PRELIMINARY OFFICIAL STATEMENT DATED MAY 7, 2013
NEW ISSUE—BOOK-ENTRY ONLY RATINGS: S&P: __ (Insured) S&P: __ (Underlying) In the opinion of Bond Counsel, under existing statutes, regulations and judicial decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although in the case of corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. This opinion of Bond Counsel is subject to continuing compliance by the School District with its covenants in the Resolution and other documents to comply with requirements of the Internal Revenue Code of 1986, as amended, and applicable regulations thereunder. Bond Counsel is also of the opinion that under the laws of the Commonwealth of Pennsylvania (the “Commonwealth”) as presently enacted and ld nor may offers to buy be accepted ld nor may offers to buy be accepted construed, the Bonds are exempt from personal property taxes in the Commonwealth and the interest on the Bonds is exempt from the Commonwealth's Personal Income Tax and the Commonwealth's Corporate Net Income Tax.
securities laws of any such jurisdiction. The Bonds are "qualified tax-exempt obligations", for purposes and effect contemplated by Section 265 of the Internal Revenue Code of 1986, as amended (concerning expenses and interest relating to tax-exempt income of certain financial institutions). For further information concerning federal and state tax matters relating to the Bonds, see "Tax Exemption and Other Tax Matters" herein. $4,925,000* Northern Potter School District (Potter County, Pennsylvania) Consisting of: $4,070,000* General Obligation Bonds, Series of 2013 $855,000* General Obligation Bonds, Series A of 2013 Dated: Date of Delivery Principal Due: September 1, see inside cover
ithout notice. The Bonds may not be so Interest Due: March 1 and September 1 First Interest Payment: September 1, 2013
The offering described herein is for the combined aggregate principal amount of $4,925,000*, consisting of $4,070,000* General Obligation Bonds, Series of 2013 (the “2013 Bonds”) and $855,000* General Obligation Bonds, Series A of 2013 (the “2013A Bonds”). The 2013 Bonds and the
Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor 2013A Bonds are collectively referred to as the "Bonds". All of the Bonds will be registered in the name of Cede & Co., which is the registered owner and partnership nominee of The Depository Trust Company ("DTC"), New York, New York. Beneficial ownership of the Bonds may be acquired only under egistration or qualification under the applicable the book-entry only system maintained by DTC through its brokers and dealers who are, or act through, DTC Participants. The purchasers of the Bonds will not receive physical delivery of the Bonds. For a purchaser to be the beneficial owner of a Bond, that purchaser must maintain an account with a broker or a dealer who is, or acts through, a DTC Participant to receive payment of principal of and interest on the Bonds. See "BOOK-ENTRY ONLY SYSTEM" herein. If, under the circumstances described herein, Bonds are ever issued in certificated form, the Bonds will be subject to registration of ownership, transfer, exchange and payment as described herein. The Bonds are general obligations of the Northern Potter School District, located in Potter County, Pennsylvania (the "School District"), payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget in each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year and will duly and punctually pay or cause to be paid from the sinking fund established under the Resolution or any other of its legally available revenues or funds the principal of every Bond and the interest thereon on
tances shall this Preliminary the dates, at the place and in the manner stated in the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and taxing power, which taxing power presently includes the power to levy ad valorem taxes on all taxable real property within
would be unlawful prior to r the School District, presently unlimited as to rate or amount for such purpose. (But see “SECURITY FOR THE BONDS” and “TAXING POWERS OF THE SCHOOL DISTRICT” herein). Interest on each of the Bonds is payable initially on September 1, 2013, and thereafter semiannually on March 1 and September 1 of each year until the maturity date of such Bond or, if such Bond is subject to redemption prior to maturity, until the date fixed for redemption thereof, if payment of the redemption price has been duly made or provided for. The School District has appointed Manufacturers and Traders Trust Company (the “Paying Agent”), as paying agent and sinking fund depository for the Bonds. So long as Cede & Co., as nominee for DTC, is the registered owner of the Bonds, payments of the principal of, redemption premium, if any, and interest on the Bonds, when due for payment, will be made directly to DTC by the Paying Agent, and DTC will in turn remit such payments to DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds. If the use of the Book-Entry Only System for the Bonds is ever discontinued, the principal of and redemption premium, if any, on each of the Bonds will be payable, when due, upon surrender of such Bond to the Paying Agent at its principal corporate trust office located in Harrisburg, Pennsylvania (or any successor paying agent at its designated office(s)) and interest on such Bond will be payable by check made out and mailed to the person(s) in whose name(s) such d herein are subject to completion, amendment or other change w
in final form. Under no circums Bond is registered as of the Record Date with respect to the particular interest payment date (See “THE BONDS,” infra). The Bonds are subject to redemption prior to maturity as described herein. h such offer, solicitation or sale Proceeds of the 2013 Bonds will be used to: (1) currently refund all of the School District’s General Obligation Bonds, Series of 2008, and (2) pay the allocated costs of issuing the 2013 Bonds. Proceeds of the 2013A Bonds will be used to: (1) construct and purchase energy performance upgrades to various School District buildings and facilities, and (2) pay the allocated costs of issuing the 2013A Bonds. The Bonds are an authorized investment for fiduciaries in the Commonwealth pursuant to the Pennsylvania Probate, Estate and Fiduciaries Code, Act of June 30, 1972, No. 164, P.L. 508, as amended and supplemented. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by .
MATURITIES, AMOUNTS, RATES AND YIELDS/PRICES {See Inside Front Cover}
The Bonds are offered when, as and if issued, subject to withdrawal or modification of the offer without notice, and subject to the approving legal opinion of Rhoads & Sinon LLP, of Harrisburg, Pennsylvania, Bond Counsel, to be furnished upon delivery of the Bonds. Certain other legal matters will be passed upon for the School District by Cox, Stokes & Lantz, P.C., of Wellsboro, Pennsylvania, Solicitor to the School District. Public Financial Management, Inc., Harrisburg, Pennsylvania, serves as Financial Advisor to the School District in connection with the Bonds. It is expected that the Bonds will be available for delivery to DTC or its agent on or about June 25, 2013.
Public Financial Management, Inc. Financial Advisor to the School District
Dated:
*Estimated, subject to change This Preliminary Official Statement and the information containe prior to the time the Preliminary Official Statement is delivered shall there be any sale of the Bonds in any jurisdiction in whic
$4,925,000* Northern Potter School District (Potter County, Pennsylvania)
Consisting of: $4,070,000* General Obligation Bonds, Series of 2013 $855,000* General Obligation Bonds, Series A of 2013
Dated: Date of Delivery Principal Due: September 1, as shown below Interest Due: March 1 and September 1 First Interest Payment: September 1, 2013
Maturity Schedule for:
$4,070,000* General Obligation Bonds, Series of 2013
Maturity Date (September 1) Principal Interest Initial Offering Initial Offering Year Amount Rate Yields Prices 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Maturity Schedule for:
$855,000* General Obligation Bonds, Series A of 2013
Maturity Date (September 1) Principal Interest Initial Offering Initial Offering Year Amount Rate Yields Prices 2025 2026 2027 2028 2029
(A portion of the Bonds may be structured as Term Bonds. See "Invitation to Bid".)
