.00 $1,953,081.08 $1.34 $604,110.05 $0.08 $862,816.05 ______(1) Figures are projections. (2) The LCFF was implemented beginning in Fiscal Year 2013-14. (3) Includes revenues from the Measure M Parcel Tax. (4) Total revenues and total expenditures do not match the District’s audited financial statements because the District does not include contributions to the State Teachers’ Retirement System made by the State on behalf of the District in its internal financial reports, which amounts to $2,297,841 and $2,459,104 for fiscal years 2012-13 and 2013-14, respectively. The District’s audited financial statements include such amounts as revenues and expenditures. In addition, as Fund 17, Fund 20 and Fund 71 (Retiree Benefit Fund) (“Fund 71”) have, for reporting purposes, been consolidated into the District’s general fund, additional revenues and expenditures pertaining to these funds are included in the District’s audited financial statements but are not included in the District’s internal financial reports. (5) The fund balances do not match the District’s audited financial statements because the District does not include the fund balances for Fund 17, Fund 20 and Fund 71 in its internal financial reports; however, such amounts are included in the District’s audited financial statements to conform to GASB 54. Source: Palos Verdes Peninsula Unified School District Adopted general fund Budgets for fiscal years 2013-14, 2014-15 and 2015-16; unaudited actuals for fiscal year 2013-14; and second interim report for fiscal year 2015-16.
A-23 District Debt Structure
Long-Term Debt Summary. A schedule of the District’s long-term obligations for the year ended June 30, 2015, consisted of the following:
Balance Balance Due in Long-Term Debt June 30, 2014 Additions Deductions June 30, 2015 One Year General obligation bonds(1)(2) $89,951,050 $2,186,447 $2,750,000 $89,387,497 $2,960,000 Premium on issuance 3,536,150 - 118,988 3,417,162 - Discount on issuance (41,562) - (3,637) (37,925) - Capital leases 527,756 - 214,001 313,755 193,130 Accumulated vacation – net 1,426,467 266,627 - 1,693,094 - Supplemental early retirement plan (SERP) 2,198,916 - 549,729 1,649,187 549,729 Other post employment benefits (OPEB) 2,800,303 1,249,800 406,370 3,643,733 - Total $100,399,080 $3,702,874 $4,035,451 $100,066,503 $3,702,859 ______(1) Includes accreted value amounts. (2) A portion of the Measure R Series 2006 Bonds, the Measure S Series 2006 Bonds and the Measure R Series 2009 Bonds (all as defined herein) are expected to be refunded with proceeds of the Series 2016A Bonds. All of the Series 2006 Refunding Bonds (as defined herein) are expected to be refunded with proceeds of the Series 2016B Bonds. See “THE SERIES 2016 BONDS –Outstanding Bonds; Plan of Finance” in the front portion of this Official Statement. Source: Palos Verdes Peninsula Unified School District Audited Financial Report for fiscal year 2014-15.
Payments for general obligation bonds are made from the District’s interest and sinking fund with local ad valorem tax revenues. Payments for capital leases are made from the District’s general fund. The accrued vacation is paid by the fund for which the employee worked. Payments for the Supplemental Early Retirement Program are made from the District’s general fund. Other postemployment benefits are generally paid from the District’s special reserve fund for postemployment benefits.
General Obligation Bonds. In addition to the Series 2016 Bonds, the District has ten additional outstanding series of bonds, each of which is secured by ad valorem taxes upon all property subject to taxation by the District.
For information about the District’s outstanding Bonds, see “THE SERIES 2016 BONDS – Outstanding Bonds; Plan of Finance – Outstanding Bonds” in the front portion of this Official Statement.
The following table summarizes the District’s bonds that were outstanding as of June 30, 2015:
Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Bond(1) Date Date Rate Issue July 1, 2014 Issued Accreted Redeemed June 30, 2015
Series 2002 Bonds 4/3/02 11/1/26 3.00-7.72% $15,020,098 $3,507,748 $ - $276,024 - $3,783,772 Series 2003 Bonds 3/20/03 11/1/27 2.00-5.42% 10,427,362 14,192,366 - 738,771 $615,000 14,316,137 Series 2005 Refunding Bonds(1) 1/26/05 11/1/25 2.50-4.38% 20,400,000 10,160,000 - - 835,000 9,325,000 Series 2006 Refunding Bonds 3/28/06 11/1/23 3.50-5.00% 11,865,000 8,770,000 - - 655,000 8,115,000 Measure R Series 2006 Bonds 3/28/06 3/1/31 3.50-5.00% 23,004,233 14,829,092 - 620,514 330,000 15,119,606 Measure S Series 2006 Bonds 3/28/06 3/1/31 3.50-7.65% 2,003,988 86,101 - 18,609 30,000 855,710 Measure R Series 2009 Bonds 10/21/09 8/1/34 5.68-6.18% 6,994,337 8,954,743 - 532,529 - 9,487,272 Measure S Series 2009 Bonds 10/21/09 8/1/34 2.00-5.00% 7,995,000 7,805,000 - - - 7,805,000 Series 2014A Refunding Bonds 3/11/14 9/1/27 0.15-3.17% 13,010,000 13,10,000 - - 65,000- 12,945,000 Series 2014B Refunding Bonds 3/11/14 9/1/21 0.35-2.972% 7,855,000 7,855,000 - - 220,000 7,635,000 $89,951,050 $ - $2,186,447 $2,750,000 $89,387,497 ______(1) Does not reflect the Series 2015 Refunding Bonds that were issued on August 6, 2015. (2) Does not reflect that a portion of the Series 2005 Refunding Bonds was refunded with proceeds of the Series 2015 Refunding Bonds. Source: Palos Verdes Peninsula Unified School District Audited Financial Report for fiscal year 2014-15.
A-24 See “THE SERIES 2016 BONDS – Outstanding Bonds; Plan of Finance” in the front portion of this Official Statement for more information on the bonds to be refunded with proceeds of the Series 2016 Bonds, and see “THE SERIES 2016 BONDS – Aggregate Debt Service” in the front portion of this Official Statement for the annual debt service requirements for the District’s outstanding bonds.
Capital Leases. The District entered into certain agreements to lease certain networking equipment and vehicles. Such agreements are, in substance, purchase capital leases and are reported as capital lease obligations. The District’s liability on lease agreements with respect to networking equipment with options to purchase is summarized below:
Networking Equipment Balance, July 1, 2014 $546,673 Payments (225,380) Balance, June 30, 2015 $321,293
The capital leases with respect to the networking equipment have minimum lease payments as follows:
Year Ending Lease Balance Payment 2016 $ 199,272 2017 122,021 Total 321,293 Less: Amount Representing Interest (7,538) Present Value of Minimum Lease Payments $313,755
Accumulated Unpaid Employee Vacation. The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2015, amounted to $1,693,094.
Supplemental Early Retirement Plans (SERP). The District has offered supplemental early retirement plans (SERP) to its certificated employees. Eligible employees who meet specific criteria for participation in SERP are provided an annuity to supplement the retirement benefits they are entitled to, through their respective retirement systems. The annuities offered to the employees were paid over a five- year period. The annuities, which were purchased for 36 employees who returned during the fiscal year 2012-13, were purchased from Pacific Life Insurance Company. As of June 30, 2015, the remaining balance of the supplemental early retirement plan was $1,649,187.
Other Post-Employment Benefits. In addition to the retirement plan benefits with CalSTRS and the State Public Employees’ Retirement System (“CalPERS”) (see “– Retirement Benefits” below), the District provides certain post-retirement healthcare benefits, in accordance with District employment contracts. The District participates in the CalPERS Health Benefits Program. Employees who retire from active service with at least 5 years of service are eligible to receive the CalPERS minimum base rate if enrolling in a District offered CalPERS plan for the life of the retiree. The benefit covers dependents and survivors. In addition, employees who retire from active service at age 55 with at least 15 years of service are offered a supplement toward the purchase of medical coverage until age 65 and are eligible to receive the CalPERS minimum base rate if enrolling in a District offered CalPERS plan for the life of the retiree. These benefits do not cover dependents and survivors. Employees who work less than a 50% equivalent are not eligible for benefits.
A-25 As of June 30, 2015, there were 256 retirees and beneficiaries who met the eligibility requirements and were receiving such benefits, one employee who terminated employment but has not begun collecting benefits, and 773 active members who would be or may become eligible to receive benefits.
The Governmental Accounting Standards Board released its Statement Number 45 (“Statement Number 45”), which requires municipalities to account for other post-employment benefits (meaning other than pension benefits) (“OPEB”) liabilities much like municipalities are required to account for pension benefits. The expense is generally accrued over the working career of employees, rather than on a pay-as-you-go basis, which has been the practice for most municipalities and public sector organizations. OPEBs generally include post-employment health benefits (medical, dental, vision, prescription drug and mental health), life insurance, disability benefits and long term care benefits. Statement Number 45 was phased in over a three-year period based upon the entity’s revenues. Statement Number 45 became effective for the District beginning in the fiscal year ended June 30, 2008.
The District has not established an irrevocable trust to prefund its OPEB liability. The District has, however, established a special reserve fund designated for its OPEB obligations and currently has approximately $2.96 million set aside in such fund. None of the amounts set aside in the District’s special reserve fund are counted as plan assets for purposes of GASB 45, which requires an irrevocable contribution to a trust or equivalent arrangement protected from creditors and dedicated solely to providing benefits to retirees and beneficiaries. The District’s current funding policy is to contribute an amount sufficient to pay the current year’s retiree claim costs and plan expenses. The District contributions for these benefits for fiscal years 2011-12, 2012-13, 2013-14 and 2014-15 were $380,756, $402,795, $412,760 and $406,370, respectively.
Demsey Filliger & Associates has prepared an actuarial valuation covering the District’s retiree health benefits and reports that, as of July 1, 2014, the District had an accrued unfunded liability of $12,205,827. Several factors have caused such amount to change since the actuarial valuation from 2012, including a change in the assumed discount rate from 6.0% to 8.0%. For more information regarding the actuarial valuation, the District’s annual required contribution for fiscal year 2014-15 ($1,299,730) and the District’s net OPEB obligation at June 30, 2015 ($3,643,733), as well as the basic assumptions upon which the valuation was based, see Note 11 to the District’s financial statements attached hereto as APPENDIX B − “FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2015.”
Tax and Revenue Anticipation Notes. The District, through the Los Angeles County Schools Pooled Financing Program, issued tax and revenue anticipation notes (“TRANs”) in the amount of $5,000,000 on July 1, 2015. Such TRANs has a maturity date of June 1, 2016. The District may issue TRANS in future fiscal years when necessary to supplement cash flow.
Employment
As of February 16, 2016, the District employed 1,943 employees, consisting of 830 certificated employees and 1,113 classified employees. For the year ended June 30, 2015, the total certificated and classified payrolls were approximately $50.97 million and $19.19 million, respectively. For fiscal year 2015-16, the total certificated and classified payrolls are projected to be approximately $53.60 million and $21.0 million, respectively
A-26 District employees are represented by employee bargaining units as follows:
Number of Employees Current Contract Name of Bargaining Unit Represented Expiration Date Palos Verdes Faculty Association (PVFA) Cal 99 591 June 30, 2018 Classified Schools Employees Association (CSEA), 640 June 30, 2018 Palos Verdes Chapter 123 ______Source: Palos Verdes Peninsula Unified School District.
Retirement Benefits
The District participates in retirement plans with CalSTRS, which covers all full-time certificated District employees, and CalPERS, which covers certain classified employees. Classified school personnel who are employed four or more hours per day may participate in CalPERS.
CalSTRS. Contributions to CalSTRS are fixed in statute. For fiscal year 2013-14, teachers contributed 8% of salary to CalSTRS, while school districts contributed 8.25%. In addition to the teacher and school contributions, the State contributed 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the teacher and school district contributions are not sufficient to fully fund the basic defined benefit pension (generally consisting of 2% of salary for each year of service at age 60 referred to herein as “pre-enhancement benefits”) within a 30- year period. However, this surcharge does not apply to systemwide unfunded liability resulting from recent benefit enhancements.
As of June 30, 2014, an actuarial valuation (the “2014 CalSTRS Actuarial Valuation”) for the entire CalSTRS defined benefit program showed an estimated unfunded actuarial liability of $72.7 billion, a decrease of approximately $949 million from the June 30, 2013 valuation. The funded ratios of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2014, June 30, 2013 and June 30, 2012, based on the actuarial assumptions, were approximately 68.5%, 66.9% and 67.0%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions. The following are certain of the actuarial assumptions set forth in the 2014 CalSTRS Actuarial Valuation: measurement of accruing costs by the “Entry Age Normal Actuarial Cost Method,” 7.50% investment rate of return, 4.50% interest on member accounts, 3.75% projected wage growth, and 3.00% projected inflation. The 2014 CalSTRS Actuarial Valuation also assumes that all members hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See “−Governor’s Pension Reform” below for a discussion of the pension reform measure signed by the Governor in August 2012 expected to help reduce future pension obligations of public employers with respect to employees hired on or after January 1, 2013. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions, changes in actuarial assumptions and other experiences that may differ from the actuarial assumptions.
As indicated above, there was no required contribution from teachers, schools districts or the State to fund the unfunded actuarial liability for the CalSTRS defined benefit program and only the State legislature can change contribution rates. The 2014 CalSTRS Actuarial Valuation noted that, as of June 30, 2014, the contribution rate, inclusive of contributions from the teachers, the school districts and the State, was equivalent to 32.338% over the next 30 years.
A-27 As part of the 2014-15 State Budget, the Governor signed Assembly Bill 1469 which implements a new funding strategy for CalSTRS, increasing the employer contribution rate in fiscal year 2014-15 from 8.25% to 8.88% of covered payroll. Such rate would increase by 1.85% beginning in fiscal year 2015-16 until the employer contribution rate is 19.10% of covered payroll as further described below. Teacher contributions will also increase from 8.00% to a total of 10.25% of pay, phased in over the next three years. The State’s total contribution will also increase from approximately 3% in fiscal year 2013-14 to 6.30% of payroll in fiscal year 2016-17, plus the continued payment of 2.5% of payroll annual for a supplemental inflation protection program for a total of 8.80%. In addition, AB 1469 provides the State Teachers Retirement Board with authority to modify the percentages paid by employers and employees for fiscal year 2021-22 and each fiscal year thereafter to eliminate the CalSTRS unfunded liability by June 30, 2046. The State Teachers Retirement Board would also have authority to reduce employer and State contributions if they are no longer necessary.
Pursuant to Assembly Bill 1469, school district’s contribution rates will increase in accordance with the following schedule: Effective Date School District (July 1) Contribution Rate 2014 8.88% 2015 10.73 2016 12.58 2017 14.43 2018 16.28 2019 18.13 2020 19.10 ______Source: Assembly Bill 1469.
The following table sets forth the District’s total employer contributions to CalSTRS for fiscal years 2011-12 through 2014-15 and the budgeted contribution for fiscal year 2015-16.
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Contributions to CalSTRS for Fiscal Years 2011-12 through 2015-16
Fiscal Year Contribution 2011-12 $3,610,531 2012-13 3,660,690 2013-14 3,744,952 2014-15 4,396,183 2015-16 8,208,972(1) ______(1) Second Interim Report for fiscal year 2015-16. Source: Palos Verdes Peninsula Unified School District.
The District’s total employer contributions to CalSTRS for fiscal years 2011-12 through 2014-15 were equal to 100% of the required contributions for each year. With the implementation of AB 1469, the District anticipates that its contributions to CalSTRS will increase in future fiscal years as compared to prior fiscal years. The District, nonetheless, is unable to predict all factors or any changes in law that could affect its required contributions to CalSTRS in future fiscal years.
CalSTRS produces a comprehensive annual financial report and actuarial valuations which include financial statements and required supplementary information. Copies of the CalSTRS
A-28 comprehensive annual financial report and actuarial valuations may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement.
CalPERS. All qualifying classified employees of K-12 districts in the State are members in CalPERS, and all of such districts participate in the same plan. As such, all such districts share the same contribution rate in each year. However, unlike school districts’ participating in CalSTRS, the school districts’ contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Accordingly, the District cannot provide any assurances that the District’s required contributions to CalPERS in future years will not significantly vary from any current projected levels of contributions to CalPERS.
According to the CalPERS Schools Actuarial Valuation as of June 30, 2014, the CalPERS Schools plan had a funded ratio of 86.6% on a market value of assets basis. The funded ratio, on a market value basis, as of June 30, 2014, June 30, 2013, June 30, 2011 and June 30, 2010 was 80.5%, 75.5%, 78.7% and 69.5%. In April 2013, the CalPERS Board of Administration approved changes to the CalPERS amortization and smoothing policy intended to reduce volatility in employer contribution rates. Beginning with the June 30, 2013 actuarial valuation, CalPERS employed a new amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year period (as compared to the current policy of spreading investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period). Such changes, the implementation of which are delayed until fiscal year 2015-16 for the State, schools and all public agencies, are expected to increase contribution rates in the near term but lower contribution rates in the long term. In November 2015, the CalPERs Board of Administration approved a proposal pursuant to which the discount rate would be reduced by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the current discount rate of 7.5% by at least four percentage points.
In February of 2014, the CalPERS Board of Administration adopted new actuarial demographic assumptions that take into account public employees living longer. Such assumptions are expected to increase costs for the State and public agency employers (including school districts), which costs will be amortized over 20 years and phased in over three years beginning in fiscal year 2014-15 for the State and amortized over 20 years and phased in over five years beginning in fiscal year 2016-17 for the employers. These new assumptions will apply beginning with the June 30, 2015 valuation for the schools pool, setting employer contribution rates for fiscal year 2016-17. CalPERS estimates that the new demographic assumptions could cost public agency employers up to 9% of payroll for safety employees and up to 5% of payroll for miscellaneous employees at the end of the five year phase in period. To the extent, however, that future experiences differ from CalPERS’ current assumptions, the required employer contributions may vary.
The following table sets forth the District’s total employer contributions to CalPERS for fiscal years 2011-12 through 2014-15 and the budgeted contribution for fiscal year 2015-16.
A-29 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT (County of Los Angeles, California) Contributions to CalPERS for Fiscal Years 2011-12 through 2015-16
Fiscal Year Contribution 2011-12 $1,967,417 2012-13 2,130,220 2013-14 2,196,173 2014-15 2,043,681 2015-16 2,292,763(1) ______(1) Second Interim Report for fiscal year 2015-16. Source: Palos Verdes Peninsula Unified School District.
The District’s total employer contributions to CalPERS for fiscal years 2011-12 through 2014-15 were equal to 100% of the required contributions for each year. With the change in actuarial assumptions described above, the District anticipates that its contributions to CalPERS will increase in future fiscal years as the increased costs are phased in. The implementation of PEPRA (see “−Governor’s Pension Reform” below), however, is expected to help reduce certain future pension obligations of public employers with respect to employees hired on or after January 1, 2013. The District cannot predict the impact these changes will have on its contributions to CalPERS in future years.
CalPERS produces a comprehensive annual financial report and actuarial valuations that include financial statements and required supplementary information. Copies of the CalPERS comprehensive annual financial report and actuarial valuations may be obtained from CalPERS Financial Services Division. The information presented in these reports is not incorporated by reference in this Official Statement.
Governor’s Pension Reform. On August 28, 2012, Governor Brown and the State Legislature reached agreement on a new law that reforms pensions for State and local government employees. AB 340, which was signed into law on September 12, 2012, established the California Public Employees’ Pension Reform Act of 2012 (“PEPRA”) which governs pensions for public employers and public pension plans on and after January 1, 2013. For new employees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $110,100 for 2012, or 120% of that amount for employees not covered by Social Security, increases the retirement age by two years or more for all new public employees while adjusting the retirement formulas, requires state employees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all employees, changes required by PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. PEPRA applies to all State and local public retirement systems, including county and district retirement systems. PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not governed by State law. Although the District anticipates that PEPRA would not increase the District’s future pension obligations, the District is unable to determine the extent of any impact PEPRA would have on the District’s pension obligations at this time. Additionally, the District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful.
The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make. CalSTRS and CalPERS are more fully described in Note 15 to the District’s financial statements attached hereto as APPENDIX B − “FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2015.”
A-30 GASB 67 and 68. In June 2012, the Governmental Accounting Standards Board approved a pair of related statements, Statement Number 67, Financial Reporting for Pension Plans (“Statement Number 67”), which addresses financial reporting for pension plans, and Statement Number 68, Accounting and Financial Reporting for Pensions (“Statement Number 68”), which establishes new accounting and financial reporting requirements for governments that provide their employees with pensions. The guidance contained in these statements will change how governments calculate and report the costs and obligations associated with pensions. Statement Number 67 replaces the current requirements of Statement Number 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and Statement Number 27 replaces the current requirements of Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, for most government employers. The new statements also replace the requirements of Statement Number 50, Pension Disclosures, for those governments and pension plans. Certain of the major changes include: (i) the inclusion of unfunded pension liabilities on the government’s balance sheet (such unfunded liabilities are currently typically included as notes to the government’s financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. Statement Number 67 became effective beginning in fiscal year 2013-14, and Statement Number 68 became effective beginning in fiscal year 2014-15. See Note 13 to the District’s financial statements attached hereto as APPENDIX B − “FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2015.”
Risk Pooling, Joint Powers Agreements and Joint Ventures
The District participates in joint powers agreements (JPAs) with the Alliance of Schools for Cooperative Insurance Program (ASCIP) and Southern California Regional Occupational Center (SCROC). The District pays an annual premium to ASCIP for its workers’ compensation, and property liability coverage. Payments for the regional occupational services received are paid to SCROC. The relationships between the District, the pool, and the JPAs are such that they are not component units of the District for financial reporting purposes.
These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are available from the respective entities.
See Note 15 to the District’s financial statements attached hereto as APPENDIX B − “FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2015.”
These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in the District’s financial statements attached hereto.
A-31 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS
Limitations on Revenues
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) 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, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real 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.
County of Orange v. Orange County Assessment Appeals Board No. 3. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new “base year value” for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA. On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place.
Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989.
Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment 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.
Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is
A-32 expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.
Article XIIIB of the California Constitution
An initiative to amend the State Constitution entitled “Limitation of Government Appropriations” was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution (“Article XIIIB”). Under Article XIIIB state and local governmental entities have an annual “appropriations limit” and are not permitted to spend certain moneys which are called “appropriations subject to limitation” (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the “appropriations limit.” Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of “appropriations subject to limitation,” including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
The District annually budgets appropriations from “proceeds of taxes” (sometimes referred to as the “Gann limit”) for the 2014-15 fiscal year are equal to the allowable limit of approximately $69.7 million, and estimates an appropriations limit for the 2015-16 fiscal year of approximately $72.0 million. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State’s allowable limit.
Article XIIIC and Article XIIID of the California Constitution
On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the “Right to Vote on Taxes Act.” Proposition 218 added to the California Constitution Articles XIIIC and XIIID (“Article XIIIC” and “Article XIIID,” respectively), 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. 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.
The District does not impose any taxes, assessments, or property-related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California
A-33 Constitution. 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.
Statutory Limitations
On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to be approved by two-thirds of the local agency’s governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 1, 1988.
Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court’s decision, such as whether the decision applies retroactively, what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities.
Proposition 98 and Proposition 111
On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). The Accountability Act changed 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 districts and community college districts (collectively, “K-14 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, which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in enrollment and inflation.
Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K-14 districts than the 40.9%, or to apply the relevant percentage to the State’s budgets in a different way than is proposed in the Governor’s Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State’s budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State’s ability to fund such other programs by raising taxes.
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 districts. Such transfer would be excluded from the Appropriations Limit for K-14 districts and the K-14 districts Appropriations Limits 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 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 surplus.
A-34 The maximum amount of excess tax revenues which could be transferred to schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above.
On June 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment 1), which further modified the Constitution to alter the spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (1) liberalized the annual adjustments to the spending limit by measuring the “change in the cost of living” by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State’s spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the “excess” tax revenues, determined based on a two-year cycle, would be transferred to K-14 districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts’ minimum funding level), and that any such transfer to K-14 districts would not be built into the school districts’ base expenditures for calculating their entitlement for State aid in the following year and would not increase the State’s appropriations limit; (3) excluded from the calculation of appropriations that are subject to the limit appropriations for certain “qualified capital outlay projects” and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the 1990-91 fiscal year, based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if Senate Constitutional Amendment 1 had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 districts a certain amount of general fund revenues, as described below.
Under prior law, K-14 districts were guaranteed the greater of (a) 40.9% of general fund revenues (the “first test”) or (b) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the “second test”). Under Proposition 111, school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in enrollment and per capita general fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a “credit” to be paid in future years when general fund revenue growth exceeds personal income growth.
Proposition 30
On November 6, 2012, voters approved Proposition 30, also referred to as the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment. Proposition 30 temporarily (a) increased the personal income tax on certain of the State’s income taxpayers by one to three percent for a period of seven years beginning with the 2012 tax year and ending with the 2019 tax year, and (b) increased the sales and use tax by one-quarter percent for a period of four years beginning on January 1, 2013 and ending with the 2016 tax year. The revenues generated from such tax increases are included in the calculation of the Proposition 98 minimum funding guarantee (see “– Proposition 98 and Proposition 111” above). The revenues generated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the Education Protection Account), and 89% of the amounts therein are allocated to school districts and 11% of the amounts therein are allocated to community college districts.
The Proposition 30 tax increases are temporary and expire at the end of the 2016 tax year with respect to the sales and use tax increase and the 2018 tax year with respect to the personal income tax increase. The District cannot predict the effect the loss of the revenues generated from such temporary
A-35 tax increases will have on total State revenues and the effect on the Proposition 98 formula for funding schools.
Applications of Constitutional and Statutory Provisions
The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 have been applied to school funding see “DISTRICT FINANCIAL MATTERS – State Funding of Education; State Budget Process.”
Proposition 2
General. Proposition 2, which included certain constitutional amendments to the Rainy Day Fund and, upon its approval, triggered the implementation of certain provisions which could limit the amount of reserves that may be maintained by a school district, was approved by the voters in the November 2014 election.
Rainy Day Fund. The Proposition 2 constitutional amendments related to the Rainy Day Fund (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues (and the 2014-15 State Budget notes that capital gains revenues are expected to account for approximately 9.8% of general fund revenues in fiscal year 2014-15); (ii) set the maximum size of the Rainy Day Fund at 10% of general fund revenues; (iii) for the next 15 years, require half of each year’s deposit to be used for supplemental payments to pay down the budgetary debts or other long- term liabilities and, thereafter, require at least half of each year’s deposit to be saved and the remainder used for supplemental debt payments or savings; (iv) allow the withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years; (v) require the State to provide a multiyear budget forecast; and (vi) create a Proposition 98 reserve (the “Public School System Stabilization Account”) to set aside funds in good years to minimize future cuts and smooth school spending. The State may deposit amounts into such account only after it has paid all amounts owing to school districts relating to the Proposition 98 maintenance factor for fiscal years prior to fiscal year 2014-15. The State, in addition, may not transfer funds to the Public School System Stabilization Account unless the State is in a Test 1 year under Proposition 98 or in any year in which a maintenance factor is created.
SB 858. Senate Bill 858 (“SB 858”) became effective upon the passage of Proposition 2. SB 858 includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the Public School System Stabilization Account, any adopted or revised budget by a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an A.D.A. of less than 400,000, is not more than two times the amount of the reserve for economic uncertainties mandated by the Education Code, or (b) for school districts with an A.D.A. that is more than 400,000, is not more than three times the amount of the reserve for economic uncertainties mandated by the Education Code. In certain cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years within a three-year period if there are certain extraordinary fiscal circumstances.
The District, which has an A.D.A. of less than 400,000, is required to maintain a reserve for economic uncertainty in an amount equal to 3% of its general fund expenditures and other financing uses. The Series 2016 Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. Accordingly, the District does not expect SB 858 to adversely affect its ability to pay the principal of and interest on the Series 2016 Bonds as and when due.
A-36 Future Initiatives
Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, as well as Propositions 2, 30, 62, 98, 111 and 218, were each adopted as measures that qualified for the ballot pursuant to 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.
A-37 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX B
FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2015
B-1 [THIS PAGE INTENTIONALLY LEFT BLANK] PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
ANNUAL FINANCIAL REPORT
JUNE 30, 2015 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
TABLE OF CONTENTS JUNE 30, 2015
FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 13 Statement of Activities 15 Fund Financial Statements Governmental Funds - Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 18 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 19 Proprietary Funds - Statement of Net Position 21 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Net Position 22 Proprietary Funds - Statement of Cash Flows 23 Fiduciary Funds - Statement of Net Position 24 Notes to Financial Statements 25 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 67 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 68 Schedule of the District's Proportionate Share of the Net Pension Liability 69 Schedule of District Contributions 70 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 72 Local Education Agency Organization Structure 73 Schedule of Average Daily Attendance 74 Schedule of Instructional Time 75 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 76 Schedule of Financial Trends and Analysis 77 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 78 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 79 Note to Supplementary Information 80 INDEPENDENT AUDITOR'S REPORTS 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 83 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by OMB Circular A-133 85 Report on State Compliance 87 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
TABLE OF CONTENTS JUNE 30, 2015
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 91 Financial Statement Findings 92 Federal Awards Findings and Questioned Costs 93 State Awards Findings and Questioned Costs 94 Summary Schedule of Prior Audit Findings 95 Management Letter 97 FINANCIAL SECTION
1 Vavrinek, Trine, Day & Co., LLP VALUE THE DIFFERENCE Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Governing Board Palos Verdes Peninsula Unified School District Palos Verdes Estates, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Palos Verdes Peninsula Unified School District (the District) as of and for the year ended June 30, 2015, 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.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the 2014-2015 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 District'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 District'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.
2
10681 Foothill Blvd., Suite 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431 Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Palos Verdes Peninsula Unified School District, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter - Change in Accounting Principles
As discussed in Note 1 and in Note 17 to the financial statements, in 2015, the District adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the required supplementary information, such as management's discussion and analysis on pages 5 through 12 and budgetary comparison, other postemployment benefit (OPEB) funding progress, District's proportionate share of the net pension liability, and District contribution information on pages 67 and 70, respectively, 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 Palos Verdes Peninsula Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual non-major fund financial statements and Schedule of Expenditures of Federal Awards, as required by (Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations) are presented for purposes of additional analysis and are not a required part of the basic financial statements.
The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
3 Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated December 2, 2015, on our consideration of the Palos Verdes Peninsula Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Palos Verdes Peninsula Unified School District's internal control over financial reporting and compliance.
Rancho Cucamonga, California December 2, 2015
4 This section of Palos Verdes Peninsula Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2015. Please read it in conjunction with the District's financial statements, which immediately follow this section.
OVERVIEW OF THE FINANCIAL STATEMENTS
The Financial Statements
The financial statements presented herein include all of the activities of the Palos Verdes Peninsula Unified School District using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34.
The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets) as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables and receivables.
Governmental and the Business-Type Activities are prepared using the economic resources measurement focus and the accrual basis of accounting.
The Fund Financial Statements include statements for each of the three categories of activities: governmental, proprietary, and fiduciary.
The Governmental Funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting.
The Proprietary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting.
The Fiduciary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting.
Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach.
The Primary unit of the government is the Palos Verdes Peninsula Unified School District.
5 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
REPORTING THE DISTRICT AS A WHOLE
The Statement of Net Position and the Statement of Activities
The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.
These two statements report the District's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities.
The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation.
In the Statement of Net Position and the Statement of Activities, we separate the District activities as follows:
Governmental activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State and local grants, as well as general obligation bonds, finance these activities.
Business-type activities - The District charges fees to help it cover the costs of certain services it provides. The District's child care program is included here.
REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS
Fund Financial Statements
The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education.
6 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
Governmental funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement.
Proprietary funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide financial statements but provide more detail and additional information, such as cash flows, for proprietary funds.
THE DISTRICT AS TRUSTEE
Reporting the District's Fiduciary Responsibilities
The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, and volunteer payroll withholdings of District employees. The District's fiduciary activities are reported in the Statement of Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes.
FINANCIAL HIGHLIGHTS OF THE PAST YEAR
1. The District negotiated a salary increase of 4.5 percent and a six percent increase to the District's annual contribution for medical benefits for certificated, classified, management and confidential employees. 2. The District maintained manageable class sizes within contractual obligations. 3. The Peninsula Education Foundation increased its pledge to the District to a total of $3,374,200. 4. Filed Notice of Completion for the 10 classroom building project at Palos Verdes High School. 5. Filed Notice of Completion for the six classroom building and weight room project at Palos Verdes Peninsula High School. 6. Filed Notice of Completion for the roofing projects at Miraleste and Vista Grande Elementary Schools and Miraleste Intermediate School.
7 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
THE DISTRICT AS A WHOLE
Net Position
The District's net position was $(2,384,468) for the fiscal year ended June 30, 2015. Of this amount, $(103,024,299) was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants grantors, constitutional provisions and enabling legislation that limit the governing board's ability to use that net position for day-to-day operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's governmental activities.
Table 1
Governmental Activities Business-Type Activities School District Activities 2014, 2014 2015 as Restated 2015 2014 2015 as restated Current and other assets $ 32,137,679 $ 38,550,988 $ 3,817,802 $ 3,735,088 $ 35,955,481 $ 42,286,076 Capital assets 166,164,221 167,975,324 131,130 157,330 166,295,351 168,132,654 Total Assets 198,301,900 206,526,312 3,948,932 3,892,418 202,250,832 210,418,730 Deferred Outflows ofResources 8,645,611 7,992,774 - - 8,645,611 7,992,774
Current liabilities 10,693,102 13,267,505 792,485 738,083 11,485,587 14,005,588 Long-term obligations 100,066,503 100,399,080 - - 100,066,503 100,399,080 Aggregate net pension liability 79,252,827 101,104,595 - - 79,252,827 101,104,595 Total Liabilities 190,012,432 214,771,180 792,485 738,083 190,804,917 215,509,263 Deferred Inflows ofResources 22,475,994 - - - 22,475,994 - Net Position Net investment in capital assets 91,334,495 90,365,546 131,130 157,330 91,465,625 90,522,876 Restricted 6,148,889 6,652,746 3,025,317 2,997,005 9,174,206 9,649,751 Unrestricted (103,024,299) (97,270,386) - - (103,024,299) (97,270,386) Total Net Position $ (5,540,915) $ (252,094) $ 3,156,447 $ 3,154,335 $ (2,384,468) $ 2,902,241
The $(103,024,299) million in unrestricted net position of governmental activities represents the accumulated results of all past years' operations.
8 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
Changes in Net Position
The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 15. Table 2 takes the information from the Statement, and rearranges them slightly so you can see our total revenues for the year.
Table 2
Governmental Activities Business-Type Activities School District Activities 2015 2014 2015 2014 2015 2014 Revenues Program revenues: Chargesforservices 84,495$ 28,887$ 5,734,579$ 5,794,569$ 5,819,074$ 5,823,456$ Operating grants andcontributions 10,470,954 13,065,670 - - 10,470,954 13,065,670 Capital grants andcontributions - 5,126 - - - 5,126 General revenues: Federal and Stateaidnotrestricted 38,251,843 24,578,133 - - 38,251,843 24,578,133 Propertytaxes 54,283,050 50,736,372 - - 54,283,050 50,736,372 Othergeneralrevenues 12,460,740 21,767,728 25,168 24,005 12,485,908 21,791,733 TotalRevenues 115,551,082 110,181,916 5,759,747 5,818,574 121,310,829 116,000,490 Expenses Instruction-related 84,093,901 77,904,243 - - 84,093,901 77,904,243 Pupilservices 9,328,268 8,812,242 4,887,592 4,957,932 14,215,860 13,770,174 Administration 8,452,990 7,962,901 - - 8,452,990 7,962,901 Plantservices 11,227,355 9,555,139 - - 11,227,355 9,555,139 Other 8,607,432 8,302,857 - - 8,607,432 8,302,857 TotalExpenses 121,709,946 112,537,382 4,887,592 4,957,932 126,597,538 117,495,314 Transfers 870,043 870,043 (870,043) (870,043) - - Change in Net Position (5,288,821)$ (1,485,423)$ 2,112$ (9,401)$ (5,286,709)$ (1,494,824)$
Governmental Activities
As reported in the Statement of Activities on page 15, the cost of all of our governmental activities this year was $121,709,946. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $54,283,050 because the cost was paid by those who benefited from the programs or by other governments and organizations who subsidized certain programs with grants and contributions ($10,555,449). We paid for the remaining 'public benefit' portion of our governmental activities with $50,712,583 in Federal and State unrestricted funds and with other revenues, such as interest and general entitlements.
9 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
In Table 3, we have presented the cost and net cost of each of the District's largest governmental activities functions - regular and special program instruction, instructional-related activities, home-to-school transportation, other pupil services, administration, plant services, ancillary services, interest on long-term obligations and all other functions. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function.
Table 3
Total Cost of Services Net Cost of Services 2015 2014 2015 2014 Instruction 75,321,712$ 70,305,195$ 66,273,747$ 58,871,703$ Instruction-related activities 8,772,189 7,599,048 8,425,430 7,240,763 Home-to-school transportation 1,007,690 863,878 1,007,690 863,878 Other pupil services 8,320,578 7,948,364 7,435,185 7,020,829 Administration 8,452,990 7,962,901 8,380,901 7,646,890 Plant services 11,227,355 9,555,139 11,216,683 9,530,790 Ancillary services 2,011,248 2,156,717 1,948,796 2,116,806 Interest on long-term obligations 4,281,297 4,041,554 4,281,297 4,041,554 Other 2,314,887 2,104,586 2,184,768 2,104,486 Total 121,709,946$ 112,537,382$ 111,154,497$ 99,437,699$
THE DISTRICT'S FUNDS
As the District completed this year, our governmental funds reported a combined fund balance of $21,916,830, which is a decrease of $3,940,993 from last year.
Table 4
Fund Balance July 1, 2014 Revenues Expenditures June 30, 2015 General Fund $ 15,638,849 $ 105,768,110 $ 108,583,944 $ 12,823,015 Bond Interest and Redemption Fund 4,118,485 4,919,311 4,763,211 4,274,585 Adult Education Fund 186,608 227,884 209,675 204,817 Cafeteria Fund 119,909 2,373,365 2,446,419 46,855 Deferred Maintenance Fund 1,019,987 716,900 473,011 1,263,876 Building Fund 223 - 223 - Capital Facilities Fund 1,087,105 800,947 146,653 1,741,399 Special Reserve Fund For Capital Outlay Projects 3,686,657 234,610 2,358,984 1,562,283 Total $ 25,857,823 $ 115,041,127 $ 118,982,120 $ 21,916,830
This decrease results primarily from negotiated salary and benefit increases.
10 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
General Fund Budgetary Highlights
The Adopted Budget was presented to the Board on June 26, 2014. Budget revisions were brought forth throughout the year, with the last revision done in June 2015.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
At June 30, 2015, the District had $166,295,351 in a broad range of capital assets (net of depreciation), including land, buildings, and furniture and equipment. This amount represents a net decrease (including additions, deductions and depreciation) of $1,837,303, or 1.1 percent, from last year (Table 5).
Table 5
Governmental Activities Business-Type Activities Totals 2015 2014 2015 2014 2015 2014 Landandconstructioninprocess 9,560,203$ 12,039,487$ -$ -$ 9,560,203$ 12,039,487$ Buildingsandimprovements 155,219,899 154,339,532 131,130 157,330 155,351,029 154,496,862 Furnitureandequipment 1,384,119 1,596,305 - - 1,384,119 1,596,305 Total 166,164,221$ 167,975,324$ 131,130$ 157,330$ 166,295,351$ 168,132,654$
Financing for these capital projects came from general obligation bonds, State construction matching funds, sale of site funds and local gifting.
Long-Term Obligations
At the end of this year, the District had $100,066,503 in obligations versus $100,399,080 million last year, a decrease of less than one percent. These obligations consisted of:
Table 6
Governmental Activities Business-Type Activities Totals 2015 2014 2015 2014 2015 2014 General obligation bonds - net (Financed with property taxes) 92,766,734$ 93,445,638$ -$ -$ 92,766,734$ 93,445,638$ Capitalized lease obligations 313,755 527,756 - - 313,755 527,756 Compensatedabsences 1,693,094 1,426,467 - - 1,693,094 1,426,467 Supplemental early retirement plan (SERP) 1,649,187 2,198,916 - - 1,649,187 2,198,916 Other postemployment benefits (OPEB) 3,643,733 2,800,303 - - 3,643,733 2,800,303 Total 100,066,503$ 100,399,080$ -$ -$ 100,066,503$ 100,399,080$
11 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2015
Net Pension Liability (NPL)
At year end, the District had a net pension liability of $79,252,827 as a result of the implementation of GASB Statement No. 68 during the current fiscal year.
CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Deputy Superintendent at 310-378-9966, at the Palos Verdes Peninsula Unified School District, Palos Verdes Estates, California.
12 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
STATEMENT OF NET POSITION, Continued JUNE 30, 2015
Governmental Business-Type Activities Activities Total ASSETS Deposits and investments 28,916,976$ 3,767,853$ 32,684,829$ Receivables 3,111,776 40,751 3,152,527 Prepaid expenses 40,353 9,198 49,551 Stores inventories 68,574 - 68,574 Capital assets Land and construction in process 9,560,203 - 9,560,203 Other capital assets 221,465,832 753,500 222,219,332 Less: Accumulated depreciation (64,861,814) (622,370) (65,484,184) Total Capital Assets 166,164,221 131,130 166,295,351 Total Assets 198,301,900 3,948,932 202,250,832
DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 1,821,913 - 1,821,913 Current year pension contribution 6,823,698 - 6,823,698 Total Deferred Outflows of Resources 8,645,611 - 8,645,611
LIABILITIES Accountspayable 10,136,332 426,882 10,563,214 Accrued interest payable 472,253 - 472,253 Unearned revenue 84,517 365,603 450,120 Long-term obligations Current portion of long-term obligations other than pensions 3,702,859 - 3,702,859 Noncurrent portion of long-term obligations other than pensions 96,363,644 - 96,363,644 Total Long-Term Obligations 100,066,503 - 100,066,503 Aggregate net pension liability 79,252,827 - 79,252,827 Total Liabilities 190,012,432 792,485 190,804,917
DEFERRED INFLOWS OF RESOURCES Net change in proportionate share of net pension liability 945,173 - 945,173 Difference between projected and actual earnings on pension plan investments 21,530,821 - 21,530,821 Total Deferred Inflows of Resources 22,475,994 - 22,475,994
The accompanying notes are an integral part of these financial statements.
13 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
STATEMENT OF NET POSITION, Continued JUNE 30, 2015
NET POSITION Netinvestmentincapitalassets 91,334,495$ 131,130$ 91,465,625$ Restricted for: Debt service 3,802,332 - 3,802,332 Capitalprojects 1,741,399 - 1,741,399 Educationalprograms 604,110 - 604,110 Otheractivities 1,048 3,025,317 3,026,365 Unrestricted (103,024,299) - (103,024,299) Total Net Position (5,540,915)$ 3,156,447$ (2,384,468)$
The accompanying notes are an integral part of these financial statements.
14 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015
Program Revenues Charges for Operating Services and Grants and Functions/Programs Expenses Sales Contributions Governmental Activities Instruction 75,321,712$ 23,132$ 9,024,833$ Instruction-related activities: Supervision of instruction 1,924,941 - 147,653 Instructional library, media, and technology 455,030 - 7,919 School site administration 6,392,218 - 191,187 Pupil services: Home-to-school transportation 1,007,690 - - Food services 2,484,570 - 271,685 All other pupil services 5,836,008 - 613,708 Administration: Data processing 1,200,284 - 7,969 All other administration 7,252,706 - 64,120 Plant services 11,227,355 26 10,646 Ancillary services 2,011,248 26,167 36,285 Community services 90,680 - - Enterprise services 169,997 - - Interest on long-term obligations 4,281,297 - - Otheroutgo 2,054,210 35,170 94,949 Total Governmental Activities 121,709,946 84,495 10,470,954 Business-Type Activities ChildCare 4,887,592 5,734,579 - Total School District 126,597,538$ 5,819,074$ 10,470,954$ General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Transfers Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning, as restated Net Position - Ending
The accompanying notes are an integral part of these financial statements.
15 Net (Expenses) Revenues and Changes in Net Position Business- Governmental Type Activities Activities Total
(66,273,747)$ -$ (66,273,747)$
(1,777,288) - (1,777,288) (447,111) - (447,111) (6,201,031) - (6,201,031)
(1,007,690) - (1,007,690) (2,212,885) - (2,212,885) (5,222,300) - (5,222,300)
(1,192,315) - (1,192,315) (7,188,586) - (7,188,586) (11,216,683) - (11,216,683) (1,948,796) - (1,948,796) (90,680) - (90,680) (169,997) - (169,997) (4,281,297) - (4,281,297) (1,924,091) - (1,924,091) (111,154,497) - (111,154,497)
- 846,987 846,987 (111,154,497) 846,987 (110,307,510)
41,525,211 - 41,525,211 4,880,122 - 4,880,122 7,877,717 - 7,877,717 38,251,843 - 38,251,843 457,983 25,168 483,151 870,043 (870,043) - 12,002,757 - 12,002,757 105,865,676 (844,875) 105,020,801 (5,288,821) 2,112 (5,286,709) (252,094) 3,154,335 2,902,241 (5,540,915)$ 3,156,447$ (2,384,468)$
15 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015
Bond Interest Non-Major Total General and Redemption Governmental Governmental Fund Fund Funds Funds ASSETS Depositsandinvestments 19,617,996$ 4,274,585$ 5,024,395$ 28,916,976$ Receivables 3,101,586 - 10,190 3,111,776 Prepaid expenditures 39,353 - 1,000 40,353 Stores inventories 25,602 - 42,972 68,574 Total Assets 22,784,537$ 4,274,585$ 5,078,557$ 32,137,679$
LIABILITIES AND FUND BALANCES Liabilities: Accountspayable 9,877,005$ -$ 259,327 10,136,332$ Unearned revenue 84,517 - - 84,517 Total Liabilities 9,961,522 - 259,327 10,220,849 Fund Balances: Nonspendable 74,955 - 46,807 121,762 Restricted 604,110 4,274,585 1,742,447 6,621,142 Committed - - 1,467,693 1,467,693 Assigned 8,962,713 - 1,562,283 10,524,996 Unassigned 3,181,237 - - 3,181,237 Total Fund Balances 12,823,015 4,274,585 4,819,230 21,916,830 Total Liabilities and Fund Balances 22,784,537$ 4,274,585$ 5,078,557$ 32,137,679$
The accompanying notes are an integral part of these financial statements.
16 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2015
TotalFundBalance-GovernmentalFunds 21,916,830$ Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is: 231,026,035$ Accumulated depreciation is: (64,861,814) Net Capital Assets 166,164,221 The District has refunded debt obligations. The difference between the amounts that were sent to escrow agents for the payment of the old debts and the actual remaining debt obligations will be amortized as an adjustment to interest expense over the remaining life of the refunded debt. This balance represents the unamortized deferred charges on refunding remaining asofJune30,2015. 1,821,913 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 6,823,698 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide statements, unmatured interest on long-term obligations is recognized when it is incurred. (472,253) The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected remaining service life of members receiving pension benefits. (945,173) The difference between projected and actual earnings on pension plan investment are not recognized on the modified accrual basis, but are recognized on the accrualbasisasanadjustmenttopensionexpense. (21,530,821) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. (79,252,827) Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term obligations at year-end consist of: General obligation bonds 72,958,647 Unamortized premium on general obligation bonds 3,417,162 Unamortized discount on general obligation bonds (37,925) Capital lease obligations 313,755 Compensated absences 1,693,094 Supplemental early retirement plan 1,649,187 Other postemployment benefits (OPEB) 3,643,733 In addition, the District has issued "capital appreciation" general obligation bonds. The accretion of interest on the general obligation bonds to date is: 16,428,850 Total Long-Term Obligations (100,066,503) Total Net Position - Governmental Activities $ (5,540,915)
The accompanying notes are an integral part of these financial statements.
17 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2015
Bond Interest Non-Major Total General and Redemption Governmental Governmental Fund Fund Funds Funds REVENUES LocalControlFundingFormula 76,554,746$ -$ 457,299$ 77,012,045$ Federalsources 2,402,958 - 400,540 2,803,498 OtherStatesources 10,430,052 25,233 10,253 10,465,538 Otherlocalsources 15,510,311 4,894,078 3,185,614 23,590,003 Total Revenues 104,898,067 4,919,311 4,053,706 113,871,084 EXPENDITURES Current Instruction 73,334,130 - 106,238 73,440,368 Instruction-related activities: Supervisionofinstruction 1,889,176 - - 1,889,176 Instructional library, media and technology 439,267 - - 439,267 Schoolsiteadministration 6,110,564 - 97,330 6,207,894 Pupil services: Home-to-school transportation 1,007,690 - - 1,007,690 Foodservices - - 2,433,612 2,433,612 Allotherpupilservices 5,695,097 - - 5,695,097 Administration: Dataprocessing 1,149,799 - - 1,149,799 Allotheradministration 4,604,902 - 6,193 4,611,095 Plantservices 10,881,056 - 125,620 11,006,676 Facilityacquisitionandconstruction 132,228 - 2,738,971 2,871,199 Ancillaryservices 1,980,396 - - 1,980,396 Communityservices 88,472 - - 88,472 Otheroutgo 828,571 - - 828,571 Debt service Principal 87,000 2,750,000 127,001 2,964,001 Interestandother 55,596 2,013,211 - 2,068,807 Total Expenditures 108,283,944 4,763,211 5,634,965 118,682,120 Excess (Deficiency) of Revenues Over Expenditures (3,385,877) 156,100 (1,581,259) (4,811,036) Other Financing Sources (Uses) Transfersin 870,043 - 300,000 1,170,043 Transfers out (300,000) - - (300,000) Net Financing Sources (Uses) 570,043 - 300,000 870,043 NET CHANGE IN FUND BALANCES (2,815,834) 156,100 (1,281,259) (3,940,993) Fund Balances - Beginning 15,638,849 4,118,485 6,100,489 25,857,823 Fund Balances - Ending 12,823,015$ 4,274,585$ 4,819,230$ 21,916,830$
The accompanying notes are an integral part of these financial statements.