*Estimated, subject to change
Northern Potter School District Potter County, Pennsylvania
BOARD OF SCHOOL DIRECTORS
David Smoker ...... President Michael Grimes ...... Vice President Mary Ransom...... Secretary* Barry Hayman ...... Member Philip Lehman ...... Member Jeanne Sherman ...... Member Joel Wheeler ...... Member Wanda Shirk ...... Member Clifford Wood ...... Member Tammie Hancock ...... Member
*Non-voting.
SUPERINTENDENT SCOTT V. GRAHAM
BUSINESS MANAGER MARY L. RANSOM
SCHOOL DISTRICT SOLICITOR COX, STOKES & LANTZ, P.C. Wellsboro, Pennsylvania
BOND COUNSEL RHOADS & SINON LLP Harrisburg, Pennsylvania
PAYING AGENT MANUFACTURERS AND TRADERS TRUST COMPANY Harrisburg, Pennsylvania
FINANCIAL ADVISOR PUBLIC FINANCIAL MANAGEMENT, INC. Harrisburg, Pennsylvania
SCHOOL DISTRICT ADDRESS 745 Northern Potter Road Ulysses, Pennsylvania 16948
No dealer, broker, salesman or other person has been authorized by the School District to give information or to make any representations, other than those contained in this Preliminary Official Statement, and if given or made, such other information or representations must not be relied upon. This Preliminary Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources which are believed to be reliable but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof.
TABLE OF CONTENTS
Page Page Commonwealth Aid to School Districts ...... 19 INTRODUCTION ...... 1 DEBT AND DEBT LIMITS ...... 19 PURPOSE OF THE ISSUE ...... 1 Debt Statement ...... 19 Sources and Uses of Bond Proceeds ...... 1 Debt Limit and Remaining Borrowing Capacity ...... 21 Debt Service Requirements ...... 22 THE BONDS ...... 2 Future Financing ...... 23 Description ...... 2 LABOR RELATIONS ...... 23 Payment of Principal and Interest ...... 2 Transfer, Exchange and Registration of Bonds ...... 3 School District Employees ...... 23 Pension Program ...... 23 REDEMPTION OF BONDS ...... 3 Other Post-Employment Benefits ...... 23 Mandatory Redemption ...... 3 LITIGATION ...... 23 Optional Redemption – 2013 Bonds ...... 3 Optional Redemption – 2013A Bonds ...... 3 DEFAULTS AND REMEDIES ...... 24 Notice of Redemption ...... 4 Manner of Redemption ...... 4 TAX EXEMPTION AND OTHER TAX MATTERS ...... 24 SECURITY FOR THE BONDS ...... 5 Pledge of the School District’s Full Faith, Credit and Taxing CONTINUING DISCLOSURE UNDERTAKING...... 26 Power ...... 5 Sinking Funds ...... 5 RATINGS ...... 26 Commonwealth Enforcement of Debt Service Payments ...... 5 UNDERWRITING ...... 26 BOOK-ENTRY ONLY SYSTEM ...... 6
LEGAL OPINION ...... 26 THE SCHOOL DISTRICT ...... 8
Introduction ...... 8 FINANCIAL ADVISOR ...... 27 Administration ...... 8 School Facilities ...... 8 Enrollment Trends ...... 8 MISCELLANEOUS ...... 27
SCHOOL DISTRICT FINANCES ...... 9 APPENDIX A - DEMOGRAPHIC AND ECONOMIC INFORMATION Introduction ...... 9 RELATING TO THE NORTHERN POTTER SCHOOL DISTRICT Financial Reporting ...... 9 Population ...... A-1 Employment ...... A-2 BUDGETING PROCESS IN SCHOOL DISTRICTS UNDER THE Income ...... A-3 TAXPAYER RELIEF ACT...... 9 Commercial Activity ...... A-3 Summary and Discussion of Financial Results ...... 10 Transportation ...... A-4 Education ...... A-4 TAXING POWERS OF THE SCHOOL DISTRICT ...... 13 Recreation ...... A-4 The Taxpayer Relief Act ...... 14 Utilities ...... A-4 Status of the 2013 Bonds Under Act 1 ...... 15 APPENDIX B - FORM OF BOND COUNSEL OPINION The 2013A Bonds are Not Eligible for Act 1 Exception ...... 15 Limitation on Estimated Ending Unassigned Fund Balances. 15 Tax Levy Trends ...... 16 APPENDIX C - CONTINUING DISCLOSURE CERTIFICATE Real Property Tax ...... 17 Other Taxes ...... 18 APPENDIX D - AUDITED FINANCIAL STATEMENTS
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PRELIMINARY OFFICIAL STATEMENT
$4,925,000* Northern Potter School District Potter County, Pennsylvania
Consisting of: $4,070,000* General Obligation Bonds, Series of 2013 $855,000* General Obligation Bonds, Series A of 2013
INTRODUCTION
This Preliminary Official Statement, including the cover and inside cover pages hereof, is furnished by Northern Potter School District (the "School District"), a public school district located in Potter County, Pennsylvania (the "School District"), in connection with the offering of $4,925,000* combined aggregate principal amount of general obligation bonds, which consist of $4,070,000* aggregate principal amount of General Obligation Bonds, Series of 2013 (the “2013 Bonds”) and $855,000* aggregate principal amount of General Obligation Bonds, Series A of 2013 (the “2013A Bonds”). The 2013 Bonds and the 2013A Bonds are collectively referred to as the "Bonds". The Bonds will be dated as of the date of their delivery (the “Date of Delivery”) and are being issued pursuant to, and are secured by, a resolution of the Board of School Directors (“School Board”) of the School District adopted on May 13, 2013 (the “Resolution”), and pursuant to the Local Government Unit Debt Act of the Commonwealth of Pennsylvania (the “Commonwealth or State”), 53 Pa.C.S. Chs. 80-82 (the “Debt Act”).
PURPOSE OF THE ISSUE
Proceeds of the 2013 Bonds will be used to: (1) currently refund all of the School District’s General Obligation Bonds, Series of 2008 currently outstanding in the aggregate principal amount of $3,885,000 (the “2008 Bonds”), and (2) pay the allocated costs of issuing the 2013 Bonds.
Proceeds of the 2013A Bonds will be used to: (1) construct and purchase energy performance upgrades to various School District buildings and facilities, and (2) pay the allocated costs of issuing the 2013A Bonds.
Upon issuance of the 2013 Bonds, a portion of the proceeds will be deposited with Manufacturers and Traders Trust Company, Harrisburg, Pennsylvania, as Paying Agent for the 2008 Bonds, which will be used to redeem the outstanding 2008 Bonds, at a redemption price of 100% of principal amount plus accrued interest, pursuant to the optional redemption provisions applicable to the 2008 Bonds, on or about September 1, 2013.
Sources and Uses of Bond Proceeds
The following is a summary of the sources and uses of the proceeds from the issuance of the Bonds.
Sources of Funds 2013 Bonds 2013A Bonds Totals Bond Proceeds ...... Original Issue Premium ...... Total Sources of Funds ......
Uses of Funds Amount Required to Redeem the 2008 Bonds . Construction Fund Deposit ...... Issuance Costs (1) ...... Total Uses of Funds ......
(1) Includes legal, financial advisor, printing, rating, total bond discount, paying agent and miscellaneous costs.