18 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015
Total Net Change in Fund Balances - Governmental Funds (3,940,993)$ Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities, those costs are shown in the statement of net position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlays exceeds depreciation in the period. Depreciation expense (4,803,991)$ Capital outlays 2,992,888 Net Expense Adjustment (1,811,103) Contributions for postemployment benefits are recorded as an expense in the governmental funds when paid. However, the difference between the annual required contribution and the actual contribution made, if less, is recorded in the government wide statements as an expense. The actual amount of the contribution was less than the annual required contribution. (843,430) In the Statement of Activities, certain operating expenses - compensated absences (vacations) and special termination benefits (supplemental early retirement plan) 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). This year, special termination benefits paid was $549,729. Vacation used was less than the amounts earned by $266,627. 283,102 In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year. 327,688 - Repayment of bond principal is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds 2,750,000 Capital lease obligations 214,001
The accompanying notes are an integral part of these financial statements.
19 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, Continued FOR THE YEAR ENDED JUNE 30, 2015
Under the modified basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the Statement of Activities, however, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. This adjustment combines the net changes of the following balances: Amortization of debt premium 118,988$ Amortization of debt discount (3,637) Amortization of deferred charge on refunding (299,077) Combined Adjustment (183,726) Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities is the result of two factors. First, accrued interest on the general obligation bonds decreased by $102,087, and second, $2,186,447 of additional accumulated interest was accreted on the District's "capital appreciation" general obligation bonds. (2,084,360) Change in Net Position of Governmental Activities (5,288,821)$
The accompanying notes are an integral part of these financial statements.
20 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2015
Business-Type Activities Enterprise Funds Child Care ASSETS Current Assets Deposits and investments 3,767,853$ Receivables 40,751 Prepaid expenses 9,198 Total Current Assets 3,817,802
Noncurrent Assets Capital assets 753,500 Less: accumulated depreciation (622,370) Total Noncurrent Assets 131,130 Total Assets 3,948,932
LIABILITIES Current Liabilities Accounts payable 426,882 Unearned revenue 365,603 Total Current Liabilities 792,485
NET POSITION Net investment in capital assets 131,130 Restricted 3,025,317 Total Net Position $ 3,156,447
The accompanying notes are an integral part of these financial statements.
21 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2015
Business-Type Activities Enterprise Funds Child Care OPERATING REVENUES Charges for services 5,590,207$ Charges to other funds and miscellaneous revenues 144,372 Total Operating Revenues 5,734,579
OPERATING EXPENSES Payroll costs 4,272,336 Supplies and materials 293,719 Facility rental 124,626 Other operating cost 170,711 Depreciation 26,200 Total Operating Expenses 4,887,592 Operating Income 846,987
NONOPERATING REVENUES Interest income 25,168 Transfers out (870,043) Total Nonoperating Revenues (Expenses) (844,875) Change in Net Position 2,112 Total Net Position - Beginning 3,154,335 Total Net Position - Ending 3,156,447$
The accompanying notes are an integral part of these financial statements.
22 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2015
Business-Type Activities Enterprise Funds Child Care CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers $ 5,607,519 Other operating cash receipts 144,372 Cash payments to employees for services (4,272,336) Cash payments to other suppliers of goods or services (399,246) Other operating cash payments (170,711) Net Cash Provided by Operating Activities 909,598 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (870,043) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 25,168 Net Increase in Cash and Cash Equivalents 64,723 Cash and Cash Equivalents - Beginning 3,703,130 Cash and Cash Equivalents - Ending $ 3,767,853
RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 846,987 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 26,200 Changes in assets and liabilities: Receivables (8,793) Prepaid expense (9,198) Accounts payable 28,297 Unearned revenue 26,105 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 909,598
The accompanying notes are an integral part of these financial statements.
23 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2015
Agency Funds ASSETS Deposits and investments $ 2,166,676 Amounts due from employees 542,859 Stores inventories 47,587 Total Assets $ 2,757,122
LIABILITIES Accounts payable 4,717 Due to student groups 2,752,405 Total Liabilities $ 2,757,122
The accompanying notes are an integral part of these financial statements.
24 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Reporting Entity
The Palos Verdes Peninsula Unified School District (the District) was established in 1961, under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K-12 as mandated by the State and/or Federal agencies for ten K-5 schools, three 6-8 schools, two four-year high schools, one continuation high school and one adult education school, a special education early childhood education program, a fee-based preschool and a child care program.
A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Palos Verdes Peninsula Unified School District, this includes general operations, food service, and student related activities of the District.
Basis of Presentation - Fund Accounting
The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary.
Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds:
Major Governmental Funds
General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund.
Two funds currently defined as special revenue funds in the California State Accounting Manual (CSAM) do not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, and Fund 20, Special Reserve Fund for Postemployment Benefits, are not substantially composed of restricted or committed revenue sources. While these funds are authorized by statute and will remain open for internal reporting purposes, these funds function effectively as extensions of the General Fund, and accordingly have been combined with the General Fund for presentation in these audited financial statements.
As a result, the General Fund reflects an increase in fund balance, and a decrease in revenues of $3,489,949, and $(647,837), respectively.
25 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections 15125-15262).
Non-Major Governmental Funds
Special Revenue Funds The 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 and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund.
Adult Education Fund The Adult Education Fund is used to account separately for Federal, State, and local revenues for adult education programs and is to be expended for adult education purposes only.
Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections 38090-38093) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections 38091 and 38100).
Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for State apportionments and the District's contributions for deferred maintenance purposes (Education Code Sections 17582-17587) and for items of maintenance approved by the State Allocation Board.
Capital Project Funds The Capital Project funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds).
Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued.
Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in Government Code Sections 65970-65981 or to the items specified in agreements with the developer (Government Code Section 66006).
Special Reserve Fund for Capital Outlay Projects The Special Reserve Fund for Capital Outlay Projects exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840).
26 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Proprietary Funds Proprietary funds are used to account for activities that are more business-like than government-like in nature. Business-type activities include those for which a fee is charged to external users or to other organizational units of the local education agency, normally on a full cost-recovery basis. Proprietary funds are generally intended to be self-supporting and are classified as enterprise or internal service. The District has the following proprietary fund:
Enterprise Fund Enterprise funds may be used to account for any activity for which a fee is charged to external users for goods or services. The only enterprise fund of the District accounts for the financial transactions related to the Child Care Service Program of the District.
Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds. 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.
Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for student body activities (ASB) and the volunteer payroll withholdings of District employees.
Basis of Accounting - Measurement Focus
Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared.
The government-wide statement of activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the District and for each governmental program, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program or business segment is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities.
Net position should be reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation.
27 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column.
Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide statements are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for the governmental funds on a modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable.
Proprietary Funds Proprietary funds are accounted for using a flow of economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the statement of net position. The statement of changes in fund net position presents increases (revenues) and decreases (expenses) in net total assets. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary fund.
Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. Fiduciary funds are excluded from the government-wide financial statements because they do not represent resources of the District.
Revenues – Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 90 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.
28 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Unearned Revenue Unearned revenue arises when potential revenue does not meet both the 'measurable' and 'available' criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized.
Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue.
Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on long- term obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements.
Investments
Investments held at June 30, 2015, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor.
Prepaid Expenditures
Prepaid expenditures (expenses) represent amounts paid in advance of receiving goods or services. The District has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditures when paid.
Stores Inventories
Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental and fiduciary funds when used.
Capital Assets and Depreciation
The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred. Interest incurred during the construction of capital assets utilized by the enterprise fund is also capitalized.
29 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide financial statement of net position. The valuation basis for general capital assets are historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated.
Capital assets in the proprietary funds are capitalized in the fund in which they are utilized. The valuation basis for proprietary fund capital assets are the same as those used for the capital assets of governmental funds. Depreciation of capital assets is computed and recorded by the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements, 20 years; equipment, five to 15 years.
Interfund Balances
On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as 'interfund receivables/payables'. These amounts are eliminated in the governmental and business-type activities columns of the statement of net position, except for the net residual amounts due between governmental and business-type activities, which are presented as internal balances.
Compensated Absences
Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net position. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid.
Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, 1999. At retirement, each member will receive .004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time.
Accrued Liabilities and Long-Term Obligations
All payables, accrued liabilities, and long-term obligations are reported in the government-wide and proprietary fund financial statements. Premiums and discounts on issuance of long-term obligations, as well as issuance costs (deferred charges), are deferred and amortized over the life of the related debt using the effective interest method. Long-term obligations payable are reported net of the applicable premium or discount.
In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds.
30 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
However, claims and judgments, compensated absences and special termination benefits that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Bonds, certificates of participation and capital leases are recognized as liabilities in the governmental fund financial statements when due.
Debt Issuance Costs, Premiums and Discounts
In the government-wide financial statements and in the proprietary fund type financial statements, long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund statement of net Position. Debt premiums and discounts, as well as issuance costs related to prepaid insurance costs are amortized over the life of the bonds using the straight-line method.
In governmental fund financial statements, bond premiums and discounts, as well as debt issuance costs are recognized in the current period. The face amount of the debt is reported as other financing sources. Premiums received on debt issuance are also reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds, are reported as debt service expenditures.
Deferred Outflows/Inflows of Resources
In addition to assets, the Statement of Net Position also reports deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The District reports deferred outflows of resources for the unamortized loss on the refunding of general obligation bonds and current year pension contributions.
In addition to liabilities, the Statement of Net Position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The District reports deferred inflows of resources for the difference between actual and expected rate of return on investments specific to the net pension liability and for the unamortized amount on the net change in the proportionate share of the net pension liability.
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 California State Teachers Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) plan for schools (Plans) and additions 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. Member contributions are recognized in the period in which they are earned. Investments are reported at fair value.
31 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Fund Balances - Governmental Funds
As of June 30, 2015, fund balances of the governmental funds are classified as follows:
Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact.
Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments.
Committed - amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board.
Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or deputy superintendent of business may assign amounts for specific purposes.
Unassigned - all other spendable amounts.
Spending Order Policy
When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions.
Minimum Fund Balance Policy
The governing board adopted a minimum fund balance policy for the General Fund in order to protect the district against revenue shortfalls or unpredicted one-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than three percent of General Fund expenditures and other financing uses.
32 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Net Position
Net position represents the difference between assets and liabilities. Net position net of investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. The District has related debt outstanding as of June 30, 2015. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements report $9,174,206 of net position which is restricted by enabling legislation.
Interfund Activity
Transfers between governmental and business-type activities in the government-wide financial statements are reported in the same manner as general revenues.
Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. Interfund transfers are eliminated in the governmental and business-type activities columns of the statement of activities, except for the net residual amounts transferred between governmental and business-type activities.
Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
Budgetary Data
The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.
The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.
33 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Property Tax
Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Los Angeles bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received.
Change in Accounting Principles
In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.
This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements No. 27 and No. 50 remain applicable for pensions that are not covered by the scope of this Statement.
The scope of this Statement addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers through pension plans that are administered through trusts that have the following characteristics:
Contributions from employers and non-employer contributing entities to the pension plan and earnings on those contributions are irrevocable.
Pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms.
Pension plan assets are legally protected from the creditors of employers, non-employer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members.
This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service.
34 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Note disclosure and required supplementary information requirements about pensions also are addressed. Distinctions are made regarding the particular requirements for employers based on the number of employers whose employees are provided with pensions through the pension plan and whether pension obligations and pension plan assets are shared. Employers are classified in one of the following categories for purposes of this Statement:
Single employers are those whose employees are provided with defined benefit pensions through single- employer pension plans—pension plans in which pensions are provided to the employees of only one employer (as defined in this Statement).
Agent employers are those whose employees are provided with defined benefit pensions through agent multiple-employer pension plans—pension plans in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer's share of the pooled assets is legally available to pay the benefits of only its employees.
Cost-sharing employers are those whose employees are provided with defined benefit pensions through cost-sharing multiple-employer pension plans—pension plans in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan.
In addition, this Statement details the recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit pension plan and for employers whose employees are provided with defined contribution pensions. This Statement also addresses circumstances in which a non-employer entity has a legal requirement to make contributions directly to a pension plan.
The District has implemented the Provisions of this Statement for the year ended June 30, 2015.
In November 2013, the GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date — An Amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government's beginning net pension liability.
Statement No. 68 requires a state or local government employer (or nonemployer contributing entity in a special funding situation) to recognize a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. If a state or local government employer or nonemployer contributing entity makes a contribution to a defined benefit pension plan between the measurement date of the reported net pension liability and the end of the government's reporting period, Statement No. 68 requires that the government recognize its contribution as a deferred outflow of resources. In addition, Statement No. 68 requires recognition of deferred outflows of resources and deferred inflows of resources for changes in the net pension liability of a state or local government employer or nonemployer contributing entity that arise from other types of events. At transition to Statement No. 68, if it is not practical for an employer or nonemployer contributing entity to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, paragraph 137 of Statement No. 68 required that beginning balances for deferred outflows of resources and deferred inflows of resources not be reported.
35 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Consequently, if it is not practical to determine the amounts of all deferred outflows of resources and deferred inflows of resources related to pensions, contributions made after the measurement date of the beginning net pension liability could not have been reported as deferred outflows of resources at transition. This could have resulted in a significant understatement of an employer or nonemployer contributing entity's beginning net position and expense in the initial period of implementation.
This Statement amends paragraph 137 of Statement No. 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement No. 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts.
The District has implemented the Provisions of this Statement for the year ended June 30, 2015.
As the result of implementing GASB Statement No. 68, the District has restated the beginning net position in the government wide Statement of Net Position, effectively decreasing net position as of July 1, 2014, by $95,232,811. The decrease results from recognizing the net pension liability, net of related deferred outflows of resources. The restatement does not include deferred inflows of resources, as this information was not available.
New Accounting Pronouncements
In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements.
The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015. Early implementation is encouraged.
In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.
This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes.
36 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The requirements of this Statement extend the approach to accounting and financial reporting established in Statement No. 68 to all pensions, with modifications as necessary to reflect that for accounting and financial reporting purposes, any assets accumulated for pensions that are provided through pension plans that are not administered through trusts that meet the criteria specified in Statement No. 68 should not be considered pension plan assets. It also requires that information similar to that required by Statement No. 68 be included in notes to financial statements and required supplementary information by all similarly situated employers and nonemployer contributing entities.
This Statement also clarifies the application of certain provisions of Statements No. 67 and No. 68 with regard to the following issues:
Information that is required to be presented as notes to the ten-year schedules of required supplementary information about investment-related factors that significantly affect trends in the amounts reported.
Accounting and financial reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities for defined benefit pensions.
Timing of employer recognition of revenue for the support of nonemployer contributing entities not in a special funding situation.
The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2016. Early implementation is encouraged.
In June 2015, the GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.
This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures.
Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities.
37 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The scope of this Statement includes OPEB plans—defined benefit and defined contribution—administered through trusts that meet the following criteria:
Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable.
OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms.
OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members.
This Statement also includes requirements to address financial reporting for assets accumulated for purposes of providing defined benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria.
The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2016. Early implementation is encouraged.
In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.
This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans.
The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed.
In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided with defined contribution OPEB. This Statement also addresses certain circumstances in which a nonemployer entity provides financial support for OPEB of employees of another entity.
38 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
In this Statement, distinctions are made regarding the particular requirements depending upon whether the OPEB plans through which the benefits are provided are administered through trusts that meet the following criteria:
Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable.
OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms.
OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, the OPEB plan administrator, and the plan members.
The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2017. Early implementation is encouraged.
In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify—in the context of the current governmental financial reporting environment—the hierarchy of generally accepted accounting principles (GAAP). The 'GAAP hierarchy' consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.
This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.
The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015, and should be applied retroactively. Earlier implementation is permitted.
NOTE 2 - DEPOSITS AND INVESTMENTS
Summary of Deposits and Investments
Deposits and investments as of June 30, 2015, are classified in the accompanying financial statements as follows:
Governmental activities 28,916,976$ Business-type activities 3,767,853 Fiduciary funds 2,166,676 Total Deposits and Investments $ 34,851,505
39 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Deposits and investments as of June 30, 2015, consisted of the following:
Cash on hand and in banks 2,963,025$ Cash in revolving 12,835 Investments 31,875,645 Total Deposits and Investments $ 34,851,505
Policies and Practices
The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations.
Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis.
40 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
General Authorizations
Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below:
Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District manages its exposure to interest rate risk by investing in the Los Angeles County Investment Pool and purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The District maintains an investment of $31,875,645 with the Los Angeles County Investment Pool with a fair market value of approximately $31,842,406. The investment has an average weighted maturity of 595 days.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. While the District's investment in the Los Angeles County Investment Pool is not required to be rated, nor has been rated as of June 30, 2015.
41 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Custodial Credit Risk - Deposits
This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. 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, 2015, the District's bank balance of $524,092 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District.
NOTE 3 - RECEIVABLES
Receivables at June 30, 2015, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full.
Non-Major Total Child Care General Governmental Governmental Enterprise Fund Funds Activities Fund Federal Government Categorical aid 749,184$ 3,054$ 752,238$ -$ State Government Categorical aid - 121 121 - Lottery 1,031,308 - 1,031,308 - Special Education 784,204 - 784,204 - Local Government Interest 45,363 3,703 49,066 6,904 Other Local Sources 491,527 3,312 494,839 33,847 Total $ 3,101,586 $ 10,190 $ 3,111,776 $ 40,751
42 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 4 - CAPITAL ASSETS
Capital asset activity for the fiscal year ended June 30, 2015, was as follows:
Balance Balance July 1, 2014 Additions Deductions June 30, 2015 Governmental Activities Capital Assets Not Being Depreciated Land 9,460,558$ -$ -$ 9,460,558$ Constructioninprocess 2,578,929 2,708,199 5,187,483 99,645 Total Capital Assets Not Being Depreciated 12,039,487 2,708,199 5,187,483 9,560,203 Capital Assets Being Depreciated Landimprovements 13,838,989 8,572 - 13,847,561 Buildingsandimprovements 196,740,024 5,360,528 - 202,100,552 Furnitureandequipment 5,421,034 103,072 6,387 5,517,719 Total Capital Assets Being Depreciated 216,000,047 5,472,172 6,387 221,465,832 Less Accumulated Depreciation Landimprovements 4,218,377 602,739 - 4,821,116 Buildingsandimprovements 52,021,104 3,885,994 - 55,907,098 Furnitureandequipment 3,824,729 315,258 6,387 4,133,600 Total Accumulated Depreciation 60,064,210 4,803,991 6,387 64,861,814 Governmental Activities Capital Assets,Net 167,975,324$ 3,376,380$ 5,187,483$ 166,164,221$ Business-Type Activities Capital Assets Being Depreciated Buildings and improvements 753,500$ -$ -$ 753,500$ Less Accumulated Depreciation Buildings and improvements 596,170 26,200 - 622,370 Business-Type Activities Capital Assets, Net 157,330$ (26,200)$ -$ 131,130$
Depreciation expense was charged to governmental and business-type functions as follows:
Governmental Activities Instruction $ 2,209,836 All other general administration 2,546,115 Plant services 48,040 Total Depreciation Expenses Governmental Activities 4,803,991 Business-Type Activities Child Care 26,200 Total Depreciation Expenses All Activities $ 4,830,191
43 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 5 - INTERFUND TRANSACTIONS
Operating Transfers
Interfund transfers for the year ended June 30, 2015, consisted of the following:
Transfer From Child Care Enterprise Transfer To General Fund Fund Total General Fund -$ 870,043$ 870,043$ Non-Major Governmental Funds 300,000 - 300,000 Total $ 300,000 $ 870,043 $ 1,170,043
The General Fund transferred to the Deferred Maintenance Non-Major Governmental Fund an operating contribution for deferred maintenance projects. 300,000$ The Child Care Enterprise Fund transferred to the General Fund a reimbursement of expenditures and operating costs. 870,043 $ 1,170,043
NOTE 6 - ACCOUNTS PAYABLE
Accounts payable at June 30, 2015, consisted of the following:
Non-Major Total Child Care General Governmental Governmental Enterprise Fiduciary Fund Funds Activities Fund Funds LCFF apportionment 991,301$ -$ 991,301$ -$ -$ Salaries and benefits 6,767,251 96,588 6,863,839 386,975 - Supplies - 38,075 38,075 - - Construction - 91,688 91,688 - - Other vendor payables 2,118,453 32,976 2,151,429 39,907 4,717 Total $ 9,877,005 $ 259,327 $ 10,136,332 $ 426,882 $ 4,717
44 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 7 - UNEARNED REVENUE
Unearned revenue at June 30, 2015, consisted of the following:
Child Care General Enterprise Fund Fund Federal financial assistance 53,366$ -$ Other local 31,151 365,603 Total $ 84,517 $ 365,603
NOTE 8 - TAX AND REVENUE ANTICIPATION NOTES (TRANS)
The District issued $5,000,000 of Tax and Revenue Anticipation Notes dated September 16, 2014, through the California School Cash Reserve Program Authority. The notes matured in June 2015, and bore interest at 1.50 percent. The notes were sold to supplement cash flow. Repayment requirements were that a 100 percent of principal and interest be deposited with the Fiscal Agent on account by May 2015. As of June 30, 2015, the notes had been paid in full.
Outstanding Outstanding Issue Date Rate Maturity Date July 1, 2014 Additions Payments June 30, 2015 September 16, 2014 1.50% 6/1/2015 $ - $ 5,000,000 $ 5,000,000 $ -
NOTE 9 - LONG-TERM OBLIGATIONS
Summary
The changes in the District's long-term obligations during the year consisted of the following:
Balance Balance Due in July 1, 2014 Additions Deductions June 30, 2015 One Year General obligation bonds 89,951,050$ 2,186,447$ 2,750,000$ 89,387,497$ 2,960,000$ Premiumonissuance 3,536,150 - 118,988 3,417,162 - Discount on issuance (41,562) - (3,637) (37,925) - Capital leases 527,756 - 214,001 313,755 193,130 Accumulated vacation - net 1,426,467 266,627 - 1,693,094 - Supplemental early retirement plan (SERP) 2,198,916 - 549,729 1,649,187 549,729 Other postemployment benefits (OPEB) 2,800,303 1,249,800 406,370 3,643,733 - Total $ 100,399,080 $ 3,702,874 $ 4,035,451 $ 100,066,503 $ 3,702,859
45 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Payments on the General Obligation Bonds are made by the Bond Interest and Redemption Fund with local revenues. Payments for capital leases will be paid by the General Fund and the Cafeteria Fund. The accrued vacation will be paid by the fund for which the employee worked. Payments for the Supplemental Early Retirement Program are made from the General Fund. Other postemployment benefits are generally paid by the General Fund.
General Obligations Bonds
The outstanding general obligation bonded debt is as follows:
Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Date Date Rate Issue July1,2014 Issued Accreted Redeemed June30,2015 2000, SeriesB 3/14/02 11/1/26 3.00-7.72% 15,020,098$ 3,507,748$ -$ 276,024$ -$ 3,783,772$ 2000, SeriesC 3/7/03 11/1/27 2.00-5.42% 10,427,362 14,192,366 - 738,771 615,000 14,316,137 2005, Refunding 1/20/05 11/1/25 2.50-4.38% 20,400,000 10,160,000 - - 835,000 9,325,000 2006, Refunding 3/9/06 11/1/23 3.50-5.00% 11,865,000 8,770,000 - - 655,000 8,115,000 2005 (Measure R), Series2006 3/9/06 3/1/31 3.50-5.00% 23,004,233 14,829,092 - 620,514 330,000 15,119,606 2005 (Measure S), Series2006 3/9/06 3/1/31 3.50-7.65% 2,003,988 867,101 - 18,609 30,000 855,710 2005 (Measure R), Series2009 10/6/09 8/1/34 5.68-6.18% 6,994,337 8,954,743 - 532,529 - 9,487,272 2005 (Measure S), Series2009 10/6/09 8/1/34 2.00-5.00% 7,995,000 7,805,000 - - - 7,805,000 2014, Refunding,SeriesA 2/12/14 9/1/27 0.15-3.17% 13,010,000 13,010,000 - - 65,000 12,945,000 2014, Refunding,SeriesB 2/12/14 9/1/21 0.35-2.972% 7,855,000 7,855,000 - - 220,000 7,635,000 $ 89,951,050 $ - $ 2,186,447 $ 2,750,000 $ 89,387,497
2000 General Obligation Bonds, Series B
On March 14, 2002, the District issued the 2000 General Obligation Bonds, Series B current and capital appreciation bonds in the amount of $15,020,098 (accreting to $22,210,00) to fund reconstruction and modernization of school facilities. The bonds have a final maturity to occur on November 1, 2026, with interest rates ranging from 3.00 to 7.72 percent.
On March 9, 2006, the District issued the 2006 General Obligation Refunding Bonds in the amount of $11,865,000 to advance refund $11,205,000 of the 2000 General Obligation Bonds, Series B. As a result, the refunded portion of the debt obligation has been removed as a long-term obligation from the government-wide statement of net position. At June, 30, 2015, 2000 General Obligation Bonds, Series B, totaling $3,783,772 were still outstanding.
46 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
2000 General Obligation Bonds, Series C
On March 7, 2003, the District issued the 2000 General Obligation Bonds, Series C current and capital appreciation bonds in the amount of $10,427,362 (accreting to $26,280,000) to fund reconstruction and modernization of school facilities. The bonds have a final maturity to occur on November 1, 2027, with interest rates ranging from 2.00 to 5.42 percent. At June, 30, 2015, 2000 General Obligation Bonds, Series C, totaling $14,316,137 were still outstanding.
2005 General Obligation Refunding Bonds
On January 20, 2005, the District issued the 2005 General Obligation Refunding Bonds in the amount of $20,400,000. The bonds were issued to advance refund $18,080,000 of the outstanding 2000 General Obligation Bonds, Series A. The bonds have a final maturity to occur on November 1, 2025, with interest rates ranging from 2.50 to 4.38 percent.
On February 12, 2014, the District issued the 2014 General Obligation Refunding Bonds, Series B, in the amount of $7,855,000 to advance refund $7,235,000 of the 2005 General Obligation Refunding Bonds. As a result, the refunded portion of the debt obligation has been removed as long-term obligation from the government-wide statement of net position. At June 30, 2015, the 2005 General Obligation Refunding Bonds, totaling $9,325,000, were still outstanding.
2006 General Obligation Refunding Bonds
On March 9, 2006, the District issued the 2006 General Obligation Refunding Bonds in the amount of $11,865,000. The bonds were issued to advance refund $11,205,000 of the outstanding 2000 General Obligation Bonds, Series B. The bonds have a final maturity to occur on November 1, 2023, with interest rates ranging from 3.50 to 5.00 percent.
On February 12, 2014, the District issued the 2014 General Obligation Refunding Bonds, Series A, in the amount of $13,010,000 to advance refund $2,065,000 of the 2006 General Obligation Refunding Bonds. As a result, the refunded portion of the debt obligation has been removed as long-term obligation from the government-wide statement of net position. At June 30, 2015, the 2006 General Obligation Refunding Bonds, totaling $8,115,000, were still outstanding.
2005 General Obligation Bonds, Series 2006 (Measure R)
On March 9, 2006, the District issued the 2005 General Obligation Bonds, Series 2006 (Measure R) current and capital appreciation bonds in the amount of $23,004,233 (accreting to $41,815,000) to fund specific construction, repair and improvement projects for the District's core academic facilities. The bonds have a final maturity to occur on March 1, 2031, with interest rates ranging from 3.50 to 5.00 percent.
On February 12, 2014, the District issued the 2014 General Obligation Refunding Bonds, Series A, in the amount of $13,010,000 to advance refund $11,315,000 of the 2005 General Obligation Refunding Bonds, Series 2006 (Measure R). As a result, the refunded portion of the debt obligation has been removed as long-term obligation from the government-wide statement of net position. At June 30, 2015, the 2005 General Obligation Refunding Bonds, Series 2006 (Measure R), totaling $15,119,606, were still outstanding.
47 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
2005 General Obligation Bonds, Series 2006 (Measure S)
On March 9, 2006, the District issued the 2005 General Obligation Bonds, Series 2006 (Measure S) current and capital appreciation bonds in the amount of $2,003,988 (accreting to $2,615,000) to fund specific construction, repair and improvement projects for the District's co-curricular facilities. The bonds have a final maturity to occur on March 1, 2031, with interest rates ranging from 3.50 to 7.65 percent.
On February 12, 2014, the District issued the 2014 General Obligation Refunding Bonds, Series A, in the amount of $13,010,000 to advance refund $365,000 of the 2005 General Obligation Refunding Bonds, Series 2006 (Measure S). As a result, the refunded portion of the debt obligation has been removed as long-term obligation from the government-wide statement of net position. At June 30, 2015, the 2005 General Obligation Refunding Bonds, Series 2006 (Measure S), totaling $855,710, were still outstanding.
2005 General Obligation Bonds, Series 2009 (Measure R)
On October 6, 2009, the District issued the 2005 General Obligation Bonds, Series 2009 (Measure R) capital appreciation bonds in the amount of $6,994,337 (accreting to $27,325,000) to fund specific construction, repair and improvement projects for the District's core academic facilities. These bonds represent the final issuance authorized under the election held November 8, 2005 in an aggregate principal amount not to exceed $30,000,000. The bonds have a final maturity to occur on August 1, 2034, with interest rates ranging from 5.68 to 6.18 percent. At June, 30, 2015, the 2005 General Obligation Bonds, Series 2009 (Measure R), totaling $9,487,272 were still outstanding.
2005 General Obligation Bonds, Series 2006 (Measure S)
On October 6, 2009, the District issued the 2005 General Obligation Bonds, Series 2009 (Measure S) in the amount of $7,995,000 to fund specific construction, repair and improvement projects for the District's co- curricular facilities. These bonds represent the final issuance authorized under the election held November 8, 2005 in an aggregate principal amount not to exceed $10,000,000. The bonds have a final maturity to occur on August 1, 2034, with interest rates ranging from 2.00 to 5.00 percent. At June, 30, 2015, 2005 General Obligation Bonds, Series 2009, (Measure S), totaling $7,805,000 were still outstanding.
2014 General Obligation Refunding Bonds, Series A
On February 12, 2014, the District issued the 2014 General Obligation Refunding Bonds, Series A, in the amount of $13,010,000. The bonds were issued to advance refund $2,065,000 of the outstanding 2006 General Obligation Refunding Bonds, $11,315,000 of the outstanding 2005 General Obligation Refunding Bonds, Series 2006 (Measure R), and $375,000 of the outstanding 2005 General Obligation Refunding Bonds, Series 2006 (Measure S). The bonds associated with the issuance were placed in an escrow account with U.S. Bank for the future redemption of the bonds to occur on November 1, 2016 for the 2006 General Obligation Refunding Bonds and September 1, 2016 for the 2005 General Obligation Refunding Bonds, Series 2006 (Measure R) and 2005 General Obligation Refunding Bonds, Series 2006 (Measure S). The bonds have a final maturity to occur on September 1, 2027, with interest rates ranging from 0.150 to 3.17 percent. At June 30, 2015, the principal balance outstanding was $12,945,000.
48 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
2014 General Obligation Refunding Bonds, Series B
On February 12, 2014, the District issued the 2014 General Obligation Refunding Bonds, Series B in the amount of $7,855,000. The bonds were issued to advance refund $7,235,000 of the outstanding 2005 General Obligation Refunding Bonds. The bonds associated with the issuance were placed in an escrow account with U.S. Bank for the future redemption of the bonds to occur November 1, 2015. The bonds have a final maturity to occur on September 1, 2021, with interest rates ranging from 0.350 to 2.972 percent. At June 30, 2015, the principal outstanding balance was $7,635,00.
The bonds mature as follows:
Principal Accreted Current Including Accreted Interest to Interest to Fiscal Year Interest to Date Maturity Maturity Total 2016 2,943,977$ 16,023$ 1,953,862$ 4,913,862$ 2017 3,283,767 21,233 1,860,081 5,165,081 2018 3,553,632 91,368 1,773,933 5,418,933 2019 3,899,920 135,080 1,687,257 5,722,257 2020 7,555,295 179,705 1,669,839 9,404,839 2021-2025 23,931,755 3,533,245 5,320,176 32,785,176 2026-2030 29,921,284 27,073,716 1,732,966 58,727,966 2031-2035 14,297,867 14,387,133 623,875 29,308,875 Total $ 89,387,497 $ 45,437,503 $ 16,621,989 $ 151,446,989
Capital Leases
This District has entered into agreements to lease networking equipment and vehicles. Such agreements are, in substance, purchases capital leases, and are reported as capital lease obligations. The District's liability on lease agreements with options to purchase is summarized below:
Equipment Balance, July 1, 2014 546,673$ Payments (225,380) Balance, June 30, 2015 $ 321,293
49 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The capital leases have minimum lease payments as follows:
Year Ending Lease Balance Payment 2016 199,272$ 2017 122,021 Total 321,293 Less: Amount Representing Interest (7,538) Present Value of Minimum Lease Payments $ 313,755
Accumulated Unpaid Employee Vacation
The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2015, amounted to $1,693,094.
Supplemental Early Retirement Plans (SERP)
During 2013, the District adopted a supplemental early retirement plan whereby certain eligible employees were provided an annuity to supplement the retirement benefits they were entitled to through the California State Teachers' Retirement. The annuities offered to the employees are to be paid over a five-year period. The annuities, which were purchased for 36 employees who retired during the 2012-2013 school year, were purchased from Pacific Life Insurance Company.
Year Ending Lease Balance Payment 2016 549,729$ 2017 549,729 2018 549,729 Total $ 1,649,187
As of June 30, 2015, the remaining balance of the supplemental early retirement plan was $1,649,187.
Other Postemployment Benefits (OPEB) Obligation
The District's annual required contribution for the year ended June 30, 2015, was $1,299,730, and contributions made by the District during the year were $406,370. Interest on the net OPEB obligation and adjustments to the annual required contribution were $112,012 and $(161,942), respectively, which resulted in an increase to the net OPEB obligation of $843,430. As of June 30, 2015, the net OPEB obligation was $3,643,733. See Note 11 for additional information regarding the OPEB obligation and the postemployment benefits plan.
50 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 10 - FUND BALANCES
Fund balances are composed of the following elements:
Bond Interest Non-Major and Redemption Governmental General Fund Fund Funds Total Nonspendable Revolving cash 10,000$ -$ 2,835$ 12,835$ Stores inventories 25,602 - 42,972 68,574 Prepaid expenditures 39,353 - 1,000 40,353 Total Nonspendable 74,955 - 46,807 121,762 Restricted Legally restricted programs 604,110 - - 604,110 Cafeteria program - - 1,048 1,048 Capital projects - - 1,741,399 1,741,399 Debt services - 4,274,585 - 4,274,585 Total Restricted 604,110 4,274,585 1,742,447 6,621,142 Committed Adult education program - - 203,817 203,817 Deferred maintenance program - - 1,263,876 1,263,876 Total Committed - - 1,467,693 1,467,693 Assigned Special reserve fund for other than capital outlay projects 1,179,187 - - 1,179,187 Postemployment benefits 2,310,762 - - 2,310,762 Site gift/PTA carryover 487,043 - - 487,043 Parcel tax - textbooks 565,328 - - 565,328 Tier III - BTSA 385,071 - - 385,071 Budget contingency 2,899,450 - - 2,899,450 One-time mandate funding - textbooks 760,986 - - 760,986 GATE 34,020 - - 34,020 Community services 340,866 - - 340,866 Capital projects - - 1,562,283 1,562,283 Total Assigned 8,962,713 - 1,562,283 10,524,996 Unassigned Reserve for economic uncertainties 3,181,237 - - 3,181,237 Total Unassigned 3,181,237 - - 3,181,237 Total $12,823,015 $ 4,274,585 $ 4,819,230 $21,916,830
51 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 11 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION
Plan Description
The Postemployment Benefits Plan (the Plan) is a single-employer defined benefit healthcare plan administered by the Palos Verdes Peninsula Unified School District. The Plan provides medical and dental insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of 256 retirees and beneficiaries currently receiving benefits and 773 active Plan members.
Contribution Information
The contribution requirements of plan members and the District are established and may be amended by the District and the Palos Verdes Faculty Association (PVFA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year 2014-2015, the District contributed $406,370 to the Plan, all of which was used for current premiums.
Annual OPEB Cost and Net OPEB Obligation
The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the Plan:
Annual required contribution 1,299,730$ Interest on net OPEB obligation 112,012 Adjustment to annual required contribution (161,942) Annual OPEB cost (expense) 1,249,800 Contributions made (406,370) Increase in net OPEB obligation 843,430 Net OPEB obligation, beginning of year 2,800,303 Net OPEB obligation, end of year $ 3,643,733
52 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Trend Information
Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows:
Year Ended Annual OPEB Actual Employer Percentage Net OPEB June 30, Cost Contribution Contributed Obligation 2013 1,169,076$ 402,795$ 34% 2,057,649$ 2014 1,155,414 412,760 36% 2,800,303 2015 1,249,800 406,370 33% 3,643,733
Funded Status and Funding Progress
A schedule of funding progress as of the most recent actuarial valuation is as follows:
Actuarial Accrued Unfunded UAAL as a Actuarial Liability (AAL) - AAL Percentage of Valuation Actuarial Value Unprojected (UAAL) Funded Ratio Covered Covered Payroll Date of Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July1,2014 -$ 12,205,827$ 12,205,827$ 0% 66,159,004$ 18%
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2014, actuarial valuation, the unit credit cost method was used. Currently, the District does not set aside assets in an irrevocable employee benefit trust. The assumptions include a four percent discount rate based on employer assets that are not restricted for other purposes and are expected to be used to finance benefit payments. Healthcare cost trend rates reflected an ultimate rate of four percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at June 30, 2015, was 23 years.
53 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 12 - 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; and natural disasters. During the fiscal year ending June 30, 2015, the District participated in the Alliance of Schools for Cooperative Insurance Program (ASCIP) public entity risk pool for property and liability insurance coverage. There has not been a significant reduction in coverage from the prior year.
Workers' Compensation
For fiscal year 2015, the District participated in the Alliance of Schools for Cooperative Insurance Program (ASCIP) public entity risk pool. The intent of ASCIP is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in ASCIP. The workers' compensation experience of the participating districts is calculated and applied to a common premium rate. Each participant pays its workers' compensation premium based on its individual rate.
Employee Medical Benefits
The District purchases medical, dental, and vision insurance from commercial insurance companies.
NOTE 13 - EMPLOYEE RETIREMENT SYSTEMS
Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Academic employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS).
The District implemented GASB Statements No. 68 and No. 71 for the fiscal year ended June 30, 2015. As a result, the District reported its proportionate share of the net pension liabilities, pension expense and deferred inflow of resources for each of the above plans and a deferred outflow of resources for each of the above plans as follows:
Proportionate Deferred Proportionate Proportionate Share of Net Outflow of Share of Deferred Share of Pension Plan Pension Liability Resources Inflow of Resources Pension Expense CalSTRS 58,557,483$ 4,403,578$ 14,419,669$ 5,055,402$ CalPERS 20,695,344 2,420,120 8,056,325 1,839,393 Total 79,252,827$ 6,823,698$ 22,475,994$ 6,894,795$
54 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The details of each plan are as follows:
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.
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, 2013, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial information are publically available reports that can be found on the CalSTRS website under Publications at: http://www.calstrs.com/member-publications.
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 percent 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 nonemployer contributing entity to the STRP.
The District contributes exclusively to the STRP Defined Benefit Program, thus disclosures are not included for the other plans.
55 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The STRP provisions and benefits in effect at June 30, 2015, 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 employee contribution rate 8.15% 8.15% Required employer contribution rate 8.88% 8.88% Required state contribution rate 5.95% 5.95%
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 accordance with AB 1469, employer contributions into the CalSTRS will be increasing to a total of 19.1 percent of applicable member earnings phased over a seven year period. The contribution rates for each plan for the year ended June 30, 2015, are presented above and the District's total contributions were $4,403,578.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At June 30, 2015, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as follows:
Total net pension liability, including State share:
District's proportionate share of net pension liability 58,557,483$ State's proportionate share of the net pension liability associated with the District 35,359,536 93,917,019$Total
The net pension liability was measured as of June 30, 2014. 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. At June 30, 2015, the District's proportion was 0.1002 percent.
56 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
For the year ended June 30, 2015, the District recognized pension expense of $5,055,402 and revenue and pension expense of $3,052,670 for support provided by the State. At June 30, 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date 4,403,578$ -$ Difference between projected and actual earnings on plan investments - 14,419,669 Total 4,403,578$ 14,419,669$
The deferred outflow of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. The deferred inflow of resources will be amortized over a closed five-year period and will be recognized in pension expense as follows:
Year Ended June 30, Amortization 2016 3,604,917$ 2017 3,604,917 2018 3,604,917 2019 3,604,918 Total $ 14,419,669
Actuarial Methods and Assumptions
Total pension liability for STRP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2013, and rolling forward the total pension liability to June 30, 2014. The financial reporting actuarial valuation as of June 30, 2013, used the following methods and assumptions, applied to all prior periods included in the measurement:
Valuation date June 30, 2013 Measurement date June 30, 2014 Experience study July 1, 2006 through June 30, 2010 Actuarial cost method Entry age normal Discount rate 7.60% Investment rate of return 7.60% Consumer price inflation 3.00% Wage growth 3.75%
CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience.
57 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best estimate ranges were developed using capital market assumptions from CalSTRS general investment consultant. Based on the model for CalSTRS consulting actuary' investment practice, a best estimate range was determined be assuming the portfolio is re-balanced annually and that the annual returns are lognormally distributed and independently from year to year to develop expected percentile for the long-term distribution of annualized returns. The assumed asset allocation is based on board policy for target asset allocation in effect on February 2, 2012, the date the current experience study was approved by the board. Best estimates of ten-year geometric real rates of return and the assumed asset allocation for each major asset class used as input to develop the actuarial investment rate of return are summarized in the following table:
Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 47% 4.50% Private equity 12% 6.20% Real estate 15% 4.35% Inflation sensitive 5% 3.20% Fixed income 20% 0.20% Cash/liquidity 1% 0.00%
Discount Rate
The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments and administrative expense occurred midyear. Based on these 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 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 (6.60%) 91,275,801$ Current discount rate (7.60%) 58,557,483 1% increase (8.60) 31,276,351
58 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
California Public Employees Retirement System (CalPERS)
Plan Description
Qualified employees are eligible to participate in the School Employer Pool (SEP) under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system 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, 2013 annual actuarial valuation report), Schools Pool Actuarial Valuation 2013. This report, and CalPERS audited financial information are publically available reports that can be found on the CalPERS website under Forms and Publications at: https://www.calpers.ca.gov/page/forms-publications.
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, 2015, are summarized as follows:
School Employer 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 1.1% - 2.5% 1.0% - 2.5% Required employee contribution rate 7.000% 6.000% Required employer contribution rate 11.771% 11.771%
59 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Contributions
Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be 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 contributions rates are expressed as percentage of annual payroll. The contribution rates for each plan for the year ended June 30, 2015, are presented above and the total District contributions were $2,420,120.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
As of June 30, 2015, the District reported net pension liabilities for its proportionate share of the CalPERS net pension liability totaling $20,695,344. The net pension liability was measured as of June 30, 2014. 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. At June 30, 2015, the District's proportion was .1823 percent.
For the year ended June 30, 2015, the District recognized pension expense of $1,839,393. At June 30, 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date 2,420,120$ -$ Net change in proportionate share of net pension liability - 945,173 Difference between projected and actual earnings on plan investments - 7,111,152 Total 2,420,120$ 8,056,325$
60 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
The deferred outflow of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016.
The deferred inflow of resources related to the differences between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows:
Year Ended June 30, Amortization 2016 1,777,788$ 2017 1,777,788 2018 1,777,788 2019 1,777,788 Total $ 7,111,152
The deferred inflow of resources related to the net change in proportionate share of net pension liability will be amortized over the expected average remaining service lives (EARSL) of all members that are provided benefits (active, in active, and retirees) as of the beginning of the measurement period. The EARLS for the 2013-2014 measurement period is 3.9 years the pension expense will be recognized as follows:
Year Ended June 30, Amortization 2016 315,057$ 2017 315,058 2018 315,058 Total $ 945,173
Actuarial Methods and Assumptions
Total pension liability for the SEP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2013, and rolling forward the total pension liability to June 30, 2014. The financial reporting actuarial valuation as of June 30, 2013, used the following methods and assumptions, applied to all prior periods included in the measurement:
Valuation date June 30, 2013 Measurement date June 30, 2014 Experience study July 1, 1997 through June 30, 2011 Actuarial cost method Entry age normal Discount rate 7.50% Investment rate of return 7.50% Consumer price inflation 2.75% Wage growth 3.00%
61 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
Mortality assumptions are based on mortality rates resulting from the most recent CalPERS experience study adopted by the CalPERS Board. For purposes of the post-retirement mortality rates, those revised rates include five years of projected ongoing mortality improvement using Scale AA published by the Society of Actuaries.
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 returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first ten years) and the long- term (11-60 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 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 equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:
Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 47% 5.25% Global fixed income 19% 0.99% Private equity 12% 6.83% Real estate 11% 4.50% Inflation sensitive 6% 0.45% Infrastructure and Forestland 3% 4.50% Liquidity 2% -0.55%
Discount Rate
The discount rate used to measure the total pension liability was 7.50 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Based on these assumptions, the School Employer Pool 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 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 (6.50%) 36,304,358$ Current discount rate (7.50%) 20,695,344 1% increase (8.50%) 7,352,440
62 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
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 in the amount of $2,542,715 (5.679 percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budgeted amounts reported in the General Fund - Budgetary Comparison Schedule.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Grants
The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds.
Litigation
The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, 2015.
Construction Commitments
As of June 30, 2015, the District had the following commitments with respect to the unfinished capital projects:
Remaining Expected Construction Date of CAPITAL PROJECT Commitment Completion Ongoing Repair Projects $ 344,500 06/30/17
63 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 15 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS
The District is a member of the Alliance of Schools for Cooperative Insurance Program (ASCIP) public entity risk pool and Southern California Regional Occupational Program Joint Powers Authority (JPA). The District pays an annual premium to ASCIP for its workers' compensation, and property liability coverage. Payments for the regional occupational services received are paid to the Southern California Regional Occupational Program. The relationships between the District, the pool, and the JPA are such that they are not component units of the District for financial reporting purposes.
These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are available from the respective entities.
During the year ended June 30, 2015, the District made payments of $2,456,552 and $450,455 to ASCIP and Southern California Regional Occupational Program, respectively, for services received.
NOTE 16 - SUBSEQUENT EVENTS
Tax and Revenue Anticipation Note
The District received $5,000,000 of Tax and Revenue Anticipation Notes on June 18, 2015. The notes mature on June 1, 2016, and yield 2.00 percent interest. The notes were sold to supplement cash flow. Repayment requirements are that a percentage of principal and interest be deposited with the Fiscal Agent each month beginning January 2016, until 100 percent of the principal and interest due is on account in April 2016.
2015 General Obligation Refunding Bonds
On July 8, 2015, the District issued $7,335,000 of the 2015 General Obligation Refunding Bonds. The current interest bonds have a final maturity to occur on November 1, 2025, with interest rates ranging from 2.00 to 5.00 percent. Proceeds from the bonds will be used to refund a portion of the District’s outstanding 2005 General Obligation bonds and pay costs associated with the issuance of the bonds.
64 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015
NOTE 17 - RESTATEMENT OF PRIOR YEAR NET POSITION
The District adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions, in the current year. As a result, the effect on the current fiscal year is as follows:
Statement of Net Position Net Position - Beginning 94,980,717$ Inclusion of net pension liability from the adoption of GASB Statement No. 68 (101,104,595) Inclusion of deferred outflows of resources from the adoption of GASB Statement No. 68 5,871,784 Net Position - Beginning as Restated $ (252,094)
65 REQUIRED SUPPLEMENTARY INFORMATION
66 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2015
Variances - Positive (Negative) Budgeted Amounts Actual Final Original Final (GAAP Basis) to Actual REVENUES Local Control Funding Formula 76,323,627$ 76,240,257$ 76,554,746$ 314,489$ Federal sources 2,614,647 2,775,749 2,402,958 (372,791) Other State sources 6,697,913 7,493,913 10,430,052 2,936,139 Other local sources 11,648,213 15,059,805 15,510,311 450,506 Total Revenues 1 97,284,400 101,569,724 104,898,067 3,328,343
EXPENDITURES Current Certificated salaries 47,235,458 51,043,583 50,965,838 77,745 Classified salaries 18,258,500 19,284,236 19,187,453 96,783 Employee benefits 15,199,654 15,885,750 18,256,129 (2,370,379) Books and supplies 5,482,577 7,219,894 4,753,904 2,465,990 Services and operating expenditures 12,661,515 14,524,924 14,052,607 472,317 Capital outlay 220,036 200,362 185,877 14,485 Other outgo 605,751 1,182,136 882,136 300,000 Total Expenditures 1 99,663,491 109,340,885 108,283,944 1,056,941 Excess (Deficiency) of Revenues Over Expenditures (2,379,091) (7,771,161) (3,385,877) 4,385,284 Other Financing Sources (Uses) Transfers in 1,823,327 1,823,327 870,043 (953,284) Transfers out (717,941) (300,000) (300,000) - Net Financing Sources (Uses) 1,105,386 1,523,327 570,043 (953,284) NET CHANGE IN FUND BALANCES (1,273,705) (6,247,834) (2,815,834) 3,432,000 Fund Balances - Beginning 15,638,849 15,638,849 15,638,849 - Fund Balances - Ending $ 14,365,144 $ 9,391,015 $ 12,823,015 $ 3,432,000
1 On behalf payments of $2,542,715 are included in the actual revenues and expenditures, but have not been included in the budgeted amounts. In addition, as Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, and Fund 20, Special Reserve Fund for Postemployment Benefits have, for reporting purposes, been consolidated into the General Fund, additional revenues and expenditures pertaining to these other funds are included in the Actual (GAAP Basis) revenues and expenditures, however are not included in the original and final General Fund budgets.