*Estimated, subject to change
1
THE BONDS
Description
The Bonds will be issued in book-entry only form, in denominations of $5,000 principal amount and integral multiples thereof, will be in the combined aggregate principal amount of $4,925,000*, and will be dated as of the date of delivery. The Bonds will bear interest at the rates and mature in the amounts and on the dates set forth on the inside front cover of this Preliminary Official Statement. Interest on the Bonds will be payable initially on September 1, 2013, and thereafter, semiannually on March 1 and September 1 of each year until the maturity date of such Bond or, if such Bond is subject to redemption prior to maturity, until the date fixed for redemption thereof, if payment of the redemption price has been duly made or provided for.
When issued, the Bonds will be registered in the name of Cede & Co., as partnership nominee for The Depository Trust Company (“DTC”), New York, New York. Purchasers of the Bonds (the “Beneficial Owners”) will not receive any physical delivery of bond certificates, and beneficial ownership of the Bonds will be evidenced only by book entries. See “BOOK–ENTRY ONLY SYSTEM” herein.
Payment of Principal and Interest
So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payments of principal of, redemption premium, if any, and interest on the Bonds, when due, are to be made to DTC and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the School District with respect to, and to the extent of, principal, redemption premium, if any, and interest so paid. If the use of the Book-Entry Only System for the Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal, redemption premium, if any, and interest on the Bonds shall be made as described in the following paragraphs:
The principal of the Bonds, when due upon maturity or upon any earlier redemption, will be paid to the registered owners of the Bonds, or registered assigns, upon surrender of the Bonds to Manufacturers and Traders Trust Company (the “Paying Agent”), acting as paying agent and sinking fund depository for the Bonds, at its specified principal corporate trust office in Harrisburg, Pennsylvania (or to any successor paying agent at its designated office(s)).
Interest on the Bonds will be payable to the registered owner of a Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date, or (b) such Bond is registered and authenticated after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond shall bear interest from such interest payment date, or (c) such Bond is registered and authenticated on or prior to the Record Date preceding September 1, 2013, in which event such Bond shall bear interest from the date of delivery, or (d) as shown by the records of the Paying Agent, interest on such Bond shall be in default, in which event such Bond shall bear interest from the date to which interest was last paid on such Bond. Interest on each Bond will be payable by check drawn on the Paying Agent, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the fifteenth (15th) calendar day (whether or not a day on which the Paying Agent is open for business) next preceding each interest payment date (the “Record Date”), on the registration books maintained by the Paying Agent, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the School District shall be in default in payment of interest due on such interest payment date. In the event of any such default, such defaulted interest shall be payable to the person in whose name the Bond is registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Paying Agent to the registered owners of such Bonds not less than fifteen (15) days preceding such special record date. Such notice shall be mailed to the persons in whose names such Bonds are registered at the close of business on the fifth (5th) day preceding the date of mailing.
If the date for payment of the principal of or interest on any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of such principal or interest shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date established for such payment.
*Estimated, subject to change
2
Transfer, Exchange and Registration of Bonds
Subject to the provisions described below under “Book-Entry Only System,” Bonds are transferable or exchangeable by the registered owners thereof upon surrender of Bonds to the Paying Agent, accompanied by a written instrument or instruments in form, with instructions, and with guaranty of signature satisfactory to the Paying Agent, duly executed by the registered owner of such Bond or his attorney-in-fact or legal representative. The Paying Agent shall enter any transfer of ownership of Bonds in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered bond or bonds of authorized denominations of the same series, maturity and interest rate for the aggregate principal amount which the registered owner is entitled to receive. The School District and the Paying Agent may deem and treat the registered owner of any Bond as the absolute owner thereof (whether or not a Bond shall be overdue) for the purpose of receiving payment of or on account of principal and interest and for all other purposes, and the School District and the Paying Agent shall not be affected by any notice to the contrary.
The School District and the Paying Agent shall not be required (a) to register the transfer of or exchange any Bonds then selection of Bonds to be redeemed and ending at the close of business on the day on which the applicable notice of redemption is mailed or (b) to register the transfer of or exchange any portion of any Bond selected for redemption until after the redemption date. Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity and interest rate.
REDEMPTION OF BONDS
Mandatory Redemption
Bidders may elect to structure the issue to include term bonds, which term bonds, if selected by the bidder, will be subject to mandatory sinking fund redemptions prior to maturity, in the years and amounts as shown in the Invitation to Bid, upon payment of 100% of the principal amount of Bonds to be redeemed, together with accrued interest to the date fixed for redemption, or upon maturity, as applicable. Term bonds to be redeemed shall be selected by lot by the Paying Agent.
In lieu of such mandatory redemption, the Paying Agent, on behalf of the School District, may purchase from money in the Sinking Fund, at a price not to exceed the principal amount plus accrued interest, or the School District may tender to the Paying Agent, all or part of the Bonds subject to being drawn for redemption in any such year.
In the case of any prior, optional redemption in part of a Bond that is subject to future mandatory redemption pursuant to the operation of the Mandatory Sinking Fund, the School District shall be entitled to designate whether the principal amount of such Bond redeemed upon optional redemption shall be credited against the principal amount of such Bond to be paid by the School District at the stated maturity of such Bond or credited against the principal amount of such Bond scheduled to be called for mandatory sinking fund redemption on any particular date or dates, in each case in an integral multiple of $5,000 principal amount.
Optional Redemption – 2013 Bonds
The 2013 Bonds stated to mature on or after September 1, 2018, shall be subject to redemption prior to maturity, at the option of the School District, as a whole, on March 1, 2018, or on any date thereafter, or from time to time, in part (and if in part, in any order of maturity as selected by the School District and within a maturity by lot), in either case upon payment of a redemption price of 100% of the principal amount of such 2013 Bonds, together with accrued interest to the redemption date.
Optional Redemption – 2013A Bonds
The 2013A Bonds stated to mature on or after September 1, 2025, shall be subject to redemption prior to maturity, at the option of the School District, as a whole, on March 1, 2018, or on any date thereafter, or from time to time, in part (and if in part, in any order of maturity as selected by the School District and within a maturity by lot), in either case upon payment of a redemption price of 100% of the principal amount of such 2013A Bonds, together with accrued interest to the redemption date.
3
Notice of Redemption
So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, the School District and the Paying Agent shall send redemption notices only to Cede & Co. See “BOOK-ENTRY ONLY SYSTEM” herein for further information regarding conveyance of notices to Beneficial Owners.
Notice of any redemption of certificated Bonds shall be given by depositing a copy of the redemption notice by first class mail not less than thirty (30) days prior to the date fixed for redemption addressed to each of the registered owners of Bonds to be redeemed, in whole or in part, at the addresses shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof, shall not affect the validity of any proceeding for redemption of other Bonds called for redemption as to which proper notice has been given.
On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and accrued interest being held by the Paying Agent, interest on the Bonds or portions thereof so called for redemption shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect to such Bonds, except to receive payment of the principal of and accrued interest on such Bonds to the date fixed for redemption.