67 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF OTHER POSTEMPLOYEMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2015
Actuarial Accrued Liability Unfunded UAAL as a Actuarial (AAL) - AAL Percentage of Valuation Actuarial Value Unprojected (UAAL) Funded Ratio Covered Covered Payroll Date of Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July1,2010 -$ 6,610,213$ 6,610,213$ 0% 64,215,594$ 10% July1,2012 - 10,896,064 10,896,064 0% 64,561,324 17% July1,2014 - 12,205,827 12,205,827 0% 66,159,004 18%
68 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY FOR THE YEAR ENDED JUNE 30, 2015
2015 CalSTRS
District's proportion of the net pension liability 0.1002%
District's proportionate share of the net pension liability 58,557,483$ State's proportionate share of the net pension liability associated with the District 35,359,536 Total 93,917,019$
District's covered - employee payroll 46,044,809$
District's proportionate share of the net pension liability as a percentage of its covered - employee payroll 127.17%
Plan fiduciary net position as a percentage of the total pension liability 77%
CalPERS
District's proportion of the net pension liability 0.1823%
District's proportionate share of the net pension liability 20,695,344$
District's covered - employee payroll 19,168,002$
District's proportionate share of the net pension liability as a percentage of its covered - employee payroll 107.97%
Plan fiduciary net position as a percentage of the total pension liability 83%
Note: In the future, as data become available, ten years of information will be presented.
69 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF DISTRICT CONTRIBUTIONS FOR THE YEAR ENDED JUNE 30, 2015
2015 CalSTRS
Contractually required contribution 4,403,578$ Contributions in relation to the contractually required contribution 4,403,578 Contribution deficiency (excess) -$
District's covered - employee payroll 49,589,842$
Contributions as a percentage of covered - employee payroll 8.88%
CalPERS
Contractually required contribution 2,420,120$ Contributions in relation to the contractually required contribution 2,420,120 Contribution deficiency (excess) $ -
District's covered - employee payroll 20,561,767$
Contributions as a percentage of covered - employee payroll 11.77%
Note: In the future, as data become available, ten years of information will be presented.
70 SUPPLEMENTARY INFORMATION
71 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2015
Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identifying Program Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed through California Department of Education (CDE): Title I, Part A - Low Income and Neglected 84.010 14329 403,075$ Title I, Part G- Advanced Placement Test Fee Reimbursement Program 84.330B 14831 6,179 Title II, Part A - Improving Teacher Quality 84.367 14341 84,831 Title III, Limited English Proficient (LEP) Student Program 84.365 14346 99,914 Carl D. Perkins Career and Technical Education: Secondary, Section 131 84.048A 14894 42,739 Passed through Los Angeles County Office of Education (LACOE): Individuals with Disabilities Education Act Special Education (IDEA) Cluster: Local Assistance Entitlement 84.027 13379 1,393,017 Preschool Local Entitlement 84.027A 13682 170,483 Preschool Grants, Part B, Section 619 84.173 13430 81,684 Preschool Staff Development, Part B, Section 619 84.173A 13431 414 Mental Health Allocation Plan, Part B, Section 611 84.027A 15197 120,622 Subtotal Special Education (IDEA) Cluster 1,766,220 Total U.S. Department of Education 2,402,958 U.S. DEPARTMENT OF AGRICULTURE Passed through CDE: Child Nutrition Cluster: National School Lunch Program 10.555 13396 249,086 Basic Breakfast 10.553 13525 12,346 Commodities 10.555 13396 139,108 Subtotal Child Nutrition Cluster 400,540 Total U.S. Department of Agriculture 400,540 Total Expenditures of Federal Awards 2,803,498$
See accompanying note to supplementary information.
72 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2015
ORGANIZATION
The Palos Verdes Peninsula Unified School District was established in 1961 and consists of an area comprising approximately 24.4 square miles. The District operates under a locally elected five-member Board form of government and provides educational services to grades K-12 as mandated by the State and/or Federal agencies for ten K-5 schools, three 6-8 schools, two four-year high schools, one continuation high school and one adult education school, a special education early childhood education program, a fee-based preschool and a child care program. There were no boundary changes during the year.
GOVERNING BOARD
MEMBER OFFICE TERM EXPIRES
Larry Vanden Bos President 2015
Malcolm S. Sharp Vice President 2017
Anthony Callatos Clerk 2017
Barbara Lucky Member 2017
Linda Reid Member 2015
ADMINISTRATION
Don Austin, Ed.D. Superintendent of Schools
Lydia Cano Deputy Superintendent
John Bowes, Ed.D. Assistant Superintendent, Human Resources
Trent Bahadursingh Assistant Superintendent, Technology and Support Services
Joanne Culverhouse, Ed.D. Assistant Superintendent, Educational Services
See accompanying note to supplementary information.
73 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2015
Final Report Second Period Annual Report Report Regular ADA Transitional kindergarten through third 2,825.09 2,828.78 Fourth through sixth 2,451.20 2,449.61 Seventh and eighth 1,800.43 1,798.13 Ninth through twelfth 4,179.63 4,165.16 Total Regular ADA 11,256.35 11,241.68
Extended Year Special Education Transitional kindergarten through third 3.34 3.34 Fourth through sixth 3.19 3.19 Seventh and eighth 2.06 2.06 Ninth through twelfth 7.21 7.21 Total Extended Year Special Education 15.80 15.80
Special Education, Nonpublic, Nonsectarian Schools Fourth through sixth 0.80 0.68 Seventh and eighth 3.78 3.47 Ninth through twelfth 17.97 16.16 Total Special Education, Nonpublic, Nonsectarian Schools 22.55 20.31
Extended Year Special Education - Nonpublic, Nonsectarian Schools Fourth through sixth 0.11 0.11 Seventh and eighth 0.46 0.46 Ninth through twelfth 1.53 1.53 Total Extended Year Special Education - Nonpublic, Nonsectarian Schools 2.10 2.10 Total ADA 11,296.80 11,279.89
See accompanying note to supplementary information.
74 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2015
Reduced 1986-87 1986-87 2014-15 NumberofDays Minutes Minutes Actual Traditional Multitrack Grade Level Requirement Requirement Minutes Calendar Calendar Status Kindergarten 36,000 35,000 37,855 180 - Complied Grades 1 - 3 50,400 49,000 Grade 1 50,585 180 - Complied Grade 2 50,585 180 - Complied Grade 3 53,960 180 - Complied Grades 4 - 6 54,000 52,500 Grade 4 54,004 180 - Complied Grade 5 54,004 180 - Complied Grade 6 62,280 180 - Complied Grades 7 - 8 54,000 52,500 Grade 7 62,280 180 - Complied Grade 8 62,280 180 - Complied Grades 9 - 12 64,800 63,000 Grade 9 71,301 180 - Complied Grade 10 71,301 180 - Complied Grade 11 71,301 180 - Complied Grade 12 71,301 180 - Complied
See accompanying note to supplementary information.
75 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2015
There were no adjustments to the Unaudited Actual Financial Report, which require reconciliation to the audited financial statements at June 30, 2015.
See accompanying note to supplementary information.
76 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015
(Budget) 2016 1 2015 2014 2013 GENERAL FUND 4 Revenues 112,799,667$ 104,592,620$ 99,922,373$ 96,423,790$ Other sources 1,823,327 1,823,327 870,043 681,472 Total Revenues and Other Sources 114,622,994 106,415,947 100,792,416 97,105,262 Expenditures 104,988,738 108,283,944 99,399,964 96,963,818 Other uses and transfers out 587,979 300,000 300,000 1,324,555 Total Expenditures and Other Uses 105,576,717 108,583,944 99,699,964 98,288,373 INCREASE (DECREASE) IN FUND BALANCE $ 9,046,277 $ (2,167,997) $ 1,092,452 $ (1,183,111) ENDING FUND BALANCE 18,379,343$ 9,333,066$ 11,501,063$ 10,408,611$ 2 AVAILABLE RESERVES 3,167,303$ 3,181,237$ 2,908,700$ 3,535,780$ AVAILABLE RESERVES AS A 3 PERCENTAGE OF TOTAL OUTGO 3.00% 3.00% 3.00% 3.68% LONG-TERM OBLIGATIONS N/A 100,066,503$ 100,399,080$ 98,283,988$ K-12 AVERAGE DAILY ATTENDANCE AT P-2 11,281 11,297 11,380 11,498
The General Fund balance has decreased by $1,075,545 over the past two years. The fiscal year 2015-2016 budget projects an increase of $9,046,277 (96.9 percent). For a district this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out, and other uses (total outgo).
The District has incurred operating deficits in two of the past three years but anticipates incurring an operating surplus during the 2015-2016 fiscal year. Total long-term obligations have increased by $1,782,515 over the past two years.
Average daily attendance has decreased by 201 over the past two years. An additional decline of 16 ADA is anticipated during fiscal year 2015-2016.
1 Budget 2016 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. 3 On behalf payments of $2,542,715, $2,459,104, and $2,297,841 have been excluded from the calculation of available reserves for the fiscal years ending June 30, 2015, 2014, and 2013, respectively. 4 General Fund amounts do not include activity related to the consolidation of Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, and Fund 20, Special Reserve Fund for Postemployment Benefits.
See accompanying note to supplementary information.
77 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2015
Adult Deferred Education Cafeteria Maintenance Fund Fund Fund ASSETS Deposits and investments 210,625$ 151,184$ 1,262,194$ Receivables 522 4,545 1,682 Prepaid expenses 1,000 - - Stores inventories - 42,972 - Total Assets 212,147$ 198,701$ 1,263,876$
LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 7,330$ 151,846$ -$ Fund Balances: Nonspendable 1,000 45,807 - Restricted - 1,048 - Committed 203,817 - 1,263,876 Assigned - - - Total Fund Balances 204,817 46,855 1,263,876 Total Liabilities and Fund Balances 212,147$ 198,701$ 1,263,876$
See accompanying note to supplementary information.
78 Capital Special Reserve Fund Total Non-Major Facilities for Capital Outlay Governmental Fund Projects Funds
1,831,295$ 1,569,097$ 5,024,395$ 2,296 1,145 10,190 - - 1,000 - - 42,972 1,833,591$ 1,570,242$ 5,078,557$
92,192$ 7,959$ 259,327$
- - 46,807 1,741,399 - 1,742,447 - - 1,467,693 - 1,562,283 1,562,283 1,741,399 1,562,283 4,819,230
1,833,591$ 1,570,242$ 5,078,557$
78 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2015
Adult Deferred Education Cafeteria Maintenance Fund Fund Fund REVENUES Local Control Funding Formula 45,278$ -$ 412,021$ Federal sources - 400,540 - Other State sources - 10,253 - Other local sources 182,606 1,962,572 4,879 Total Revenues 227,884 2,373,365 416,900
EXPENDITURES Current Instruction 106,238 - - Instruction-related activities: School site administration 97,330 - - Pupil services: Food services - 2,433,612 - Administration: All other administration 6,107 - - Plant services - - 40,660 Facility acquisition and construction - - 432,351 Debt service Principal - 12,807 - Total Expenditures 209,675 2,446,419 473,011 Excess (Deficiency) of Revenues Over Expenditures 18,209 (73,054) (56,111) Other Financing Sources Transfers in - - 300,000 NET CHANGE IN FUND BALANCES 18,209 (73,054) 243,889 Fund Balances - Beginning 186,608 119,909 1,019,987 Fund Balances - Ending $ 204,817 $ 46,855 $ 1,263,876
See accompanying note to supplementary information.
79 Capital Special Reserve Fund Total Non-Major Building Facilities for Capital Outlay Governmental Fund Fund Projects Funds
-$ -$ -$ 457,299$ - - - 400,540 - - - 10,253 - 800,947 234,610 3,185,614 - 800,947 234,610 4,053,706
- - - 106,238
- - - 97,330
- - - 2,433,612
- 86 - 6,193 223 34,803 49,934 125,620 - 111,764 2,194,856 2,738,971
- - 114,194 127,001 223 146,653 2,358,984 5,634,965
(223) 654,294 (2,124,374) (1,581,259)
- - - 300,000 (223) 654,294 (2,124,374) (1,281,259) 223 1,087,105 3,686,657 6,100,489 $ - $ 1,741,399 $ 1,562,283 $ 4,819,230
79 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2015
NOTE 1 - PURPOSE OF SCHEDULES
Schedule of Expenditures of Federal Awards
The accompanying 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 United States Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements.
Local Education Agency Organization Structure
This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration.
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 received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. The District neither met nor exceeded its target funding. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46200 through 46206.
Districts must maintain their instructional minutes at 1986-87 requirements, as required by Education Code Section 46201.
Reconciliation of Annual Financial and Budget Report With Audited Financial Statements
This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements.
Schedule of Financial Trends and Analysis
This schedule discloses the District's 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.
80 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2015
Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances
The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances.
81 INDEPENDENT AUDITOR'S REPORTS
82 Vavrinek, Trine, Day & Co., LLP VALUE THE DIFFERENCE Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Governing Board Palos Verdes Peninsula Unified School District Palos Verdes Estates, 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 business- type activities, each major fund, and the aggregate remaining fund information of Palos Verdes Peninsula Unified School District (the District) as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise Palos Verdes Peninsula Unified School District's basic financial statements, and have issued our report thereon dated December 2, 2015.
Emphasis of Matter - Change in Accounting Principles
As discussed in Note 1 and Note 17 to the financial statements, the District adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Our opinion is not modified with respect to this matter.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered Palos Verdes Peninsula Unified School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Palos Verdes Peninsula Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Palos Verdes Peninsula 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.
83
10681 Foothill Blvd., Suite 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431 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 Palos Verdes Peninsula Unified School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
We noted certain matters that we reported to management of Palos Verdes Peninsula Unified School District in a separate letter dated December 2, 2015.
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.
Rancho Cucamonga, California December 2, 2015
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INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133
Governing Board Palos Verdes Peninsula Unified School District Palos Verdes Estates, California
Report on Compliance for Each Major Federal Program
We have audited Palos Verdes Peninsula Unified School District's compliance (the District) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Palos Verdes Peninsula Unified School District's major Federal programs for the year ended June 30, 2015. Palos Verdes Peninsula Unified School District's major Federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs.
Management's Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its Federal programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance for each of Palos Verdes Peninsula 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about Palos Verdes Peninsula 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 Palos Verdes Peninsula Unified School District's compliance.
85
10681 Foothill Blvd., Suite 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431 Opinion on Each Major Federal Program
In our opinion, Palos Verdes Peninsula 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, 2015.
Report on Internal Control Over Compliance
Management of Palos Verdes Peninsula 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 Palos Verdes Peninsula 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 OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Palos Verdes Peninsula Unified School District's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. 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 OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.
Rancho Cucamonga, California December 2, 2015
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INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE
Governing Board Palos Verdes Peninsula Unified School District Palos Verdes Estates, California
Report on State Compliance
We have audited Palos Verdes Peninsula Unified School District's (the District) compliance with the types of compliance requirements as identified in the 2014-2015 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 Palos Verdes Peninsula Unified School District's State government programs as noted below for the year ended June 30, 2015.
Management's Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its State's programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance of each of the Palos Verdes Peninsula Unified School District's State programs based on our audit of the types of compliance requirements referred to above. 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 2014-2015 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Palos Verdes Peninsula Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of Palos Verdes Peninsula Unified School District's compliance with those requirements.
Unmodified Opinion on Each of the Programs
In our opinion, Palos Verdes Peninsula Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 2015.
87
10681 Foothill Blvd., Suite 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431 In connection with the audit referred to above, we selected and tested transactions and records to determine the Palos Verdes Peninsula Unified School District's compliance with the State laws and regulations applicable to the following items:
Procedures Performed Attendance Accounting: Attendance Reporting 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 Ratios of Administrative Employees to Teachers Yes Classroom Teacher Salaries Yes Early Retirement Incentive No, see below Gann Limit Calculation Yes School Accountability Report Card Yes Juvenile Court Schools No, see below Middle or Early College High Schools No, see below K-3 Grade Span Adjustment Yes Transportation Maintenance of Effort Yes Regional Occupational Centers or Programs Maintenance of Effort Yes Adult Education Maintenance of Effort Yes California Clean Energy Jobs Act Yes After School Education and Safety Program: General Requirements No, see below After School No, see below Before School No, see below Proper Expenditure of Education Protection Account Funds Yes Common Core Implementation Funds Yes Unduplicated Local Control Funding Formula Pupil Counts Yes Local Control Accountability Plan Yes Charter Schools: Attendance No, see below Mode of Instruction No, see below Non Classroom-Based Instruction/Independent Study No, see below Determination of Funding for Non Classroom-Based Instruction No, see below Annual Instruction Minutes Classroom-Based No, see below Charter School Facility Grant Program No, see below
88 The ADA for the Independent Study and Continuation Education programs was below materiality thresholds as indicated in the 2014-2015 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, therefore, we did not perform procedures related to the Independent Study and Continuation Education programs.
The District does not offer an Early Retirement Incentive Program; therefore, we did not perform procedures related to the Early Retirement Incentive Program.
The District does not have any Juvenile Court Schools; therefore, we did not perform any procedures related to Juvenile Court Schools.
The District does not have a Middle or Early College High School Program; therefore, we did not perform procedures related to the Middle or Early College High School Program.
The District does not offer an After School Education and Safety Program or a Before School Education and Safety Program; therefore, we did not perform any procedures related to the After School Education and Safety Program or Before School Education and Safety Program.
The District does not have any Charter Schools; therefore, we did not perform any procedures for Charter School Programs.
Rancho Cucamonga, California December 2, 2015
89 SCHEDULE OF FINDINGS AND QUESTIONED COSTS
90 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED JUNE 30, 2015
FINANCIAL STATEMENTS Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness identified? No Significant deficiency identified? None reported Noncompliance material to financial statements noted? No
FEDERAL AWARDS Internal control over major Federal programs: Material weakness identified? No Significant deficiency identified? None reported Type of auditor's report issued on compliance for major Federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section .510(a) of OMB Circular A-133? No Identification of major Federal programs:
CFDA Numbers Name of Federal Program or Cluster 84.027, 84.027A, 84.173. 84.173A Special Education (IDEA) Cluster 10.553, 10.555 Child Nutrition Cluster
Dollar threshold used to distinguish between Type A and Type B programs: 300,000$ Auditee qualified as low-risk auditee? Yes
STATE AWARDS n o iidyeof auditor'sUnmodifiedType report issued on compliance for State programs:
91 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2015
None reported.
92 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2015
None reported.
93 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2015
None reported.
94 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2015
The following findings represent instances of noncompliance and/or questioned costs relating to State program laws and regulations.
State Awards Findings
Unduplicated Local Control Funding Formula Pupil Counts
2014-001 40000
Criteria or Specific Requirements
California Education Code Section 42238.02(b)(4) states that the school districts should revise their submitted data on English learner, foster youth, and free or reduced-price meal eligible pupil counts to ensure the accuracy of data reflected in the California Longitudinal Pupil Achievement Data System.
Condition
The District did not have supporting documentation for 17 students selected who had a status designation of Free or Reduced on the '1.18 – FRPM/English Learner/Foster Youth – Student List' CALPADS report. It appears the District did not receive a current year application for these students and the 1.18 report was not updated. A total population of 226 students were identified as having a Free or Reduced status on the '1.18 – FRPM/English Learner/Foster Youth – Student List' CALPADS report. An additional 8 students were identified from the remaining population by the District without supporting documentation. As a result, a total of 17 students were reported as free or reduced incorrectly on the 1.18 detail report and as a result on the 1.17 – FRPM/English Learner/Foster Youth Count' certified CALPADS report.
Questioned Costs
The questioned costs associated with this condition resulted in a decrease in Local Control Funding Formula of $9,304.
Context
The condition was identified as a result of selecting a sample of students from the '1.18 – FRPM/English Learner/Foster Youth – Student List' CALPADS report. The '1.18 – FRPM/English Learner/Foster Youth – Student List' was agreed to '1.17 – FRPM/English Learner/Foster Youth Count' certified CALPADS report to ensure the correct 1.18 report was used. The initial sample was selected from four school sites, which resulted in exceptions noted for three of these sites. Out of 50 students initially selected, 8 did not have a current year eligibility application. Additional testing was then performed on the remaining population of students from the three sites containing exceptions. From the remaining population, 9 did not have a current year application. It appears that the errors were a result of students who had a Free or Reduced designation in the prior year and who did not turn in an application in the current year by the October 2, 2013 certified date.
95 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2015
Effect As a result of our testing, it appears that the District did not update the1.18 – FRPM/English Learner/Foster Youth – Student List' CALPADS report for pupils that did not have documentation supporting a Free or Reduce designation on the '1.18 – FRPM/English Learner/Foster Youth – Student List' CALPADS report. The following is a schedule of the unduplicated pupil counts summarizing these results:
Unduplicated Adjusted total Total Adjustment School Code School Name FRPM/EL/Foster unduplicated Enrollment by Auditor Youth Total pupil count 6021307 Cornerstone at Pedregal Elementary 408 41 - 41 6116172 Dapplegray Elementary 627 56 56 6021240 Lunada Bay Elementary 346 31 - 31 6021273 Mira Catalina Elementary 385 30 - 30 6021331 Miraleste Intermediate 883 68 (8) 60 6021281 Miraleste Kindergarten 24 - - - 6021299 Montemalaga Elementary 443 57 - 57 NPS School Group for Palos Verdes 24 1 0000001 Peninsula Unified - 1 1996552 Palos Verdes High 1,680 65 - 65 6021257 Palos Verdes Intermediate 973 56 - 56 1995588 Palos Verdes Peninsula High 2,580 212 (8) 204 1964865 Palos Verdes Peninsula Unified - - - - 6021315 Point Vicente Elementary 369 61 - 61 1933308 Rancho del Mar High (Continuation) 81 9 - 9 6021323 Rancho Vista Elementary 457 67 - 67 6117584 Ridgecrest Intermediate 924 111 - 111 6021349 Silver Spur Elementary 545 42 - 42 6021356 Soleado Elementary 439 111 (1) 110 0118638 Sunrise Pre-School - - - - 6116164 Valmonte Elementary 21 2 - 2 6021372 Vista Grande Elementary 491 108 - 108
TOTAL - Selected Schools 11,700 1,128 (17) 1,111 Cause It appears the cause was due to the District being unsure which CALPADS reports the changes had to be made to and the timeline with which it had to make changes to the reports. Recommendation The District should review procedures with the Food Service and Technology Departments to ensure the corrected designations are reflected on the '1.18 – FRPM/English Learner/Foster Youth – Student List' CALPADS report within the allowed time period.
Current Status Implemented
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Governing Board Palos Verdes Peninsula Unified School District Palos Verdes Estates, California
In planning and performing our audit of the financial statements of Palos Verdes Peninsula Unified School District (the District) for the year ended June 30, 2015, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure.
However, during our audit we noted matters that are opportunities 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 December 3, 2015 on the government-wide financial statements of the District.
INTERNAL CONTROLS
Payroll
Observation
During the course of our review of the District's vacation accrual process, the auditor tested twenty employees for compliance with District policy. Seventeen of the employees tested were 10-month employees, and the remaining three employees were 12-month employees. The auditor noted the following concern:
1. One of three 12-month employees tested was not in compliance with the district's carryover restriction policy of 32 days. The employee had a carryover of 45.75 days.
Recommendation
The District should ensure that Article 12.7 in their Collective Bargaining Contract Agreement between Palos Verdes Peninsula Unified School District and Palos Verdes Chapter 123 is complied with. The policy reads as follows: 'Vacation cannot be taken until earned except in case of mandatory site closure and except for those unit members working less than (twelve) 12 months. On or before September 1st of each year, unit members shall present an annual plan/schedule for using earned vacation days to his/her immediate supervisor for approval. It is the unit member's responsibility to use his/her annual vacation days in compliance with this article. Effective July 1, 2002, except in cases where a unit member is not permitted by the District to take his/her full annual vacation, unit members will be limited to thirty-two (32) days of accumulated and earned vacation days prior to July 1, 2002 are expected to develop a plan with their immediate supervisors to use these vacation days over a 2-3 year period. All exceptions to this article must be approved by, and shall be at the sole discretion of the Superintendent or his/her designee.
97
10681 Foothill Blvd., Suite 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431 Governing Board Palos Verdes Peninsula Unified School District
Disbursements – Travel Expense
Observation
'Conference Attendance Request' forms were not available for two of nine tested employees who had attended a conference during the year.
Recommendation
It is recommended the District improve upon internal controls surrounding conference attendance and expense reimbursements. Conference request forms and conference expense reimbursement forms should be approved for employees who request to attend conferences.
Clearing Account
Observation
The monies received from the sites do not consistently include the site or department receipts. Therefore, the District personnel responsible for reconciling revenue transactions have no way of knowing whether or not they have received all monies for all receipts for each site or department.
Recommendation
The District should consider strengthening controls over the completeness of receipts by issuing triplicate, pre- numbered receipt books to all sites and departments where cash and other monies are collected. The District should monitor the sequence of receipts forwarded from the sites and department to ensure there are no gaps in the receipts forwarded and no gaps between the last receipt in the previous deposit sent and the first receipt in the current deposit received. This may be done by using a log for each site and department that indicates the date monies were received, the receipt numbers included in deposit, and the amount of deposit.
ASSOCIATED STUDENT BODY (ASB)
Palos Verdes High School
Observations
During the auditor's review of the ASB, the following internal control deficiencies were noted:
1. Four of 18 disbursements reviewed did not have prior approval. A requisition form is used; however, it is used to request payment rather than a pre-approval document.
2. Two of 18 disbursements reviewed did not have receiving documentation.
3. The site completes fundraising request forms which document the anticipated revenues and expenses for each fundraiser as well as the signatures of pre-approval; however, revenue potentials are not completed at the conclusion of fundraising events to show actual profit/ loss from the activity.
4. Stale-dated checks (6 months or older from date of issuance) were noted on the January 2015 bank reconciliation as outstanding checks
98 Governing Board Palos Verdes Peninsula Unified School District
Recommendations
1. In order to ensure proper internal controls over the ASB disbursements, the site should ensure that all disbursement transactions are pre-approved by the student council. This would allow the student council to determine if the proposed activities are appropriate and to determine if sufficient funding is available to finance the activities or the purchases.
2. All expenditures should indicate whether the items purchased have been received. This can be noted with a stamp, signature, packing slip, etc. This reduces the risk of items being paid for but not received.
3. Revenue potentials must be completed for each fundraiser. This includes the expected profit and loss section associated with the fundraisers. This will help identify any significant differences between anticipated profits and actual profits/ losses and possible potential misappropriation of ASB funds. Analysis of actual profit/ loss also allows the site to continue those fundraisers which generate profit and modify or eliminate those which generate losses. In addition, it is recommended that club advisor provide proper supporting documentation when cash is turned into the ASB Clerk for the event. In the cases where items are being sold we recommend that club advisor keep a tally form indicating their starting inventory, as well listing the items to be sold and their price. Every time an item is sold they will indicate it by placing a mark next to the item. At the end of the sale they should perform a final inventory count and indicate if any inventory is left over. If inventory is left over the club advisors should indicate how the remaining inventory will be sold. Additionally the tally sheet serves as a tool to reconcile with the cash collected.
4. Outstanding checks over 6 months old should be credited back to the appropriate account and taken off the subsequent bank reconciliation's. Although the chances are low, the check may clear on a subsequent bank statement. In this case, the amount should be charged against the appropriate account and described as 'outstanding check written off-cleared'.
Ridgecrest Intermediate School
Observations
During our review of ASB procedures, the following internal control deficiencies were noted:
1. Receipts are not used to account for monies collected and therefore, there is no reconciliation between issued receipts and bank deposits.
2. All ten disbursements reviewed did not have evidence of pre-approval.
3. The auditor noted the site held fundraisers for a charity, however the auditor could not verify that all the proceeds raised were given to the charity because a separate account was not established to account for the monies collected or disbursement made to the charity.
4. The ASB does not have a procedure in place to review the monthly bank reconciliations.
99 Governing Board Palos Verdes Peninsula Unified School District
Recommendations
1. Pre-numbered receipts should be issued for all monies collected by teacher, advisors and the site bookkeeper which would include a specific description of the source of the funds. A carbon of the receipts issued by the teachers and advisors should be forwarded with the cash to the bookkeeper as documentation that all monies collected have been turned in. The receipts issued to teachers and advisors from the bookkeeper should be totaled and reconciled to the current bank deposit.
2. In order to ensure proper internal controls over the ASB disbursements, the site should ensure that all disbursement transactions are pre-approved by the student council. This would allow the student council to determine if the proposed activities are appropriate and to determine if sufficient funding is available to finance the activities or the purchases.
3. The site should review the Fiscal Crisis and Management Assistance Team (FCMAT) ASB manual regarding donations for charities. One suggestion is to open a trust account within the ASB specifically for the donations, then write a check to the organization and close the account when the fundraiser is over.
4. The District should ensure that all reconciliations are reviewed for completeness and accuracy within a reasonable amount of time throughout the year. Evidence of this review should be available for audit purposes such as signing the bank reconciliation.
Palos Verdes Peninsula High School
During the auditor's review of the ASB, the auditor noted the following internal control deficiencies:
Observations
1. During testing of cash receipts, the auditor noted that out of 27 deposits tested, one was not deposited in a timely manner. The deposit for cash collections occurred 12 days after receipt of the funds.
2. The ASB does not have a procedure in place to review the monthly bank reconciliations.
Recommendations
1. All cash should be deposited within 10 days of its initial receipt date. This ensures that cash is not held on site for an extended period of time and provides less exposure to theft or loss of funds.
2. The District should ensure that all reconciliations are reviewed for completeness and accuracy within a reasonable amount of time throughout the year. Evidence of this review should be available for audit purposes such as signing the bank reconciliation.
We will review the status of the current year comments during our next audit engagement.
Rancho Cucamonga, California December 2, 2015
100 APPENDIX C
THE ECONOMY OF THE DISTRICT
The District encompasses the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates (the “Cities”), and a small portion of adjacent unincorporated territory in Los Angeles County (the “County”). The following economic data for the Cities and the County are presented for information purposes only. The 2016 Bonds are not a debt or obligation of the Cities or the County, and taxes to pay the 2016 Bonds are levied only on taxable property located within the District.
General
The District is located on the Palos Verdes Peninsula, which extends into the Pacific Ocean south of the cities of Torrance and Redondo Beach and west of the city of Long Beach in Los Angeles County. The Palos Verdes Peninsula is distinguished by the Palos Verdes Hills, which rise above adjacent areas of the County and provide broad panoramas of the Pacific coastline and the greater Los Angeles area.
The District is renowned for its desirable residential neighborhoods, rural atmosphere, the Wayfarer’s Chapel designed by Frank Lloyd Wright, several public and private golf clubs, and Terrenea, a resort and conference center located on the site of the former Marineland of the Pacific.
The District is located about 17 miles from the Los Angeles International Airport, about 19 miles from the Long Beach Airport, and about 16 miles from downtown Los Angeles. Nearby highways include Interstate Highway 405, Interstate Highway 110, and State Route 1, the Pacific Coast Highway.
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C-1 Population
The aggregate population of the Cities as of January 1, 2015 was 66,421 persons, representing 0.66% of the population of the County. The population of Rancho Palos Verdes, the largest city in the District, is 42,564 persons as of January 1, 2015, representing 0.42% of the population of the County. The population of the Cities and the County from 2000 to 2015 is shown in the following table.
POPULATION CITIES OF RANCHO PALOS VERDES, PALOS VERDES ESTATES, ROLLING HILLS ESTATES, AND ROLLING HILLS, AND COUNTY OF LOS ANGELES 2000 to 2015
Rancho Palos Palos Verdes Rolling Hills County of Los Year Verdes Estates Estates Rolling Hills Angeles 2000 41,145 13,340 7,676 1,871 9,519,330 2001 41,571 13,432 7,775 1,884 9,590,080 2002 41,957 13,595 7,874 1,890 9,679,212 2003 42,260 13,683 7,987 1,898 9,756,914 2004 42,450 13,759 8,041 1,910 9,806,944 2005 42,457 13,745 8,058 1,912 9,816,153 2006 41,931 13,556 7,973 1,889 9,798,609 2007 41,728 13,475 7,939 1,876 9,780,808 2008 41,633 13,425 8,045 1,868 9,785,474 2009 41,537 13,421 8,036 1,868 9,818,605 2010 41,643 13,438 8,067 1,860 9,818,605 2011 41,719 13,464 8,084 1,866 9,847,712 2012 41,987 13,545 8,115 1,879 9,908,030 2013 42,188 13,613 8,156 1,888 9,980,432 2014 42,377 13,670 8,189 1,896 10,054,852 2015 42,564 13,730 8,223 1,904 10,136,559 ______Source: For 2001-2009 and 2011-2015: California State Department of Finance, Demographic Unit, as of January 1. For 2000 and 2010: U.S. Department of Commerce, Bureau of the Census, as of April 1.
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C-2 Employment
The following table summarizes wage and salary employment in the County from 2010 to 2014. Service providing, educational and health services, government, and professional and business services were the largest employment sectors in the County in 2014.
ANNUAL AVERAGE WAGE AND SALARY EMPLOYMENT County of Los Angeles 2010 to 2014
Employment (1) Industry 2010 2011 2012 2013 2014 Farm 6,200 5,600 5,400 5,500 5,300 Goods Producing 482,000 476,000 480,800 488,900 489,700 Service Providing 3,408,100 3,435,600 3,529,700 3,640,800 3,736,700 Information 191,600 192,000 191,500 196,400 195,900 Financial Activities 209,600 208,600 211,000 211,700 209,700 Professional & Business Services 528,100 544,000 571,600 594,700 609,400 Educational & Health Services 637,300 643,200 674,300 719,600 748,000 Leisure & Hospitality 384,800 394,700 415,400 439,300 464,600 Other Services 136,700 137,000 141,700 145,700 151,700 Government 579,600 565,500 556,800 551,200 556,700 Total 6,564,000 6,602,200 6,778,200 6,993,800 7,167,700 ______(1) Employment is reported by place of work; it does not include persons involved in labor-management disputes. Figures are rounded to the nearest hundred. Columns may not sum to totals due to rounding. Source: California Employment Development Department. March 2014 benchmark.
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C-3 The following table summarizes civilian labor force, employment, and unemployment in the County from 2001 to 2014. The annual average unemployment rate in the County in 2014 was 8.3% compared with 7.5% for the State.
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT County of Los Angeles Annual Averages, 2001 to 2014
Civilian Employed Unemployed Unemployment Year Labor Force Labor Force (1) Labor Force (2) Rate (3) 2001 4,740,500 4,471,500 269,000 5.7% 2002 4,751,600 4,430,900 320,600 6.7% 2003 4,739,500 4,409,900 329,600 7.0% 2004 4,753,500 4,445,400 308,100 6.5% 2005 4,781,600 4,525,200 256,400 5.4% 2006 4,807,900 4,577,600 230,300 4.8% 2007 4,864,200 4,614,800 249,400 5.1% 2008 4,929,000 4,555,100 373,900 7.6% 2009 4,914,700 4,345,200 569,500 11.6% 2010 4,917,400 4,302,300 615,100 12.5% 2011 4,929,500 4,326,100 603,400 12.2% 2012 4,914,500 4,378,800 535,800 10.9% 2013 4,982,300 4,495,700 486,600 9.8% 2014 5,025,900 4,610,800 415,100 8.3% ______(1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: California Employment Development Department. March 2014 benchmark.
Major Employers
The following table shows the largest non-governmental employers located in Rancho Palos Verdes, the largest city in the District, and in Los Angeles County for 2015.
LARGEST EMPLOYERS Rancho Palos Verdes
2015 Firm Product/Service Employment Palos Verdes Peninsula Unified School District Education 1,421 Terranea Resort Hotel Hotel/Hospitality 873 Marymount College Education 270 Trump National Gold Club Country Club 190 Belmont Corp LTD (Belmont Village of Rancho) Assisted Living 139 The Canterbury Retirement Home 115 Trader Joe’s Grocery 96 Ralphs Store #720 Grocery 95 Green Hills Memorial Park Cemetery 85 American Golf Corp. (Los Verdes Golf Course) Golf Course 70 ______Source: Rancho Palos Verdes California, 2015 Comprehensive Financial Audit Report.
C-4 The economic base of the County is diverse with no one sector being dominant. Some of the leading activities include government (including education), business/professional management services (including engineering), health services (including training and research), tourism, distribution, and entertainment. The following table 34 sets forth the major employers in the County for 2015.
MAJOR EMPLOYERS(1) County of Los Angeles 2015
Employer Product/Service Employees Los Angeles County Government 105,503 Los Angeles Unified School District Education 59,563 U.S. Government Government 47,500 University of California, Los Angeles Education 44,744 Kaiser Permanente Non-profit health plan 35,771 City of Los Angeles Government 31,875 State of California Government 28,900 University of Southern California Private university 18,629 Northrop Grumman Corp. Defense contractor 17,000 Target Corp. Retailer 15,000 Ralphs/Food 4 Less (Kroger Co. division) Retail grocer 13,500 Bank of America Corp. Banking and financial services 13,000 Providence Health & Services Southern California Health care 13,000 AT&T Inc. Telecommunications 11,700 UPS Transportation and freight 10,768 Home Depot Home improvement specialty retailer 10,600 Boeing Co. Integrated aerospace and defense systems 10,500 Cedars-Sinai Medical Center Medical center 10,250 Albertsons/Vons/Pavilions Retail grocer 10,200 Walt Disney Co. Entertainment 10,200 Wells Fargo Diversified financial services 10,000 Metro Transportation 9,281 Los Angeles Department of Water & Power Energy 9,147 ABM Industries Inc. Facility services, energy solutions, maintenance, repair 8,500 California Institute of Technology Private university, operator of Jet Propulsion Laboratory 8,100 FedEx Corp. Shipping and logistics 7,700 Edison International Electric utility 7,650 Warner Bros. Entertainment Inc. Entertainment 7,400 Los Angeles Community College District Education 6,819 Universal Services of America Electronic security systems, safety services 6,554 Long Beach Unified School District Education 6,515 Dignity Health Health care 6,100 California State University, Northridge Education 6,047 American Apparel Inc. Apparel manufacturer and retailer 6,000 ______(1) The information on this list was provided by representatives of the employers themselves. Companies are ranked by the current number of full- time employees in Los Angeles County. Several additional companies may have qualified for this list, but failed to submit information or do not break out local employment data. Source: Los Angeles Business Journal 2015. The List 2015.
C-5 Construction Activity
The level of construction activity in Rancho Palos Verdes, Palos Verdes Estates, Rolling Hills Estates, Rolling Hills and the County, as measured by total building valuations and residential units, is shown in the following tables.
BUILDING PERMITS AND VALUATIONS City of Rancho Palos Verdes 2010 to 2015
2010 2011 2012 2013 2014 2015 Valuation: Residential $11,598,147 $16,521,696 $8,349,400 $5,896,279 $6,598,400 $5,437,959 Non-residential 2,386,100 5,703,100 2,204,500 3,758,556 1,597,100 4,235,170 Total $13,984,247 $22,224,796 $10,553,900 $9,654,835 $8,195,500 $9,673,129
Residential Units: Single family 4 15 6 7 5 10 Multiple family 34 - - - - 60 Total 38 15 6 7 5 70 ______Source: California Homebuilding Foundation.
BUILDING PERMITS AND VALUATIONS City of Palos Verdes Estates 2010 to 2015
2010 2011 2012 2013 2014 2015 Valuation: Residential $22,441,730 $25,417,105 $18,129,215 $14,795,661 $13,509,263 $17,574,640 Non-residential 758,074 545,222 2,460,685 3,250,001 795,147 2,175,084 Total $23,199,804 $25,962,327 $20,589,900 $18,045,662 $14,304,410 $19,749,724
Residential Units: Single family 4 17 13 8 8 11 Multiple family ------Total 4 17 13 8 8 11 ______Source: California Homebuilding Foundation.
C-6 BUILDING PERMITS AND VALUATIONS City of Rolling Hill Estates 2010 to 2015
2010 2011 2012 2013 2014 2015 Valuation: Residential $4,568,592 $3,906,545 $5,466,643 $6,491,414 $8,412,361 $11,905,095 Non-residential 973,710 1,527,500 3,455,980 4,058,980 2,327,900 1,742,479 Total $5,542,302 $5,434,045 $8,922,623 $10,550,394 $10,740,261 $13,647,574
Residential Units: Single family 2 1 2 2 7 11 Multiple family ------Total 2 1 2 2 7 11 ______Source: California Homebuilding Foundation.
BUILDING PERMITS AND VALUATIONS City of Rolling Hills 2010 to 2015
2010 2011 2012 2013 2014 2015 Valuation: Residential $8,992,200 $3,226,696 $1,777,430 $3,936,570 $4,860,050 $5,986,150 Non-residential 348,476 35,500 1,094,660 192,750 3,029,650 827,490 Total $9,340,676 $3,262,196 $2,872,090 $4,129,320 $7,889,700 $6,813,640
Residential Units: Single family 4 - 1 2 3 3 Multiple family ------Total 4 - 1 2 3 3 ______Source: California Homebuilding Foundation.
BUILDING PERMITS AND VALUATIONS County of Los Angeles 2009 to 2014
2010 2011 2012 2013 2014 2015 Valuation: Residential $2,842,481,966 $3,374,060,210 $3,821,323,722 $4,749,074,731 $5,509,417,857 $6,395,246,954 Non-residential 2,669,514,599 3,086,038,268 3,678,238,479 4,293,102,474 6,657,571,153 5,570,590,835 Total $5,511,996,565 $2,896,130,233 $6,460,098,478 $9,042,177,205 $12,166,989,010 $11,965,837,789
Residential Units: Single family 2,439 2,339 2,820 3,607 4,358 4,309 Multiple family 5,029 8,052 8,895 13,288 14,349 18,662 Total 7,468 10,391 11,715 16,895 18,707 22,971 ______Source: California Homebuilding Foundation.
C-7 Taxable Sales
Taxable sales in Rancho Palos Verdes and Palos Verdes Estates for the period between 2000 to 2013 are shown in the following tables.
TAXABLE SALES, 2000 to 2013 City of Rancho Palos Verdes (dollars in thousands)
Number of Outlets Total Taxable Sales Year (July 1) ($000) 2000 707 $81,520 2001 739 83,377 2002 734 82,105 2003 745 86,642 2004 747 98,282 2005 750 97,333 2006 744 103,202 2007 714 108,359 2008 687 108,481 2009 661 121,155 2010 680 153,909 2011 662 163,657 2012 658 174,987 2013 629 183,724 ______Source: California Board of Equalization.
TAXABLE SALES, 2000 to 2013 City of Palos Verdes Estates (dollars in thousands)
Number of Outlets Total Taxable Sales Year (July 1) ($000) 2000 332 $23,150 2001 338 23,864 2002 356 20,216 2003 359 21,747 2004 351 21,733 2005 345 24,010 2006 339 25,441 2007 335 23,368 2008 327 22,270 2009 299 17,709 2010 293 17,602 2011 280 17,065 2012 277 17,550 2013 281 20,969 ______Source: California Board of Equalization.
Taxable sales in the County for the five-year period between 2009 and 2013 are shown in the following table.
C-8 TAXABLE SALES, 2009 to 2013 County of Los Angeles (in thousands)
2009 2010 2011 2012 2013 Apparel Stores $7,145,713 $7,607,711 $8,356,612 $9,166,549 $9,926,558 General Merchandise 10,059,028 10,369,383 10,866,531 11,157,997 11,463,750 Food Stores 5,410,953 5,405,254 5,591,250 5,824,815 6,051,754 Eating & Drinking Places 13,876,812 14,291,264 15,286,655 16,512,136 17,481,996 Home Furnishings & Appliances 5,464,972 5,612,746 5,738,575 6,012,590 6,144,938 Building Material & Farm Implements 5,754,600 6,129,586 6,306,814 6,510,966 6,558,312 Automotive Group 10,801,444 11,285,457 12,686,384 14,479,392 15,543,657 Service Stations 9,629,797 11,012,642 13,394,467 14,037,507 13,817,056 Other Retail Stores 10,300,795 10,461,374 11,024,159 11,616,651 12,653,152 Total Retail Stores $78,444,115 $82,175,416 $89,251,447 $95,318,603 $99,641,174 All Other Outlets $34,300,613 $34,766,918 $37,189,291 $39,976,979 $40,438,534 Total All Outlets $112,744,727 $116,942,334 $126,440,737 $135,295,582 $140,079,708 ______Source: California Board of Equalization.
C-9 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D
PROPOSED FORMS OF OPINIONS OF BOND COUNSEL
Upon issuance and delivery of the Series 2016 Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, proposes to render its final approving opinions with respect to each series of the Series 2016 Bonds in substantially the following forms:
[Date of Delivery]
Palos Verdes Peninsula Unified School District Palos Verdes Estates, California
Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A (Final Opinion)
Ladies and Gentlemen:
We have acted as bond counsel to the Palos Verdes Peninsula Unified School District (the “District”), which is located in the County of Los Angeles (the “County”), in connection with the issuance by the District of $8,740,000 aggregate principal amount of Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A (the “Series 2016A Bonds”), pursuant to a resolution of the Board of Education of the District adopted on February 24, 2016 (the “Resolution”). Capitalized undefined terms used herein have the meanings ascribed thereto in the Resolution.
In such connection, we have reviewed the Resolution, the Tax Certificate of the District, dated the date hereof (the “Tax Certificate”), certificates of the District, the County and others, and such other documents and matters to the extent we deemed necessary to render the opinions set forth herein.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Series 2016A Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to ensure that future actions, omissions or events will not cause interest on the Series 2016A Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and
D-1 obligations under the Series 2016A Bonds, the Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against school districts or counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated April 6, 2016, or other offering material relating to the Series 2016A Bonds and express no opinion with respect thereto.
Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions:
1. The Series 2016A Bonds constitute valid and binding obligations of the District.
2. The Resolution has been duly and legally adopted and constitutes a valid and binding obligation of the District.
3. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District’s boundaries and subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Series 2016A Bonds and the interest thereon.
4. Interest on the Series 2016A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Series 2016A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2016A Bonds.
Faithfully yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
D-2 [Date of Delivery]
Palos Verdes Peninsula Unified School District Palos Verdes Estates, California
Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery) (Final Opinion)
Ladies and Gentlemen:
We have acted as bond counsel to the Palos Verdes Peninsula Unified School District (the “District”), which is located in the County of Los Angeles (the “County”), in connection with the issuance by the District of $5,905,000 aggregate principal amount of Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery) (the “Series 2016B Bonds”), pursuant to a resolution of the Board of Education of the District adopted on February 24, 2016 (the “Resolution”). Capitalized undefined terms used herein have the meanings ascribed thereto in the Resolution.
In such connection, we have reviewed the Resolution, the Tax Certificate of the District, dated June 3, 2016, as supplemented on the date hereof (the “Tax Certificate”), certificates of the District, the County and others, and such other documents and matters to the extent we deemed necessary to render the opinions set forth herein.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Series 2016B Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to ensure that future actions, omissions or events will not cause interest on the Series 2016B Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Series 2016B Bonds, the Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on
D-3 legal remedies against school districts or counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated April 6, 2016, or other offering material relating to the Series 2016B Bonds and express no opinion with respect thereto.
Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the following opinions:
1. The Series 2016B Bonds constitute valid and binding obligations of the District.
2. The Resolution has been duly and legally adopted and constitutes a valid and binding obligation of the District.
3. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District’s boundaries and subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Series 2016B Bonds and the interest thereon.
4. Interest on the Series 2016B Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Series 2016B Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2016B Bonds.
Faithfully yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
D-4 APPENDIX E
FORMS OF CONTINUING DISCLOSURE CERTIFICATES
CONTINUING DISCLOSURE CERTIFICATE
THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”) is executed and delivered by the Palos Verdes Peninsula Unified School District (the “District”) in connection with the issuance of $8,740,000 aggregate principal amount of Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A (the “Bonds”). The Bonds are being issued pursuant to a resolution adopted by the Board of Education of the District on February 24, 2016 (the “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 Securities and Exchange Commission Rule 15c2- 12(b)(5).
Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 hereof.
“Beneficial Owner” shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).
“Dissemination Agent” shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.
“Holder” shall mean the person in whose name any Bond shall be registered.
“Listed Events” shall mean any of the events listed in Section 5(a) or (b) hereof.
“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” shall mean the Official Statement, dated April 6, 2016 (including all exhibits or appendices thereto), relating to the offer and sale of Bonds.
“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.
E-1 “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District’s fiscal year (which due date shall be April 1 of each year, so long as the fiscal year ends on June 30), commencing with the report for the 2015-2016 Fiscal Year (which is due not later than April 1, 2017), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 hereof. The Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross- reference other information as provided in Section 4 hereof; provided, however, that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are 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(e) hereof. The Annual Report shall be submitted on a standard form in use by industry participants or other appropriate form and shall identify the Bonds by name and CUSIP number.
(b) Not later than 15 business days prior to the date specified in subsection (a), the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall send, in a timely manner, a notice to the MSRB, in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
(i) (if the Dissemination Agent is other than the District), provide any Annual Report received by it to the MSRB as provided herein; 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 to the MSRB pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB.
Section 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference the following:
(a) Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District’s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a) hereof, 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 provided to the MSRB in the same manner as the Annual Report when they become available.
(b) To the extent not included in the audited financial statements of the District, the Annual Report shall also include the following:
(i) The adopted budget of the District for the then-current fiscal year.
(ii) The District’s average daily attendance for the last completed fiscal year.
(iii) The District’s outstanding debt.
E-2 (iv) Information regarding total assessed valuation of taxable properties within the District for the then-current fiscal year, if and to the extent provided to the District by the County of Los Angeles (the “County”).
(v) Information regarding total secured tax charges and delinquencies on taxable properties within the District for the then-current fiscal year, if and to the extent provided to the District by the County.
(vi) Information regarding the twenty taxpayers with the greatest combined ownership of taxable property in the District for the then-current fiscal year, if and to the extent provided to the District by the County.
(c) In addition to any of the information expressly required to be provided under subsections (a) and (b) hereof, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading.
Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been made available to the public on the MSRB’s website. The District shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than ten business days after the occurrence of the event:
(i) principal and interest payment delinquencies;
(ii) unscheduled draws on debt service reserves reflecting financial difficulties;
(iii) unscheduled draws on credit enhancements reflecting financial difficulties;
(iv) substitution of the credit or liquidity providers or their failure to perform;
(v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);
(vi) tender offers;
(vii) defeasances;
(viii) rating changes; or
(ix) bankruptcy, insolvency, receivership or similar event of the obligated person.