If at the time of mailing of a notice of redemption the School District shall not have deposited with the Paying Agent, as sinking fund depositary, money sufficient to redeem all Bonds called for redemption, the notice of redemption may state that it is conditional, i.e., that it is subject to the deposit of sufficient redemption money with the Paying Agent not later than the opening of business on the redemption date, and such notice shall be of no effect unless such money is so deposited. If the Bonds to be called for redemption shall have been refunded, money sufficient to redeem such Bonds shall be deemed to be on deposit with the Paying Agent for the purposes of this paragraph and the notice of redemption need not state that it is conditional, if the redemption money has been deposited irrevocably with another bank or bank and trust company which shall have been given irrevocable instructions to transfer the same to the Paying Agent not later than the opening of business on the redemption date.
Manner of Redemption
So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payment of the redemption price shall be made to Cede & Co. in accordance with the existing arrangements by and among the School District, the Paying Agent and DTC and, if less than all Bonds of any particular series and maturity are to be redeemed, the amount of the interest of each DTC Participant, Indirect Participant and Beneficial Owner in such Bonds to be redeemed shall be determined by the governing arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. See “BOOK-ENTRY-ONLY SYSTEM” herein for further information regarding redemption of Bonds registered in the name of Cede & Co.
If a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing the number of Bonds that is equal to the principal amount thereof divided by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall be made only upon surrender of such Bond in exchange for Bonds of the same maturity and in authorized denominations in an aggregate principal amount equal to the unredeemed portion of the principal amount thereof.
If the redemption date for any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of the principal, premium, if any, and interest upon such redemption shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date of redemption.
4
SECURITY FOR THE BONDS
Pledge of the School District’s Full Faith, Credit and Taxing Power
The Bonds will be general obligations of the School District, payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, as hereinafter defined, or any other of its revenues or funds, the principal of each of the Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and taxing power, within the limits provided by law. (See “SCHOOL DISTRICT FINANCES” and “TAXING POWERS OF THE SCHOOL DISTRICT” herein). The Act presently provides for enforcement of debt service payments as hereinafter described (see "Defaults and Remedies" herein), and the Pennsylvania Public School Code presently provides for the withholding and application of subsidies in the event of failure to pay debt service (see "Commonwealth Enforcement of Debt Service Payments" below).
Sinking Funds
Sinking funds for the payment of debt service on the Bonds, designated “Sinking Fund, General Obligation Bonds, Series of 2013” and “Sinking Fund, General Obligation Bonds, Series A of 2013” (collectively, the “Sinking Funds”) have been created under the Resolution and will be maintained by the Paying Agent, as sinking fund depositary. The School District shall deposit in the Sinking Funds a sufficient sum not later than the date when interest and/or principal is to become due on the Bonds so that on each payment date the Sinking Funds will contain an amount which, together with any other funds available therein, is sufficient to pay, in full, interest and/or principal then due on the Bonds.
The Sinking Funds shall be held by the Paying Agent, as sinking fund depository, and invested by the Paying Agent in such securities or shall be deposited in such funds or accounts as are authorized by the Debt Act, upon direction of the School District. Such deposits and securities shall be in the name of the School District, but subject to withdrawal or collection only by the Paying Agent, as sinking funds depository, and such deposits and securities, together with the interest thereon, shall be a part of the Sinking Funds.
The Paying Agent, as sinking fund depository, is authorized without further order from the School District to pay from the Sinking Funds the principal of and interest on the Bonds, as and when due and payable.
Commonwealth Enforcement of Debt Service Payments
Section 633 of the Pennsylvania Public School Code of 1949, as amended (the “Public School Code”), presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness at date of maturity or date of mandatory redemption or on any sinking fund deposit date, or any interest due on such indebtedness on any interest payment date or on any sinking fund deposit date, in accordance with the schedule under which the bonds were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any Commonwealth appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, or sinking fund deposit due by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depository for such bond issue. These withholding provisions are not part of any contract with the holders of the Bonds, and may be amended or repealed by future legislation.
There can be no assurance, however, that any payments pursuant to this withholding provision will be made by the date on which such payments are due to the Bondholders. The effectiveness of Section 633 of the Public School Code may be limited by the application of other withholding provisions contained in the Public School Code, such as provisions for withholding and paying over of appropriations for payment of unpaid teachers’ salaries. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the enforcement of creditors’ rights generally.
5
BOOK-ENTRY ONLY SYSTEM
The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the “Issuer”) and the Underwriter do not guaranty the accuracy or completeness of such information, and such information is not to be construed as a representation of the School District or the Underwriter.
The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds (the "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 the Securities, in the aggregate principal amount of such issue, and will be deposited with DTC.
DTC the world's largest securities depository is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System. a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency'' registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 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.
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 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.
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.
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.
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.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 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 School District (the “Issuer”) as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
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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 Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Paying Agent, or Issuer, 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 Issuer or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to a Tender Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to Tender Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Securities to Tender Agent's DTC account.
DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
Issuer 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.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
NEITHER THE ISSUER NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY TO ANY BENEFICIAL OWNER BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER.
The Issuer and the Paying Agent cannot give any assurances that DTC or the Participants will distribute payments of the principal or redemption price of and interest on the Bonds paid to DTC or its nominee, as the registered owner of the Bonds, or any redemption or other notices, to the Beneficial Owners or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Preliminary Official Statement.
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THE SCHOOL DISTRICT
Introduction
The School District is a school district of the fourth class under the laws of the Commonwealth. The Northern Potter School District is located in North Central Pennsylvania. It is the northern part of Potter County and is bordered on the north by the New York state line. The School District includes the Townships of Genesee, Bingham, Harrison, Ulysses, and a portion of the townships of Allegany and Hector, and Ulysses Borough. The school district is very large geographically including 231 square miles. The area is very rural and is sparsely populated. It includes 4,800 residents and approximately 724 students. The area is particularly appealing to families who enjoy outdoor activities such as hunting, fishing, hiking, skiing, snowmobiling, and camping. The economy of the area is mainly comprised of farming, family-owned businesses, and some light industry.
Administration
The School District is governed by a nine-member Board of School Directors (the “School Board”), elected for four-year terms. The Superintendent is the chief administrative officer of the School District, with overall responsibility for the entire educational program. The Business Manager, under the supervision of the Superintendent, is responsible for budget and financial operations. Both of these officials are appointed by the School Board.
School Facilities
The School District presently operates one elementary school and a junior/senior high school, all as described on the following table.
TABLE 1
NORTHERN POTTER SCHOOL DISTRICT SCHOOL FACILITIES
Original Addition/ Rated Construction Renovation Pupil 2012-13 Building Date Date Grades Capacity Enrollment Elementary: Northern Potter Children’s School ...... 1975 --- K-6 735 301 Secondary: Northern Potter Junior Senior High ...... 1957 1967, 1994 6-8 572 241
Source: School District Officials.
Enrollment Trends
The following table presents recent trends in school enrollment and projections of enrollment for over the next five years, as prepared by School District officials. The table shows a trend of decreasing enrollments.
TABLE 2
NORTHERN POTTER SCHOOL DISTRICT ENROLLMENT TRENDS
Actual Enrollments Projected Enrollments School School Year Elementary Secondary Total Year Elementary Secondary Total 2008-09 325 310 635 2013-14 212 289 501 2009-10 324 269 593 2014-15 205 281 486 2010-11 311 273 584 2015-16 205 289 494 2011-12 260 247 507 2016-17 200 289 489 2012-13 301 241 542 2017-18 200 289 489 Source: School District Officials.
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SCHOOL DISTRICT FINANCES
Introduction
The School District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and Business Manager and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1.
Financial Reporting
The financial statements of the School District are prepared in accordance with accounting principles generally accepted in the United States of America. The School District’s reporting entity applies all relevant Governmental Accounting Standards Board (GASB) pronouncements. The government-wide and proprietary fund financial statements apply Financial Accounting Standards Board pronouncements and Accounting Principles Board opinions issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, in which case GASB prevails. The government wide statements report using the economic resources measurement focus and the accrual basis of accounting generally, including the reclassification or elimination of internal activity (between or within funds). The firm of Buffamante Whipple Buttafaro, P.C., Certified Public Accountants, Olean, New York, serves as School District auditor.
The School District’s auditor has not been engaged to perform, and has not performed, since the date of its report included in an Appendix to this Preliminary Official Statement, any procedure on the financial statements addressed in that report. Such auditor also has not performed any procedures relating to this Preliminary Official Statement.
Budgeting Process in School Districts under the Taxpayer Relief Act
In General. School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by school district administrative officials on a uniform form furnished by such Department and submitted to the board of school directors for approval prior to the beginning of the fiscal year on July 1.
Procedures for Adoption of the Annual Budget. Under the Taxpayer Relief Act, all school districts of the first class A, second class, third class and fourth class (except as described below) must adopt a preliminary budget proposal (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the election immediately preceding the fiscal year. The preliminary budget proposal must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days’ public notice of its intent to adopt the final budget.
If the adopted preliminary budget includes an increase in the rate of any tax levy, the preliminary budget must be submitted to the Pennsylvania Department of Education (PDE) no later than 85 days prior to the date of the election immediately preceding the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district’s Index (see “The Taxpayer Relief Act” herein) and within 10 days, but not later than 75 days prior to the upcoming election, inform the school district whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter approval for the tax increase at the upcoming election, or seek approval to utilize one of the referendum exceptions authorized under The Taxpayer Relief Act.
With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which PDE approval is required (see “The Taxpayer Relief Act” herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE is required by the Taxpayer Relief Act to rule on the school district’s request and inform the school district of its decision no later than 55 days prior to the upcoming election so that, if PDE denies the school district’s request, the school district may submit a referendum question to the local election officials at least 50 days before the upcoming election, if it so chooses.
If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index.
Simplified Procedures in Certain Cases. The above budgetary procedures will not apply to a school district if the board of school directors adopts a resolution no later than 110 days prior to the election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days’ public notice be given of the board’s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution.
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Summary and Discussion of Financial Results
A summary of the General Fund balance sheet and changes in fund balances is presented in Tables 3 and 4. Table 5 shows a summary of the revenues and expenditures for the last five years and the 2012-13 Budget. The 2012-13 Budget is projecting a balanced budget of revenue and expenditures in the amount of $8,912,631.
TABLE 3 NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET (Years ending June 30)
ASSETS 2008 2009 2010 2011 2012 Cash and Cash Equivalents ...... $1,389,044 $896,778 $1,553,368 $1,573,128 $1,772,241 Taxes Receivable (Net) ...... 364,299 317,524 298,523 292,970 234,736 Due from Other Funds ...... 330,853 496,007 274,180 0 272,441 Due from Other Governments .. 698,996 631,426 661,854 569,900 333,193 Inventories ...... 41,113 41,113 41,114 0 41,113 Prepaid Expenses/Expenditures 0 0 0 0 1,951 TOTAL ASSETS ...... $2,824,305 $2,382,848 $2,829,039 $2,435,998 $2,655,675
LIABILITIES Due to Other Funds ...... $626,653 $6,902 $0 $0 $0 Accounts Payable ...... 216,802 166,528 524,454 241,217 283,974 Accrued Salaries and Benefits .. 451,266 609,928 520,431 466,060 475,871 Deferred Revenues ...... 711,493 524,884 440,543 258,817 195,712 TOTAL LIABILITIES ...... $2,006,214 $1,308,242 $1,485,428 $966,094 $955,557 FUND EQUITIES Non-spendable Fund Balance ... $41,113 $41,113 $41,113 $41,113 $41,113 Committed Fund Balance ...... 192,716 126,130 16,960 0 569,038 Assigned Fund Balance ...... 918,416 669,537 569,038 569,038 285,094 Unassigned Fund Balance ...... -334,154 237,826 716,500 859,753 805,003 TOTAL FUND EQUITIES $818,091 $1,074,606 $1,343,611 $1,469,904 $1,700,248 TOTAL LIABILITIES AND FUND EQUITIES ..... $2,824,305 $2,382,848 $2,829,039 $2,435,998 $2,655,805
Source: School District Annual Financial Reports.
TABLE 4 NORTHERN POTTER SCHOOL DISTRICT GENERAL FUND SUMMARY OF CHANGES IN FUND BALANCE* (Years ending June 30)*
Actual Budget 2008 2009 2010 2011 2012 2013 (1) Beginning Fund Balance ...... $885,576 $818,091 $1,074,605 $1,343,609 $1,468,655 $1,700,248 Revenues over (under) Expenditure (67,485) 256,514 269,004 125,046 230,344 0 Prior Period Adjustment ...... 0 0 0 0 1,249 0 Ending Fund Balance ...... $818,091 $1,074,605 $1,343,609 $1,468,655 $1,700,248 $1,700,248
*Totals may not add due to rounding. (1)Budget, as adopted June 11, 2012. Source: School District Annual Financial Reports and Budget.
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Revenue
The School District received $9,009,416 in revenue in 2011-12 and has budgeted revenue of $8,912,631 in 2012-13. Local sources increased as a share of revenue in the past five years from 22.5 percent in 2008-09 to 29.0 percent in 2011-12. Revenue from Commonwealth sources increased as a share of revenue from 45.1 percent to 66.4 percent over this period. Federal and other sources increased as a share of revenue from 1.5 percent to 4.6 percent over this period.