For the purposes of the event identified in subparagraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated
E-3 person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.
(b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event:
(i) unless described in paragraph 5(a)(v) hereof, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;
(ii) modifications to rights of Bond Holders;
(iii) Bond calls;
(iv) release, substitution, or sale of property securing repayment of the Bonds;
(v) non-payment related defaults;
(vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or
(vii) appointment of a successor or additional paying agent or the change of name of a paying agent.
(c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 4 hereof, as provided in Section 4(b) hereof.
(d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b) hereof, the District shall determine if such event would be material under applicable federal securities laws.
(e) If the District learns of the occurrence of a Listed Event described in Section 5(a) hereof, or determines that knowledge of a Listed Event described in Section 5(b) hereof would be material under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(vii) or (b)(iii) 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 pursuant to the Resolution.
Section 6. 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
E-4 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(e) hereof.
Section 7. 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District.
Section 8. 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 Section 3(a) hereof, Section 4 hereof, or Section 5(a) or (b) hereof, 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 the type of business conducted;
(b) the undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance 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 the Holders in the same manner as provided in the Resolution for amendments to the 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.
In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(e) hereof, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the 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
E-5 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; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. District Court in or nearest to the County of Los Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the 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 11. 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 (if the Dissemination Agent is other than the District), 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 12. Beneficiaries. This Disclosure Certificate shall inure 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 shall create no rights in any other person or entity.
Dated: June 3, 2016 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
By: Superintendent
E-6 EXHIBIT A
NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
Name of Issue: Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016A
Date of Issuance: June 3, 2016
NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated June 3, 2016. [The District anticipates that the Annual Report will be filed by ______.]
Dated:______
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
E-7 CONTINUING DISCLOSURE CERTIFICATE
THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”) is executed and delivered by the Palos Verdes Peninsula Unified School District (the “District”) in connection with the issuance of $5,905,000 aggregate principal amount of Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery) (the “Bonds”). The Bonds are being issued pursuant to a resolution adopted by the Board of Education of the District on February 24, 2016 (the “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 Securities and Exchange Commission Rule 15c2- 12(b)(5).
Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 hereof.
“Beneficial Owner” shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).
“Dissemination Agent” shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.
“Holder” shall mean the person in whose name any Bond shall be registered.
“Listed Events” shall mean any of the events listed in Section 5(a) or (b) hereof.
“MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” shall mean the Official Statement, dated April 6, 2016 (including all exhibits or appendices thereto), relating to the offer and sale of Bonds.
“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District’s fiscal year (which due date shall be April 1 of each year, so long as the fiscal year ends on June 30), commencing with the report for the 2015-2016
E-8 Fiscal Year (which is due not later than April 1, 2017), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 hereof. The Annual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross- reference other information as provided in Section 4 hereof; provided, however, that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are 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(e) hereof. The Annual Report shall be submitted on a standard form in use by industry participants or other appropriate form and shall identify the Bonds by name and CUSIP number.
(b) Not later than 15 business days prior to the date specified in subsection (a), the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall send, in a timely manner, a notice to the MSRB, in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
(i) (if the Dissemination Agent is other than the District), provide any Annual Report received by it to the MSRB as provided herein; 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 to the MSRB pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB.
Section 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference the following:
(a) Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District’s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a) hereof, 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 provided to the MSRB in the same manner as the Annual Report when they become available.
(b) To the extent not included in the audited financial statements of the District, the Annual Report shall also include the following:
(i) The adopted budget of the District for the then-current fiscal year.
(ii) The District’s average daily attendance for the last completed fiscal year.
(iii) The District’s outstanding debt.
(iv) Information regarding total assessed valuation of taxable properties within the District for the then-current fiscal year, if and to the extent provided to the District by the County of Los Angeles (the “County”).
(v) Information regarding total secured tax charges and delinquencies on taxable properties within the District for the then-current fiscal year, if and to the extent provided to the District by the County.
E-9 (vi) Information regarding the twenty taxpayers with the greatest combined ownership of taxable property in the District for the then-current fiscal year, if and to the extent provided to the District by the County.
(c) In addition to any of the information expressly required to be provided under subsections (a) and (b) hereof, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in light of the circumstances under which they are made, not misleading.
Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been made available to the public on the MSRB’s website. The District shall clearly identify each such other document so included by reference.
Section 5. Reporting of Significant Events. (a) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than ten business days after the occurrence of the event:
(i) principal and interest payment delinquencies;
(ii) unscheduled draws on debt service reserves reflecting financial difficulties;
(iii) unscheduled draws on credit enhancements reflecting financial difficulties;
(iv) substitution of the credit or liquidity providers or their failure to perform;
(v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);
(vi) tender offers;
(vii) defeasances;
(viii) rating changes; or
(ix) bankruptcy, insolvency, receivership or similar event of the obligated person.
For the purposes of the event identified in subparagraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.
E-10 (b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event:
(i) unless described in paragraph 5(a)(v) hereof, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;
(ii) modifications to rights of Bond Holders;
(iii) Bond calls;
(iv) release, substitution, or sale of property securing repayment of the Bonds;
(v) non-payment related defaults;
(vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or
(vii) appointment of a successor or additional paying agent or the change of name of a paying agent.
(c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 4 hereof, as provided in Section 4(b) hereof.
(d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b) hereof, the District shall determine if such event would be material under applicable federal securities laws.
(e) If the District learns of the occurrence of a Listed Event described in Section 5(a) hereof, or determines that knowledge of a Listed Event described in Section 5(b) hereof would be material under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(vii) or (b)(iii) 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 pursuant to the Resolution.
Section 6. 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(e) hereof.
Section 7. 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District.
E-11 Section 8. 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 Section 3(a) hereof, Section 4 hereof, or Section 5(a) or (b) hereof, 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 the type of business conducted;
(b) the undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance 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 the Holders in the same manner as provided in the Resolution for amendments to the 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.
In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(e) hereof, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
Section 10. Default. In the event of a failure of the 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; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. District Court in or nearest to the County of Los Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the 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.
E-12 Section 11. 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 (if the Dissemination Agent is other than the District), 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 12. Beneficiaries. This Disclosure Certificate shall inure 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 shall create no rights in any other person or entity.
Dated: August 4, 2016 PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
By: Superintendent
E-13 EXHIBIT A
NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
Name of Issue: Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (Forward Delivery)
Date of Issuance: August 4, 2016
NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated August 4, 2016. [The District anticipates that the Annual Report will be filed by ______.]
Dated:______
PALOS VERDES PENINSULA UNIFIED SCHOOL DISTRICT
E-14 APPENDIX F
THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS
The following information has been supplied by the County of Los Angeles (the “County”) Treasurer and Tax Collector (the “Treasurer”). Neither the District nor the Underwriter can make any representations regarding the accuracy and completeness of the information. The full Monthly Investment Report is available from the Treasurer.
The County of Los Angeles Treasurer and Tax Collector (the “Treasurer”) has the delegated authority to invest funds on deposit in the County Treasury (the “Treasury Pool”). As of February 29, 2016, investments in the Treasury Pool were held for local agencies including school districts, community college districts, special districts and discretionary depositors such as cities and independent districts in the following amounts:
Invested Funds Local Agency (in billions) County of Los Angeles and Special Districts $11.003 Schools and Community Colleges 12.455 Discretionary Participants 2.239 Total $25.697
The Treasury Pool participation composition is as follows:
Non-discretionary Participants 91.29% Discretionary Participants: Independent Public Agencies 7.62 County Bond Proceeds and Repayment Funds 1.09% Total 100.00%
Decisions on the investment of funds in the Treasury Pool are made by the County Investment Officer in accordance with established policy, with certain transactions requiring the Treasurer’s prior approval. In Los Angeles County, investment decisions are governed by Chapter 4 (commencing with Section 53600) of Part 1 of Division 2 of Title 5 of the California Government Code, which governs legal investments by local agencies in the State of California, and by a more restrictive Investment Policy developed by the Treasurer and adopted by the Los Angeles County Board of Supervisors on an annual basis. The Investment Policy adopted on March 31, 2015 (a copy of which is attached hereto as Appendix G), reaffirmed the following criteria and order of priority for selecting investments:
1. Safety of Principal 2. Liquidity 3. Return on Investment
The Treasurer prepares a monthly Report of Investments (the “Investment Report”) summarizing the status of the Treasury Pool, including the current market value of all investments. This report is submitted monthly to the Board of Supervisors. According to the Investment Report dated March 31, 2016, the February 29, 2016 book value of the Treasury Pool was approximately $25.697 billion and the corresponding market value was approximately $25.666 billion.
An internal controls system for monitoring cash accounting and investment practices is in place. The Treasurer’s Compliance Auditor, who operates independently from the Investment Officer, reconciles cash and investments to fund balances daily. The Compliance Auditor’s staff also reviews each
F-1 investment trade for accuracy and compliance with the Board adopted Investment Policy. On a quarterly basis, the County’s outside independent auditor (the “External Auditor”) reviews the cash and investment reconciliations for completeness and accuracy. Additionally, the External Auditor reviews investment transactions on a quarterly basis for conformance with the approved Investment Policy and annually accounts for all investments.
The following table identifies the types of securities held by the Treasury Pool as of February 29, 2016:
Type of Investment % of Pool U.S. Government and Agency Obligations 53.80% Certificates of Deposit 15.77 Commercial Paper 30.05 Bankers Acceptances 0.00 Municipal Obligations 0.18 Corporate Notes & Deposit Notes 0.20 Asset Backed Instruments 0.00 Repurchase Agreements 0.00 Other 0.00 100.00%
The Treasury Pool is highly liquid. As of February 29, 2016, approximately 45.08% of the investments mature within 60 days, with an average of 541 days to maturity for the entire portfolio.
Neither the District nor the Underwriter has made an independent investigation of the investments in the Treasury Pool or an assessment of the current Investment Policy. The value of the various investments in the Treasury Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the County may change the Investment Policy at any time. Therefore, there can be no assurance that the values of the various investments in the Treasury Pool will not vary significantly from the values described herein.
F-2 APPENDIX G
COUNTY OF LOS ANGELES INVESTMENT POLICY
G-1 [THIS PAGE INTENTIONALLY LEFT BLANK] REVISED
March 31, 2015
The Honorable Board of Supervisors County of Los Angeles 383 Kenneth Hahn Hall of Administration 14 March 31, 2015 500 West Temple Street Los Angeles, California 90012
Dear Supervisors:
DELEGATION OF AUTHORITY TO INVEST AND ANNUAL ADOPTION OF THE TREASURER AND TAX COLLECTOR INVESTMENT POLICY (ALL DISTRICTS) (3-VOTES)
SUBJECT
Delegation of authority to invest and annual adoption of the Treasurer and Tax Collector Investment Policy.
IT IS RECOMMENDED THAT THE BOARD: 1. Delegate the authority to invest and reinvest County funds and funds of other depositors in the County Treasury, to the Treasurer.
2. Adopt the attached Treasurer and Tax Collector Investment Policy (Investment Policy).
PURPOSE/JUSTIFICATION OF RECOMMENDED ACTION The requested actions are required by the California Government Code (Government Code) to permit the Treasurer to continue to invest County funds and funds of other depositors in the County Treasury (Treasury Pool) pursuant to the Investment Policy. Government Code Section 53646 permits your Board to approve annually the Investment Policy.
The proposed revisions included in the attached Investment Policy are as follows: The Honorable Board of Supervisors 3/31/2015 Page 2 We reviewed the requirements for a broker/dealer to qualify as an “emerging firm” and increased the maximum capitalization from $5 million to $10 million, at the time of application. We also increased the minimum capitalization from $200,000 to $250,000, and require that this minimum capitalization be maintained at all times. These criteria were last revised more than a decade ago. These changes should allow additional firms to serve as broker/dealers.
Supranationals were added as a new permitted investment, in accordance with the changes made to Government Code Section 53601(q), effective on January 1, 2015. Supranationals are multilateral lending institutions that provide development financing, advisory services and other financial services to their member countries to promote improved living standards through sustainable economic growth. Three of these supranationals are headquartered in the United States (U.S.) and issue highly rated bonds that are denominated in U.S. currency: the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the Inter-American Development Bank (IADB). The addition of supranationals as a permitted investment provides us with greater flexibility in the investment of funds.
In addition, Attachment II, Limitation Calculation for Intermediate-Term, Medium-Term and Long-Term Holdings was updated to reflect the latest three calendar years’ balances.
Implementation of Strategic Plan Goals This Investment Policy is in accordance with the Countywide Strategic Plan Goal #1: Operational Effectiveness/Fiscal Sustainability with regard to investing County funds and funds of other depositors in the County Treasury.
FISCAL IMPACT/FINANCING
There is no fiscal impact from this action.
FACTS AND PROVISIONS/LEGAL REQUIREMENTS
Government Code Section 27000.1 provides that your Board may annually delegate the authority to invest and reinvest funds of the County and funds of other depositors in the County Treasury to the Treasurer.
Government Code Section 53646 permits the Treasurer to render annually to your Board a statement of Investment Policy, to be reviewed and approved at a public meeting. This Government Code Section also requires that any change in the Investment Policy be submitted to your Board for review and approval at a public meetinghearing.
IMPACT ON CURRENT SERVICES (OR PROJECTS)
There is no impact on current services. The Honorable Board of Supervisors 3/31/2015 Page 3 Respectfully submitted,
Joseph Kelly Treasurer and Tax Collector
JK:NI:rkw
Enclosures c: Interim Chief Executive Officer Acting Executive Officer, Board of Supervisors County Counsel Auditor-Controller
COUNTY OF LOS ANGELES TREASURER AND TAX COLLECTOR INVESTMENT POLICY
Authority to Invest
Pursuant to Government Code Section 27000.1 and Los Angeles County Code 2.52.025, the Los Angeles County Board of Supervisors has delegated to the Treasurer the authority to invest and reinvest the funds of the County and the funds of other depositors in the County Treasury.
Fundamental Investment Policy
The Treasurer, a trustee, is inherently a fiduciary and subject to the prudent investor standard. Accordingly, when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing investments, the investment decisions SHALL be made with the care, skill, prudence, and diligence under the circumstances then prevailing, that a prudent person acting in a like capacity and familiarity would use with like aims.
All investments SHALL be governed by the Government Code and comply with the specific limitations set forth within this Investment Policy. Periodically, it may be necessary and prudent to make investment decisions beyond the limitations set forth in the Investment Policy that are otherwise permissible by California Government Code. In these special circumstances, ONLY the Treasurer is permitted to give written approval to operate outside the limitations set forth within this Investment Policy.
Pooled Surplus Investment Portfolio
The Treasurer SHALL establish and maintain a Pooled Surplus Investment (PSI) portfolio. The PSI portfolio SHALL be used to provide safe, liquid investment opportunities for pooled surplus funds deposited into the County Treasury.
The investment policies of the PSI portfolio SHALL be directed by and based on three prioritized objectives. The primary objective SHALL be to ensure the safety of principal. The secondary objective SHALL be to meet the liquidity needs of the PSI participants, which might be reasonably anticipated. The third objective SHALL be to achieve a return on funds invested, without undue compromise of the first two objectives.
PSI revenue/loss distribution SHALL be shared on a pro-rata basis with the PSI participants. PSI revenue/loss distribution will be performed monthly, net of administrative costs authorized by Government Code Section 27013 which includes employee salaries and benefits and services and supplies, for investing, depositing or handling funds, and the distribution of interest income, based on the PSI participants' average daily fund balance as recorded on the Auditor-Controller's accounting records. Administrative costs SHALL be deducted from the monthly PSI revenue/loss distribution on the basis of one-twelfth of the budgeted costs and adjusted to actual costs.
County of Los Angeles Treasurer and Tax Collector Investment Policy Page 2
Investments purchased with the intent to be held to maturity SHALL be accounted for in the Non-Trading partition of the PSI portfolio. Investments purchased with the intent to be sold prior to maturity SHALL be accounted for in the Trading partition of the PSI portfolio. The investments in the Trading partition SHALL NOT exceed $500 million without specific written approval of the Treasurer.
In the event that a decision is made to transfer a given security from one partition to another, it MAY be transferred at cost; however, the difference between the market value, exclusive of interest, at the time of transfer and the purchase price, exclusive of interest, SHALL be computed and disclosed as unrealized profit or loss.
All PSI investments SHALL be categorized according to the period of time from settlement date to maturity date as follows:
- SHORT-TERM investments are for periods of up to ONE YEAR.
- INTERMEDIATE-TERM investments are for periods of ONE YEAR to THREE YEARS.
- MEDIUM-TERM investments are for periods of over THREE YEARS to FIVE YEARS.
- LONG-TERM investments are for periods of over FIVE YEARS.
PSI investments SHALL be limited to the short-term category except that the Investment Office of the Treasurer's Office MAY make PSI investments in accordance with the limitations imposed in Attachments I, II, and III (all of which are attached hereto and incorporated by this reference.)
The weighted average maturity target of the PSI portfolio is a range between 1.0 and 2.0 years. For purposes of maturity classification, the maturity date SHALL be the nominal maturity date or the unconditional put option date, if one exists.
The total PSI portfolio investments with maturities in excess of one year SHALL NOT exceed 75% of the last three years' average minimum total cash and investments, after adjustments, as indicated in Attachment II.
Liquidity of PSI Investments
Short-term liquidity SHALL further be maintained and adjusted monthly so that sufficient anticipated cash is available to fully meet unanticipated withdrawals of discretionary deposits, adjusted for longer-term commitments, within ninety days.
Such liquidity SHALL be monitored where, at the beginning of each month, the par value for maturities in the next ninety days plus projected PSI deposits for ninety days, divided by the projected PSI withdrawals for ninety days plus discretionary PSI deposits, is equal to or greater than one. County of Los Angeles Treasurer and Tax Collector Investment Policy Page 3
The liquidation of investments is not required solely because the discretionary liquidity withdrawal ratio is less than one; however, investments SHALL be limited to a maximum maturity of thirty days until such time as the discretionary liquidity withdrawal ratio is equal to or greater than one.
The sale of any PSI instrument purchased in accordance with established policies is not required solely because an institution's credit rating is lowered after the purchase of the instrument.
Specific Purpose Investment Portfolio
The Treasurer SHALL maintain a Specific Purpose Investment (SPI) portfolio to manage specific investment objectives of the SPI participants. Specific investments may be made with the approval of the requesting entity's governing body and the approval of the Treasurer. Revenue/loss distribution of the SPI portfolio SHALL be credited to the specific entity for which the investment was made. The Treasurer reserves the right to establish and charge the requesting entity fees for maintaining the entity’s SPI portfolio.
Investments SHALL be limited to the short-term category, as defined above in the previous section for PSI investments, except when requested by a depositing entity and with the approval of the Treasurer, a longer term investment MAY be specifically made and held in the SPI portfolio.
The sale of any SPI instrument purchased in accordance with established policies is not required solely because an institution's credit rating is lowered after the purchase of the instrument.
Execution, Delivery, and Monitoring of Investments
The Treasurer SHALL designate, in writing, personnel authorized to execute investment transactions.
All transactions SHALL be executed on a delivery versus payment basis.
The Treasurer or his authorized designees, in purchasing or obtaining any securities in a negotiable, bearer, registered, or nonregistered format, requires delivery of the securities to the Treasurer or designated custodial institution, by book entry, physical delivery, or by third party custodial agreement.
All investment transactions made by the Investment Office SHALL be reviewed by the Internal Controls Branch to assure compliance with this Investment Policy.
Reporting Requirements
The Treasurer SHALL provide the Board of Supervisors with a monthly report consisting of, but not limited to, the following:
. All investments detailing each by type, issuer, date of maturity, par value, historical cost, market value and the source of the market valuation. County of Los Angeles Treasurer and Tax Collector Investment Policy Page 4
. Month-end bank balances for accounts under the control of the Treasurer. . . A description of funds, investments, or programs that are under the management of contracted parties, including lending programs for the Treasurer.
. A description of all investment exceptions, if any, to the Investment Policy.
. A statement denoting the ability of the PSI portfolio to meet the anticipated cash requirements for the participants for the next six months.
Discretionary Treasury Deposits and Withdrawal of Funds
At the sole discretion of the Treasurer, PSI deposits may be accepted from local agencies not required to deposit their funds with the Los Angeles County Treasurer, pursuant to Government Code Section 53684.
At the time such deposits are made, the Treasurer may require the depositing entity to provide annual cash flow projections or an anticipated withdrawal schedule for deposits in excess of $1 million. Such projections may be adjusted periodically as prescribed by the Treasurer but in no event less than semi-annually.
In accordance with Government Code Section 27136, all requests for withdrawal of such funds, for the purpose of investing or depositing these funds elsewhere SHALL be evaluated, prior to approving or disapproving the request, to ensure that the proposed withdrawal will not adversely affect the principal deposits of the other PSI participants.
If it is determined that the proposed withdrawal will negatively impact the principal deposits of the other PSI participants, the Treasurer may delay such withdrawals until the impact can be mitigated.
Broker/Dealers Section
Broker/Dealers SHALL be limited to primary government dealers as designated by the Federal Reserve Bank or institutions meeting one of the following:
A. Broker/Dealers with minimum capitalization of $500 million and who meet all five of the below listed criteria:
1. Be licensed by the State as a Broker/Dealer, as defined in Section 25004 of the Corporations Code, or a member of a Federally regulated securities exchange and; 2. Be a member of the Financial Industry Regulatory Authority and; 3. Be registered with the Securities and Exchange Commission and; 4. Have been in operation for more than five years; and 5. Have a minimum annual trading volume of $100 billion in money market instruments or $500 billion in United States (U.S.) Treasuries and Agencies. County of Los Angeles Treasurer and Tax Collector Investment Policy Page 5
B. Emerging firms that meet all of the following:
1. Be licensed by the State as a Broker/Dealer, as defined in Section 25004 of the Corporations Code, or a member of a Federally regulated securities exchange and; 2. Maintain office(s) in California and; 3. Maintain a minimum capitalization of $250,000 and, at the time of application, have a maximum capitalization of no more than $10 million.
Commercial Paper and Negotiable Certificates of Deposit may be purchased directly from issuers approved by the Treasurer.
An approved Treasurer Broker/Dealer list SHALL be maintained. Firms SHALL be removed from the approved Broker/Dealer list and trading suspended with firms failing to accurately and timely provide the following information:
A. Confirmation of daily trade transactions and all open trades in effect at month-end.
B. Response to auditor requests for confirmation of investment transactions.
C. Response to the Internal Controls Branch requests for needed information.
Honoraria, Gifts, and Gratuities Limitations
The Treasurer, Chief Deputy Treasurer and Tax Collector and designated Treasurer and Tax Collector employees SHALL be governed by the provision of the State's Political Reform Act, the Los Angeles County Code relating to Lobbyists, and the Los Angeles County Code relating to postgovernment employment of County officials.
Investment Limitations
The Investment Office SHALL NOT invest in inverse floating rate notes, range notes, or interest only strips that are derived from a pool of mortgages.
The Investment Office SHALL NOT invest in any security that could result in zero interest if held to maturity.
For investment transactions in the PSI portfolio, the Investment Office SHALL obtain approval of the Treasurer before recognizing any loss exceeding $100,000 per transaction, calculated using amortized cost.
Proceeds from the sale of notes or funds set aside for the repayment of notes SHALL NOT be invested for a term that exceeds the term of the notes. Funds from bond proceeds may be County of Los Angeles Treasurer and Tax Collector Investment Policy Page 6 invested in accordance with Government Code Section 53601(m), which permits investment according to the statutory provisions governing the issuance of those bonds, or in lieu of any statutory provisions to the contrary, in accordance with the approved financing documents for the issuance.
Permitted Investments
Permitted Investments SHALL be limited to the following:
A. Obligations of the U.S. Government, its agencies and instrumentalities.
1. Maximum maturity: None.
2. Maximum total par value: None.
3. Maximum par value per issuer: None.
4. Federal agencies: Additional limits in Section G apply if investments are Floating Rate Instruments.
B. Municipal Obligations from the approved list of municipalities (Attachment III)
1. Maximum maturity: As limited in Attachment III.
2. Maximum total par value: 10% of the PSI portfolio.
C. Asset-Backed Securities
1. Maximum maturity: Five years.
2. Maximum total par value: 20% of the PSI portfolio.
3. Maximum par value per issuer: Per limits outlined in Attachment I for issuer's current credit rating.
4. All Asset-Backed securities must be rated at least “AA” and the issuer's corporate debt rating must be at least “A.”
D. Bankers’ Acceptance Domestic and Foreign
1. Maximum maturity: 180 days and limits outlined in Attachment I for issuer's current credit rating.
2. Maximum total par value: 40% of the PSI portfolio.
County of Los Angeles Treasurer and Tax Collector Investment Policy Page 7
3. Maximum par value per issuer: Per limits outlined in Attachment I for the issuer's current credit rating.
4. The aggregate total of Bankers’ Acceptances and Negotiable Certificates of Deposits SHALL NOT exceed:
a) The total shareholders’ equity of depository bank.
b) The total net worth of depository bank.