TABLE 5 NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND REVENUES * (For years ending June 30)
REVENUES: Actual Budgeted Local Sources: 2008 2009 2010 2011 2012 2013(1) Real Estate Taxes ...... $1,956,500 $1,772,152 $1,791,867 $1,851,399 $1,862,759 $1,921,027 Public Utility Realty Tax...... 6,796 0 3,496 3,405 3,494 $3,490 Total Act 511 Taxes ...... 325,085 292,724 342,671 323,852 283,283 332,700 Per Capita (Sec. 679) Taxes ...... 9,834 20,196 9,958 10,211 10,115 9,750 Payments in Lieu of Current Taxes ...... 22,460 22,460 22,460 22,460 22,460 22,460 Delinquency on Taxes Levied ...... 241,999 253,658 270,805 202,302 199,745 227,000 Earnings from Investments ...... 35,487 18,135 2,584 2,276 1,721 2,516 Receipts from Other LEAS in PA - Education ...... 4,003 4,114 311,322 0 42,485 0 Federal IDEA Pass Through Revenue ...... 0 30,225 0 86,426 92,798 0 Refund of Prior Years' Expenditures ...... 12,856 2,739 2,101 0 43,120 0 Federal ARRA IDEA Pass Through Revenue ...... 0 0 0 0 25,536 0 Contributions and Donations from Private Sources 0 0 0 15,550 4,986 0 Rentals ...... 1,083 990 956 307 0 850 Tuition from Patrons ...... 428,901 540,012 1,545 1,135 0 7,600 Other Sources ...... 29,287 18,062 13,867 73,159 18,620 10,000 Total Local Sources ...... $3,074,291 $2,975,467 $2,773,632 $2,592,483 $2,611,122 $2,537,393 State Sources: Basic Instructional Subsidy ...... $4,001,293 $4,121,331 $3,705,684 $3,513,853 $4,121,331 $4,121,752 Charter Schools ...... 39,015 42,412 31,621 21,501 0 0 Tuition for Orphans & Children in Private Homes . 21,782 21,832 23,188 0 1,030 0 Special Education ...... 417,074 415,146 425,063 422,302 421,381 422,302 Educational Assistance Program (Tutoring) ...... 32,121 42,410 38,129 38,705 0 0 Vocational Education ...... 34,299 0 0 44,275 34,884 39,231 Transportation ...... 508,793 453,855 491,618 457,911 424,558 417,500 Rentals and Sinking Fund Payments ...... 612,192 515,957 337,037 492,442 303,204 232,292 Health Services ...... 15,611 11,246 10,758 10,821 10,832 10,725 State Property Tax Reduction Allocation ...... 0 235,290 235,283 235,295 235,282 235,271 PA Accountability Grant ...... 158185 156,129 156,130 146,408 57,522 0 Revenue for Retirement ...... 155,166 99,672 99,580 128,482 196,608 268,483 Revenue for Social Security ...... 158,427 163,623 168,536 172,232 172,230 195,343 Extra Grants ...... 1,323 487 0 0 1,055 0 Other Sources ...... 392 101,944 49,687 630 350 600 Total State Sources ...... $6,155,673 $6,381,334 $5,772,312 $5,684,857 $5,980,267 $5,943,499 Federal Sources: Total Federal Sources ...... $204,687 $166,555 $1,205,640 $1,270,330 $418,027 $342,234 Other Sources: Total Other Sources...... $4,215,000 $14,463 $0 $0 $0 $89,505 TOTAL REVENUES ...... $13,649,651 $9,537,819 $9,751,584 $9,547,669 $9,009,416 $8,912,631
*Totals may not add due to rounding. (1)Budgeted, as adopted June 11, 2012. Source: School District Annual Financial Reports and Budget.
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TABLE 5 NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF SCHOOL DISTRICT GENERAL FUND EXPENDITURES * (For years ending June 30)
Actual Budgeted EXPENDITURES: 2008 2009 2010 2011 2012 2013(1) Instruction...... $5,403,965 $5,656,446 $5,761,196 $5,727,334 $5,267,675 $5,336,613 Pupil Personnel ...... 182,213 176,229 188,065 187,666 191,785 210,635 Instructional Staff ...... 270,414 255,947 250,989 268,701 267,905 238,354 Administration ...... 607,532 638,290 655,899 715,601 761,353 786,555 Pupil Health ...... 66,505 65,325 72,297 72,841 78,113 88,293 Business ...... 167,613 158,136 170,205 186,750 174,531 186,410 Operation and Maintenance ...... 737,607 708,147 706,698 686,308 687,273 707,965 Student Transportation ...... 655,461 718,997 709,793 651,355 528,215 623,314 Central & Other Support Services ...... 30,063 32,113 55,927 30,896 56,256 39,231 Other Support Services ...... 191,748 203,747 183,415 228,883 137,371 0 Fac. Acq., Const., and Impr...... 88,282 77,325 131,731 109,482 61,144 30,000 Operation of Non-instructional Services ...... 0 0 0 0 0 163,878 Debt Service ...... 0 0 558,455 556,738 560,793 468,883 Refund of Prior Year Receipts ...... 5,730 6,317 2,310 68 6,658 0 Fund Transfers ...... 621,380 12,795 35,600 0 0 6,500 Debt Service - Refunded Bond Issue ...... 4,688,623 571,491 0 0 0 0 Budgetary Reserve ...... 0 0 0 0 0 26,000 TOTAL EXPENDITURES ...... $13,717,136 $9,281,305 $9,482,580 $9,422,623 $8,779,072 $8,912,631
SURPLUS (DEFICIT) OF REVENUES OVER EXPENDITURES...... ($67,485) $256,514 $269,004 $125,046 $230,344 $0
*Totals may not add due to rounding. (1)Budgeted, as adopted June 11, 2012. Source: School District Annual Financial Reports and Budget.
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TAXING POWERS OF THE SCHOOL DISTRICT
Subject to certain limitations imposed by the Taxpayer Relief Act (described below), the School District is empowered by the School Code and other statutes to levy the following taxes:
1. A basic annual tax on all real property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes.
2. An unlimited ad valorem tax on the property taxable for school purposes to provide funds:
a. for minimum salaries and increments of the teaching and supervisory staff;
b. to pay rentals due any municipality authority or non-profit corporation or due the State Public School Building Authority;
c. to pay interest and principal on any indebtedness incurred pursuant to the Local Government Unit Debt Act, or any prior or subsequent act governing the incurrence of indebtedness of the school district; and
d. to pay for the amortization of a bond or note issue which provided a school building prior to the first Monday of July, 1959.
3. An annual per capita tax on each resident or inhabitant over 18 years of age of not less than $1.00 and not more than $10.00.
4. Additional taxes subject to division with other political subdivisions authorized to levy similar taxes on the same person, subject, business, transaction or privilege, under Act No. 511, enacted December 31, 1965, as amended (“The Local Tax Enabling Act”). These taxes, which may include, among others, an additional per capita tax, a wage and other earned income tax, a real estate transfer tax, a gross receipts tax, a local services tax and an occupation tax, shall not exceed, in the aggregate, an amount equal to the product of the market valuation of real estate in the School District (as certified by the State Tax Equalization Board of the Commonwealth – “STEB”) multiplied by twelve mills. All local taxing authorities are required by the Local Tax Enabling Act to exempt disabled veterans and members of the armed forces reserve who are called to active duty at any time during the tax year from any local services tax and to exempt from any local services tax levied at a rate in excess of $10 those persons whose total income and net profits from all sources within the political subdivision is less than $12,000 for the tax year. The Local Tax Enabling Act also authorizes, but does not require, taxing authorities to exempt from per capita, occupation, and earned income taxes and any local services tax levied at a rate of $10 or less per year, any person whose total income from all sources is less than $12,000 per year.
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The Taxpayer Relief Act
Under the Pennsylvania Act No. 1 of the Special Session of 2006, as amended by Act 25 of 2011 (the “Taxpayer Relief Act” of “Act 1”), a school district may not levy any new tax for the support of the public schools or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions summarized below is applicable and the use of such exception is approved by the Pennsylvania Department of Education (PDE):
1. to pay interest and principal on indebtedness originally incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004, or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 of 2004; to pay interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves; 2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and 3. to make payments into the State Public School Employees’ Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1. Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by PDE. If a school district’s petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum.
The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio.
The Act 1 Index applicable to the School District in the current and prior fiscal years are as follows:
Fiscal Year Index 2008-09 6.3% 2009-10 5.9% 2010-11 4.1% 2011-12 2.0% 2012-13 2.4%
In accordance with Act 1, the School District placed a referendum question on the May 15, 2007, primary election ballot seeking voter approval to levy (or increase the rate of) the earned income and net profits tax (“EIT”) or a new personal income tax (“PIT”) and use the proceeds to reduce local real estate taxes by a homestead and farmstead exclusion. The referendum was NOT approved by the voters.
A board of school directors may submit, but is not required to submit, a referendum question to the voters at the municipal election on any later year seeking approval to levy or increase the rate of an EIT or impose PIT for the purpose of funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate that is required to provide the maximum homestead and farmstead exclusions allowable under law.
The information set forth above is a summary of the Taxpayer Relief Act. This summary is not intended to be an exhaustive discussion of the provisions of the Taxpayer Relief Act nor a legal interpretation of any provision of the Taxpayer Relief Act and a prospective purchaser of the Bonds should review the full text of the Taxpayer Relief Act as a part of any decision to purchase the Bonds.
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Status of the 2013 Bonds Under Act 1
The 2008 Bonds being refunded by the 2013 Bonds represent debt that was originally approved (“incurred”) by the School Board prior to the effective date of Act 1. The School Board previously elected not to become subject to the provisions of former Act 72 of 2004 (“Act 72”) (Act 72 was repealed by Act 1) which, like Act 1, limited the power of the board to increase taxes above a formula index. Consequently, the School District believes it would be entitled by Act 1 to apply to the Pennsylvania Department of Education (PDE) for approval to utilize an Act 1 referendum exception, if and to the extent a tax increase greater than the Index is needed to pay the principal and interest on the 2013 Bonds in any particular fiscal year (see “The Taxpayer Relief Act” and “Budgeting Process in School Districts under the Taxpayer Relief Act” herein). Act 1 provides that PDE shall approve a school district’s request if a review of the data demonstrates that the school district qualifies for the exception sought and the sum of the dollar amounts of all exceptions for which the school district qualifies is not more than what is necessary to balance the budget after giving effect to the revenue to be raised by the allowable tax increase under the Index. There can be no assurance, however, that approval will be given by PDE to utilize a referendum exception in any future fiscal year or years.
The 2013A Bonds are Not Eligible for Act 1 Exception
The 2013A Bonds do not qualify for an exception to the Index and referendum requirement for debt incurred prior to the effective date of Act 1 (or its predecessor statute Act 72). The School District must include any tax increases to pay debt service due on the 2013A Bonds within the Index applicable in each Fiscal Year.
Limitation on Estimated Ending Unassigned Fund Balances
Pennsylvania Act No. 2003-48 (enacted December 23, 2003) prohibits a school district from increasing real property taxes unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below:
Estimated Ending Unassigned Fund Balance Total Budgeted Expenditures as a Percentage of Total Budgeted Expenditures Less than or equal to $11,999,999 12.0%* Between $12,000,000 and $12,999,999 11.5% Between $13,000,000 and $13,999,999 11.0% Between $14,000,000 and $14,999,999 10.5% Between $15,000,000 and $15,999,999 10.0% Between $16,000,000 and $16,999,999 9.5% Between $17,000,000 and $17,999,999 9.0% Between $18,000,000 and $18,999,999 8.5% Greater than or equal to $19,000,000 8.0%
“Estimated Ending Unassigned Fund Balance” is defined in Act 2003-48 as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district’s budget was adopted and held in the general fund accounts of the school district. The School District’s estimated ending unreserved undesignated fund balance as a percentage of total budgeted expenditures for the 2012-13 budget is shown on Page 9 herein under “Summary and Discussion of Financial Results”.
*Applies to the School District.
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Tax Levy Trends
Table 6 shows the recent trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District and Potter County and the municipalities within the School District.
TABLE 6 NORTHERN POTTER SCHOOL DISTRICT TAX RATES
Real Estate Real Estate Occupation Earned Income Potter County Per Capita(1) Transfer Taxes Tax Year (mills) ($) (%) (mills) (%) 2008-09 28.798 10.00 0.50 500 0.50 2009-10 28.798 10.00 0.50 500 0.50 2010-11 28.798 10.00 0.50 500 0.50 2011-12 29.489 10.00 0.50 500 0.50 2012-13 29.489 10.00 0.50 500 0.50
(1)$5.00 under Section 679 and $5.00 under Act 511. Source: Pennsylvania Department of Community and Economic Development – Municipal Statistics.
TABLE 7 NORTHERN POTTER SCHOOL DISTRICT COMPARATIVE REAL PROPERTY TAX RATES (Mills on Assessed Value)
2008-09 2009-10 2010-11 2011-12 2012-13 School District ...... 28.798 28.798 28.798 29.489 29.489 Allegany Township ...... 4.000 4.000 5.000 4.750 4.750 Bingham Township ...... 3.500 3.500 3.500 3.500 3.500 Genesee Township ...... 2.125 2.627 2.627 2.627 4.000 Harrison Township ...... 3.250 3.250 3.250 3.250 3.250 Hector Township ...... 3.000 3.000 3.000 3.000 3.000 Ulysses Borough ...... 7.385 7.395 7.680 7.690 7.690 Ulysses Township ...... 4.250 4.250 4.250 5.750 5.750 Potter County ...... 12.300 13.550 13.534 14.550 15.000
Source: Pennsylvania Department of Community and Economic Development – Municipal Statistics.
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Real Property Tax
The real property tax (excluding delinquent collections) will produced $1,862,759 in 2011-12, approximately 20.7% of total revenue. The School District fiscal year is from July 1 through June 30 and tax bills are issued on July 1 of each year. Taxpayers who remit within 60 days of July 1 receive a 2 percent discount, and those who remit subsequent to 120 days after July 1 are assessed a 10 percent penalty. The School District has implemented installment payments for qualified homestead/farmstead residential property owners beginning with fiscal year 2007-08 with first installment due July 31.
The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection data.
TABLE 8 NORTHERN POTTER SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA
Year Market Value Assessed Value Ratio 2007-08 ...... $179,243,100 $76,381,420 42.61% 2008-09 ...... 196,890,255 77,246,710 39.23% 2009-10 ...... 199,235,552 77,783,760 39.04% 2010-11 ...... 223,024,595 78,583,310 35.24% 2011-12 ...... 223,545,203 78,631,228 35.17% Compound Average Annual Percentage Change 4.52% 0.58%
Source: Pennsylvania State Tax Equalization Board.
TABLE 9 NORTHERN POTTER SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY
2010 2010 2011 2011 Market Value Assessed Value Market Value Assessed Value School District ...... $223,024,595 $ 78,583,310 $ 223,545,203 $78,631,228 Allegany Township ...... 22,576,960 7,203,260 22,698,317 7,228,980 Bingham Township ...... 35,458,410 12,200,260 35,418,545 12,187,370 Genesee Township ...... 37,811,050 13,807,950 37,909,728 13,793,810 Harrison Township ...... 44,951,861 16,837,220 44,904,772 16,814,970 Hector Township ...... 14,424,481 4,409,120 14,433,033 4,411,520 Ulysses Borough ...... 16,409,350 6,671,910 16,426,051 6,660,910 Ulysses Township ...... 51,392,484 17,453,590 51,754,758 17,533,668 Potter County ...... 983,329,023 336,408,050 1,009,171,541 391,068,408
Source: Pennsylvania State Tax Equalization Board.