E. Negotiable Certificates of Deposit (CD)
1. Maximum maturity: Three years and limits outlined in Attachment I for issuer's current credit rating.
2. Maximum total par value: Aggregate total of Domestic and Euro CD's are limited to 30% of the PSI portfolio.
3. Maximum par value per issuer: Per limits outlined in Attachment I for the issuer's current credit rating.
4. Must be issued by:
a) National or State-chartered bank, or
b) Savings association or Federal association, or
c) Federal or State credit union, or
d) Federally licensed or State-licensed branch of a foreign bank.
5. Euro CD's:
a) Maximum maturity: One year and limits outlined in Attachment I for issuer's current credit rating.
b) Maximum total par value: 10% of the PSI portfolio.
c) Maximum par value per issuer: Per limits outlined in Attachment I for issuer's current credit rating.
d) Limited to London branch of National or State-chartered banks.
6. The aggregate total of Bankers Acceptances and Negotiable Certificates of Deposits SHALL NOT exceed:
County of Los Angeles Treasurer and Tax Collector Investment Policy Page 8
a) The total shareholders' equity of depository bank.
b) The total net worth of the depository bank.
F. Corporate and Depository Notes
1. Maximum maturity: Three years and limits outlined in Attachment I for the issuer's current credit rating.
2. Maximum total par value: 30% of the PSI portfolio.
3. Maximum par value per issuer: Per limits outlined in Attachment I for the issuer's current credit rating.
4. Notes MUST be issued by:
a) Corporations organized and operating within the U.S.
b) Depository institutions licensed by the U.S or any State and operating within the U.S.
5. Additional limits in Section G apply if note is a Floating Rate Note Instrument.
G. Floating Rate Notes
Floating Rate Notes included in this category are defined as any instrument that has a coupon or interest rate that is adjusted periodically due to changes in a base or benchmark rate.
1. Maximum maturity: Seven years, provided that Board of Supervisors' authorization to exceed maturities in excess of five years is in effect, of which a maximum of $100 million par value may be greater than five years to maturity.
2. Maximum total par value: 10% of the PSI portfolio.
3. Maximum par value per issuer: Per limits outlined in Attachment I for the issuer's current credit rating.
4. Benchmarks SHALL be limited to commercially available U.S. dollar denominated indexes.
5. The Investment Office SHALL obtain the prospectus or the issuer term sheet prior to purchase for all Floating Rate Notes and SHALL include the following on the trade ticket:
a) Specific basis for the benchmark rate. County of Los Angeles Treasurer and Tax Collector Investment Policy Page 9
b) Specific computation for the benchmark rate.
c) Specific reset period.
d) Notation of any put or call provisions.
H. Commercial Paper
1. Maximum maturity: 270 days and limits outlined in Attachment I for the issuer's current credit rating.
2. Maximum total par value: 40% of the PSI portfolio.
3. Maximum par value per issuer: The lesser of 10% of the PSI portfolio or the limits outlined in Attachment I for the issuer’s current credit rating.
4. Credit: Issuing Corporation - 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 (a) or paragraph (b):
(a) The entity meets the following criteria:
1) Is organized and operating in the U.S. as a general corporation.
2) Has total assets in excess of $500 million.
3) Has debt other than commercial paper, if any, that is rated “A” or higher by NRSRO.
(b) The entity meets the following criteria:
1) Is organized in the U.S. as a Limited Liability Company or Special Purpose Corporation.
2) Has program-wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond.
3) Has commercial paper that is rated “A-1”or higher, or the equivalent, by a NRSRO.
I. Shares of Beneficial Interest
1. Money Market Fund (MMF) - Shares of beneficial interest issued by diversified County of Los Angeles Treasurer and Tax Collector Investment Policy Page 10
management companies known as money market mutual funds, registered with the Securities and Exchange Commission in accordance with Section 270.2a-7 of Title 17 of the Code of Federal Regulation. The company SHALL have met either of the following criteria:
a) Attained the highest possible rating 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 in Government Code Section 53601 and with assets under management in excess of five hundred million dollars ($500,000,000).
Maximum total par value: 15% of the PSI portfolio. However, no more than 10% of the PSI may be invested in any one fund.
2. State of California’s Local Agency Investment Fund (LAIF) pursuant to Government Code Section 16429.1.
3. Trust Investments – Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in securities and obligations authorized in Section 53601 (a) to (o) of the Government Code. To be eligible, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria:
a) The adviser is registered or exempt from registration with the Securities and Exchange Commission.
b) The adviser has not less than five years of experience investing in the securities and obligations authorized in Section 53601 (a) to (o) of the Government Code.
c) The adviser has assets under management in excess of five hundred million dollars ($500,000,000).
J. Repurchase Agreement
1. Maximum maturity: 30 days.
2. Maximum total par value: $1 billion.
3. Maximum par value per dealer: $500 million.
4. Agreements must be in accordance with approved written master repurchase agreement.
County of Los Angeles Treasurer and Tax Collector Investment Policy Page 11
5. Agreements must be fully secured by obligations of the U.S. Government, its agencies and instrumentalities. The market value of these obligations that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities and the value shall be adjusted no less than monthly. 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% no later than the next business day. If a repurchase agreement matures the next business day after purchase, the repurchase agreement is not out of compliance with this collateralization requirement if the value of the collateral falls below the 102% requirement at the close of business on settlement date.
K. Reverse Repurchase Agreement
1. Maximum term: One year.
2. Maximum total par value: $500 million.
3. Maximum par value per broker: $250 million.
4. Dealers limited to those primary dealers or those Nationally or State chartered banks that have a significant banking relationship with the County as defined in Government Code Section 53601(j)(4)(B) approved specifically by the Treasurer.
5. Agreements SHALL only be made for the purpose of enhancing investment revenue.
6. Agreements must be in accordance with approved written master repurchase agreement.
7. Securities eligible to be sold with a simultaneous agreement to repurchase SHALL be limited to obligations of the U.S. Government and its agencies and instrumentalities.
8. The security to be sold on a reverse repurchase agreement SHALL have been owned and fully paid for by the Treasurer for a minimum of 30 days prior to sale.
9. The proceeds of the reverse repurchase agreement SHALL be invested in authorized instruments with a maturity less than 92 days unless the agreement includes a codicil guaranteeing a minimum earning or spread to maturity.
10. The proceeds of the reverse repurchase agreement SHALL be invested in instruments with maturities occurring at or before the maturity of the reverse repurchase agreement.
County of Los Angeles Treasurer and Tax Collector Investment Policy Page 12
11. In no instance SHALL the investment from the proceeds of a reverse repurchase agreement be sold as part of a subsequent reverse repurchase agreement.
L. Forwards, Futures and Options
Forward contracts are customized contracts traded in the Over The Counter Market where the holder of the contract is OBLIGATED to buy or sell a specific amount of an underlying asset at a specific price on a specific future date.
Future contracts are standardized contracts traded on recognized exchanges where the holder of the contract is OBLIGATED to buy or sell a specific amount of an underlying asset at a specific price on a specific future date.
Option contracts are those traded in either the Over The Counter Market or recognized exchanges where the purchaser has the RIGHT but not the obligation to buy or sell a specific amount of an underlying asset at a specific price within a specific time period.
1. Maximum maturity: 90 days.
2. Maximum aggregate par value: $100 million.
3. Maximum par value per counterparty: $50 million. Counterparties for Forward and Option Contracts limited to those on the approved Treasurer and Tax Collector list and must be rated “A” or better from at least one nationally recognized rating agency.
4. The underlying securities SHALL be an obligation of the U.S. Government and its agencies and instrumentalities.
5. Premiums paid to an option seller SHALL be recognized as an option loss at the time the premium is paid and SHALL not exceed $100,000 for each occurrence or exceed a total of $250,000 in any one quarter. Premiums received from an option purchase SHALL be recognized as an option gain at the time the premium is received.
6. Complex or hybrid forwards, futures or options defined as agreements combining two or more categories are prohibited unless specific written approval of the Treasurer is obtained PRIOR to entering into the agreement.
7. Open forward, future, and option contracts SHALL be marked to market weekly and a report SHALL be prepared by the Internal Controls Branch.
8. In conjunction with the sale of bonds, the Treasurer MAY authorize exceptions to maturity and par value limits for forwards, futures and options.
County of Los Angeles Treasurer and Tax Collector Investment Policy Page 13
M. Interest Rate Swaps
Interest Rate Swaps SHALL be used only in conjunction with the sale of bonds approved by the Board of Supervisors. In accordance with Government Code Section 53534, these agreements SHALL be made only if all bonds are rated in one of the three highest rating categories by two nationally recognized rating agencies and only upon receipt, from any rating agency rating the bonds, of written evidence that the agreement will not adversely affect the rating.
Further, the counterparty to such an agreement SHALL be rated “A” or better from at least one nationally recognized rating agency selected by the Treasurer, or the counterparty SHALL provide an irrevocable letter of credit from an institution rated “A” or better from at least one nationally recognized rating agency acceptable to the Treasurer.
N. Securities Lending Agreement
Securities lending agreements are agreements under which the Treasurer agrees to transfer securities to a borrower who, in turn agrees to provide collateral to the Treasurer. 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 Treasurer in return for the collateral.
1. Maximum term: 180 days.
2. Maximum par value: Maximum par value is limited to a combined total of reverse repurchase agreements and securities lending agreements of 20% of the base value of the portfolio.
3. Dealers limited to those primary dealers or those Nationally or State chartered banks that have a significant banking relationship with the County as defined in Government Code Section 53601(j)(4)(B) approved specifically by the Treasurer.
4. Agreements SHALL only be made for the purpose of enhancing investment revenue.
5. Securities eligible to be sold with a simultaneous agreement to repurchase SHALL be limited to obligations of the U.S. Government and its agencies and instrumentalities.
6. The security to be sold on securities lending agreement SHALL have been owned and fully paid for by the Treasurer for a minimum of 30 days prior to sale.
7. The proceeds of the securities lending agreement SHALL be invested in authorized instruments with a maturity less than 92 days unless the agreement includes a codicil guaranteeing a minimum earning or spread to maturity. County of Los Angeles Treasurer and Tax Collector Investment Policy Page 14
8. In no instance SHALL the investment from the proceeds of a securities lending agreement be sold as part of a subsequent reverse repurchase agreement or securities lending agreement.
O. Supranationals
U.S. dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by any of the supranational institutions identified in Government Code Section 53601(q), with a maximum remaining maturity of five years or less, and which are eligible for purchase and sale within the U.S. Supranational investments shall be rated “AA” or better by an NRSRO and shall not exceed 30% of the PSI portfolio.
1. Maximum maturity: Five years and limits outlined in Attachment I for issuer’s current credit rating.
2. Maximum total par value: 30% of the PSI portfolio.
3. Maximum par value per issuer: Per limits outlined in Attachment I for issuer’s current credit rating. County of Los Angeles Treasurer and Tax Collector Investment Policy ATTACHMENT 1 a.
MINIMUM CREDIT RATING DOMESTIC ISSUERS
Bankers’ Certificates Corporate Notes, Asset Limit Commercial Paper Limit Acceptance of Deposit Backed Securities (ABS) and Floating Rate Notes (FRN) Maximum Maximum Corporate: 3 years Maximum maturity maturity maturity ABS: 5 years 270 days 180 days 3 years FRN: 5 years (1) Moody’s Moody’s S&P Moody’s S&P Moody’s P-1/Aaa P-1/Aaa A-1/AAA P-1/Aaa $750MM maximum, of A-1/AAA P-1/Aaa $1.5 Billion maximum, of which which 50% may be over 50% may be over 180 days. 180 days. P-1/Aa P-1/Aa A-1/AA P-1/Aa $600MM maximum, of A-1/AA P-1/Aa $1 Billion maximum, of which which 50% may be over 50% may be over 180 days. 180 days. P-1/A P-1A A-1/A P-1/A $450MM maximum, of A-1/A P-1/A $750MM maximum, of which which 50% may be over 90 50% may be over 90 days to a days to a maximum of 180 maximum of 180 days. days.
(1) Seven years, if Board of Supervisors’ authorization to exceed maturities in excess of five years is in effect, of which a maximum of $100 MM (million) par value may be greater than five years to maturity.
County of Los Angeles Treasurer and Tax Collector Investment Policy ATTACHMENT 1 b.
MINIMUM CREDIT RATING FOREIGN ISSUERS
Bankers’ Commercial Certificates of Corporate Notes, Limit Acceptance Paper Deposit Asset Backed Securities (ABS) and Floating Rate Notes (FRN) Maximum maturity Maximum maturity Maximum maturity Corporate: 3 years 180 days 270 days 3 years ABS: 5 years FRN: 5 years (1) Fitch Moody’s S&P Moody’s Fitch Moody’s S&P Moody’s
aaa P-1/Aaa A-1/AAA P-1/Aaa aaa P-1/Aaa A-1/AAA P-1/Aaa $600MM maximum, of which 50% may be over 180 days.
aa- aa- $500MM maximum, of which 50% may be over 180 days.
a P-1/Aa A-1/AA P-1/Aa a P-1/Aa A-1/AA P-1/Aa $450MM maximum, of which 50% may be over 180 days.
a- a- $350MM maximum, of which 50% may be over 90 days to a maximum of 180 days.
bbb P-1/A A-1/A P-1/A bbb P-1/A A-1/A P-1/A $300MM maximum, of which 50% may be over 90 days to a maximum of 180 days.
(1) Seven years, if Board of Supervisors’ authorization to exceed maturities in excess of five years is in effect, of which a maximum of $100 MM (million) par value may be greater than five years to maturity.
County of Los Angeles Treasurer and Tax Collector Investment Policy ATTACHMENT 1 c.
MINIMUM CREDIT RATING SUPRANATIONAL ISSUERS Issuer Rating (1) Limit (2) Fitch Moody's S&P 30% of PSI Portfolio, of which 20% of the PSI Portfolio aaa Aaa AAA may be between 2 and 5 years.
20% of PSI Portfolio, of which 10% of the PSI Portfolio aa Aa AA may be between 2 and 5 years.
(1) Requires the issuer to attain the required rating from at least two of the three nationally recognized statistical-rating organizations (Fitch, Moody's and S&P). (2) Maximum combined par value for all issuers is limited to 30% of the PSI portfolio.
County of Los Angeles Treasurer and Tax Collector Investment Policy ATTACHMENT II
LIMITATION CALCULATION FOR INTERMEDIATE-TERM, MEDIUM-TERM AND LONG-TERM HOLDINGS (Actual $)
2014 2013 2012 Minimum Investment $20,475,769,982 $22,466,113,765 $21,059,006,042 Balance and Available Cash
Less:
. Discretionary (1,956,658,573) (1,874,746,587) (1,995,760,144) Deposits
Minimum Available $18,519,111,409 $20,591,367,177 $19,063,245,898 Balance
Average Minimum Available Balance $19,391,241,495
Multiplied by the Percent Available for Investment Over One Year 75%
Equals the Available Balance for Investment Over One Year $14,543,431,121
Intermediate-Term (From 1 to 3 Years) $4,847,810,374 . One-third of the Available Balance for Investment
Medium-Term and Long-Term (Greater Than 3 Years) $9,695,620,747 . Two-thirds of Available Balance for Investment (1)
(1) Any unused portion of the Medium-Term and Long-Term available balance may be used for Intermediate-Term investments. County of Los Angeles Treasurer and Tax Collector Investment Policy ATTACHMENT III
APPROVED LIST OF MUNICIPAL OBLIGATIONS
1. Any obligation issued or caused to be issued by the County of Los Angeles on its behalf or on behalf of other Los Angeles County affiliates. If on behalf of other Los Angeles County affiliates, the affiliate must have a minimum rating of “A3” (Moody’s) or “A-“ (Standard and Poor’s or Fitch). The maximum maturity is limited to 30 years.
2. Any short- or medium-term obligation issued by the State of California or a California local agency with a minimum Moody’s rating of “MIG-1” or “A2” or a minimum Standard and Poor’s rating of “SP-1” or “A.” Maximum maturity limited to five years.
APPENDIX H
BOOK-ENTRY ONLY SYSTEM
The information in this appendix has been provided by DTC for use in securities offering documents, and the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the Series 2016 Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Series 2016 Bonds, or that they will so do on a timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants will act in the manner described in this Official Statement.
1. The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 2016 Bonds (the “Securities”). The Securities 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 Security certificate will be issued for each maturity of the Securities, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing 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 AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“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
H-1 Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities 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 Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Securities 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 any other DTC nominee) will consent or vote with respect to the Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the 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, the Paying Agent or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
H-2 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the District or Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates 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, Security 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 the District believes to be reliable, but the District takes no responsibility for the accuracy thereof.
H-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX I
FORM OF DELAYED DELIVERY CONTRACT
______, 2016
Stifel, Nicolaus & Company Incorporated One Montgomery Street, 35th Floor San Francisco, CA 94104
Re: $5,905,000 Palos Verdes Peninsula Unified School District (County of Los Angeles, California) General Obligation Refunding Bonds, Series 2016B (the “Bonds”)
Ladies and Gentleman:
The undersigned (the “Purchaser”) hereby agrees to purchase from Stifel, Nicolaus & Company Incorporated (the “Underwriter”), when, as and if issued and delivered to the Underwriter by the Palos Verdes Peninsula Unified School District (the “Issuer”)
Par Maturity Interest CUSIP Amount Date Rate Number Yield Price of the above-referenced Bonds (the “Purchased Bonds”) offered by the Issuer under the Preliminary Official Statement, dated March 29, 2016 (the “Preliminary Official Statement”), and the Official Statement, dated April 7, 2016 (the “Official Statement”) (receipt and review of copies of which is hereby acknowledged), at a purchase price (plus accrued interest, if any, from the date of initial delivery of the Bonds), with the interest rates and maturity dates, and in the principal amounts, shown above, and on the further terms and conditions set forth in this Delayed Delivery Contract. The Bonds are being purchased by the Underwriter pursuant to a Forward Delivery Purchase Contract between the Issuer and the Underwriter (the “Forward Delivery Purchase Contract”).
The Purchaser hereby confirms that it has reviewed the Preliminary Official Statement and the Official Statement (including, without limitation, the section entitled “MISCELLANEOUS – Underwriting – Series 2016 Bonds”), has considered the risks associated with purchasing the Purchased Bonds and is duly authorized to purchase the Purchased Bonds. The Purchaser acknowledges and agrees that the Purchased Bonds are being sold on a “forward” basis, and the Purchaser hereby purchases and agrees to accept delivery of the Purchased Bonds from the Underwriter on or about August 4, 2016 (the “Settlement Date”) as they may be issued and delivered in accordance with the Forward Delivery Purchase Contract.
Payment for the Purchased Bonds which the Purchaser has agreed to purchase on the Settlement Date shall be made to the Underwriter or upon its order by wire transfer to a bank account specified by the Underwriter, on the Settlement Date upon delivery to the Purchaser of the Bonds then to be purchased by the Purchaser through the book-entry system of The Depository Trust Company.
I-1 Upon issuance by the Issuer of the Bonds and purchase thereof by the Underwriter, the obligation of the Purchaser to take delivery of the Purchased Bonds hereunder shall be unconditional except in the event that between the date of this Delayed Delivery Contract and the Settlement Date, (a) there has been a Change in Law (as defined below), (b) legislation is enacted, or a decision by a court of the United States is rendered, or any action is taken by, or on behalf of, the Securities and Exchange Commission which has the effect of requiring the Bonds to be registered under, or the sale thereof to be in violation of, the Securities Act of 1933, as amended or has the effect of requiring the resolution adopted by the Board of Education of the Issuer on February 24, 2016, authorizing the issuance of the Bonds to be qualified under the Trust Indenture Act of 1939, as amended, or, in each case, any law analogous thereto relating to governmental bodies; (c) as a result of any legislation, regulation, ruling, order, release, court decision or judgment or action by the U.S. Department of Treasury, the Internal Revenue Service, or any agency of the State of California either enacted, issued, effective, adopted or proposed, or for any other reason Bond Counsel cannot issue an opinion to the effect that (i) the interest on the Bonds is not subject to subject to federal income tax under Section 103 of the Code (or comparable provisions of any successor federal tax laws) and (ii) the interest on the Bonds is exempt from the State of California income taxation; (d) the Official Statement, as amended, if applicable, as of the Closing Date (as defined in the Forward Delivery Purchase Contract) (which is expected to occur on or about August 4, 2016) contained any untrue statement or misstatement of material fact or omitted to state a material fact necessary in order to make the statements and information contained therein not misleading in any material respect, or an updated Official Statement, as amended, if applicable, as of the Settlement Date, contains any untrue statement or misstatement of material fact or omits to state a material fact necessary in order to make the statements and information contained therein not misleading in any material respect; (e) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange or (f) the Underwriter waives, without prior written consent of the Purchaser, any material condition precedent to the Underwriter’s obligation to purchase the Bonds from the Issuer under the Forward Delivery Purchase Contract.
A “Change in Law” means (i) any change in or addition to applicable federal or state law, whether statutory or as interpreted by the courts or by federal or state agencies, including any changes in or new rules, regulations or other pronouncements or interpretations by federal or state agencies; (ii) any legislation enacted by the Congress of the United States (if such enacted legislation has an effective date which is on or before the Settlement Date), (iii) any law, rule or regulation enacted by any governmental body, department or agency (if such enacted law, rule or regulation has an effective date which is on or before the Settlement Date) or (iv) any judgment, ruling or order issued by any court or administrative body, which in any such case would, (A) as to the Underwriter prohibit the Underwriter from completing the underwriting of the Bonds or selling the Bonds or beneficial ownership interests therein to the public, or (B) as to the Issuer, would make the completion of the issuance, sale or delivery of the Bonds illegal.
If the Change of Law involves the enactment of legislation which only diminishes the value of, as opposed to eliminating the exclusion from gross income for federal income tax purposes of interest payable on “state or local bonds,” the Issuer may, nonetheless, be able to satisfy the requirements for the delivery of the Bonds. In such event, the Underwriter would be obligated to purchase the Bonds from the Issuer and the Purchaser would be required to accept delivery of the Purchased Bonds from the Underwriter.
The Purchaser acknowledges and agrees that the Bonds are being sold on a “forward” or “delayed delivery” basis for delivery on the Settlement Date and that, except as described above, the Purchaser is obligated to take up and pay for the Purchased Bonds on the Settlement Date unless the Underwriter terminates the Forward Delivery Purchase Contract as described herein. The Purchaser is not a third party beneficiary under the Forward Delivery Purchase Contract and has no rights to enforce, or cause the Underwriter to enforce, any of the terms thereof. The Purchaser acknowledges that it will not be able to
H-2I-2 withdraw its order as described herein, and will not otherwise be excused from performance of its obligations to take up and pay for the Purchased Bonds on the Settlement Date because of market or credit changes, including specifically, but not limited to (a) changes in the ratings assigned to the Bonds between the Closing Date and the Settlement Date or changes in the credit associated with the Bonds generally, and (b) changes in the financial condition, operations, performance, properties or prospects of the Issuer from the date hereof to the Settlement Date. The Purchaser acknowledges and agrees that it will remain obligated to purchase the Purchased Bonds in accordance with the terms hereof, even if the Purchaser decides to sell Purchased Bonds following the date hereof, unless the Purchaser sells Purchased Bonds to another institution with the prior written consent of the Underwriter and such institution provides a written acknowledgment of confirmation of purchase order and a delayed delivery contract in the same respective forms as that executed by the Purchaser.
The Purchaser represents and warrants that, as of the date of this Delayed Delivery Contract, the Purchaser is not prohibited from purchasing the Purchased Bonds hereby agreed to be purchased by it under the laws of the jurisdiction to which the Purchaser is subject. Each of the undersigned parties represents and warrants that it has the power and authority to enter into this Delayed Delivery Contract and to perform its obligations hereunder.
This Delayed Delivery Contract will inure to the benefit of and be binding upon the parties hereto and their respective successors, but will not be assignable by either party without the written consent of the other.
The Purchaser acknowledges that the Underwriter is entering into the Forward Delivery Purchase Contract with the Issuer to purchase the Bonds in reliance in part on the performance by the Purchaser of its obligations hereunder.
The Purchaser agrees that it will at all times satisfy the minimum initial and maintenance margin requirements of Regulation T of the Board of Governors of the Federal Reserve System, Rule 431 of the New York Governors of the Federal Reserve System, Rule 431 of the New York Stock Exchange, Inc., and any other margin regulations applicable to the Underwriter.
This Delayed Delivery Contract may be executed by either of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
It is understood that the acceptance by the Underwriter of any Delayed Delivery Contract (including this one) is in the Underwriter’s sole discretion and that, without limiting the foregoing, acceptances of such contracts need not be on a first-come, first-served basis. If this Delayed Delivery Contract is acceptable to the Underwriter, it is requested that the Underwriter sign the form of acceptance below and mail, e-mail or otherwise deliver one of the counterparts hereto to the Purchaser at its address set forth below. This will become a binding contract between the Underwriter and the Purchaser when such counterpart is so mailed, e-mailed or otherwise delivered by the Underwriter. This Delayed Delivery Contract does not constitute a customer confirmation pursuant to Rule G-15 of the Municipal Securities Rulemaking Board.
H-3I-3 This Delayed Delivery Contract shall be construed and administered under the laws of the State of ______.
[Trust Name] [Fund Name]
By: ______Name: Title:
Accepted: ______, 2016
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By: ______
H-4I-4