TABLE 10 NORTHERN POTTER SCHOOL DISTRICT ASSESSMENT BY LAND USE
2007 2008 2009 2010 2011 Residential ...... $29,863,250 $21,179,320 $30,492,000 $30,780,940 $21,619,230 Lots ...... 812,300 826,410 838,760 826,550 831,350 Industrial ...... 677,420 677,420 677,420 677,420 677,420 Commercial ...... 3,031,100 3,019,890 2,837,970 2,891,130 2,889,610 Agriculture ...... 33,735,440 34,261,430 34,706,730 35,266,990 35,117,020 Land ...... 8,261,910 8,226,140 8,230,880 8,140,280 8,251,430 Trailers ...... 0 3,559,410 0 0 3,624,208 Seasonal ...... 0 5,496,690 0 0 5,620,960 Total ...... $76,381,420 $77,246,710 $77,783,760 $78,583,310 $78,631,228
Source: Pennsylvania State Tax Equalization Board.
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TABLE 11 NORTHERN POTTER SCHOOL DISTRICT REAL PROPERTY TAX COLLECTION DATA
Current Year Total Current Year Collections Collections Current Year Collections Plus as Percent Collections as Percent Delinquent of Adjusted Amount of Collections Adjusted Year Levy(1) (July-June) Adjusted Levy Amount(2) Levy 2007-08 $2,090,088 $1,861,547 89.07% $2,054,041 98.28% 2008-09 1,808,124 1,791,930 99.10% 2,036,404 112.63% 2009-10 2,029,757 1,862,144 91.74% 2,114,249 104.16% 2010-11 2,039,758 1,863,023 91.34% 2,055,830 100.79% 2011-12 1,953,720 1,933,857 98.98% 2,126,117 108.82% 2012-13 (budgeted) 1,921,024 1,921,024 100.00% 2,131,024 110.93%
(1)Flat billing plus additions less exonerations. (2)Includes delinquent realty taxes collected only. Source: School District officials.
The ten largest real property taxpayers, together with 2013 assessed values, are shown on Table 12. The aggregate assessed value of these ten taxpayers totals approximately 3.2 percent of total assessed value.
TABLE 12 NORTHERN POTTER SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS, 2013
2013 Assessed Owner Property Value Individual Individual $ 523,710 Manulife Insurance Co. Insurance 482,280 Headwaters Timber Co. Timber Industry 432,600 Individual Individual 303,420 Texas Timberland Ltd. Timber Industry 295,100 Four Winds Dairy LLC Farming 290,010 Headwaters Timber Co. Timber Industry 254940 CNG Transmission Corp. Natural Gas Industry 249,800 Individual Individual 220780 Hoopes Farming 209,490 Total $3,262,130
Source: School District officials.
Other Taxes
Under Act 511, the School District has collected $283,283 in other taxes in 2011-12. Among the taxes authorized by Act 511, the Real Estate Transfer Tax, Wage and Income Tax, and the Occupation Tax are levied by the School District. The Act 511 limit, equal to 12 mills on the market value of real property, was approximately $2,682,542.
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Commonwealth Aid to School Districts
Pennsylvania school districts receive financial assistance from the Commonwealth in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly.
A basic instructional subsidy is allocated to all school districts based on (1) the per pupil market value of assessable real property in the school district; (2) the per pupil earned income in the school district; and (3) the school district’s tax effort, as compared with the tax effort of other school districts in the Commonwealth. School districts also receive state aid for special education, pupil transportation, vocational education, health service and debt service.
Commonwealth law presently provides that the School District will receive reimbursement from the Commonwealth for a portion of debt service on the 2013 Bonds upon final approval of the Department of Education. Commonwealth reimbursement is based on the “Reimbursable Percentage” assigned to the 2013 Bonds and the School District’s Aid Ratio. The School District officials have estimated that the “Reimbursable Percentage” of the 2013 Bonds will be a maximum of 72.25 percent. The School District Aid Ratio for the 2012-13 school year is currently 74.24 percent. The product of these two factors is 53.64 percent which is the percentage of debt service which will be reimbursed by the Commonwealth. The 2013A Bonds are not subject to reimbursement by the Commonwealth. In future years, this percentage may change as the School District’s Aid Ratio changes, or as a result of future legislation. Aid Ratio is a function of the market value per weighted average daily membership of the School District relative to that of the Commonwealth.
DEBT AND DEBT LIMITS
Debt Statement
Table 13 shows the debt of the School District as of April 23, 2013, including the issuance of the Bonds.
TABLE 13 NORTHERN POTTER SCHOOL DISTRICT DEBT STATEMENT (As of April 23, 2013)*
Gross NONELECTORAL DEBT Outstanding General Obligation Bonds, Series A of 2013 (last maturity 2029) ...... $ 855,000 General Obligation Bonds, Series of 2013 (last maturity 2024) ...... 4,070,000 TOTAL NONELECTORAL DEBT...... $ 4,925,000
LEASE RENTAL DEBT $ 0 TOTAL LEASE RENTAL DEBT ...... $ 0 TOTAL PRINCIPAL OF DIRECT DEBT ...... $4,925,000
*Includes the estimated Bonds offered through this Preliminary Official Statement. Excludes the 2008 Bonds being refunded herein.
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Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Bonds, the principal of direct debt of the School District will total $4,925,000. After adjustment for available funds and estimated Commonwealth aid, the local effort of direct debt will total $2,741,917.
TABLE 14 NORTHERN POTTER SCHOOL DISTRICT BONDED INDEBTEDNESS AND DEBT RATIOS* (As of April 23, 2013)
Local Effort or Net of Available Funds Gross and Estimated Outstanding State Aid(1) DIRECT DEBT Nonelectoral Debt ...... $4,925,000 $2,741,917 Lease Rental Debt ...... 0 0 TOTAL DIRECT DEBT ...... $4,925,000 $2,741,917 OVERLAPPING DEBT Potter County, General Obligation(1) ...... $ 63,729 $ 63,729 Municipal Debt ...... 6,342,525 6,342,525 TOTAL OVERLAPPING DEBT...... $6,406,254 $6,406,254 TOTAL DIRECT AND OVERLAPPING DEBT ...... $11,331,254 $9,148,171
DEBT RATIOS Per Capita ...... $2,471.91 $1,995.67 2011-12 Percent Assessed Value ...... 14.41% 11.63% 2011-12 Percent Market Value ...... 5.07% 4.09%
*Includes the estimated Bonds offered through this Preliminary Official Statement. Excludes the 2008 Bonds being refunded herein. (1)Gives effect to current appropriations for payment of debt service and expected future State Reimbursement of School District sinking fund payments based on current Aid Ratio. See “Commonwealth Aid to School Districts”. (2)Pro rata 22.15 percent share of $287,698 principal outstanding.
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Debt Limit and Remaining Borrowing Capacity
The statutory borrowing limit of the School District under the Act is computed as a percentage of the School District’s “Borrowing Base”. The “Borrowing Base” is defined as the annual arithmetic average of total “Revenues” (as defined by the Act) for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows:
Total Revenues for 2009-10 ...... $9,414,547 Total Revenues for 2010-11 ...... 9,055,227 Total Revenues for 2011-12 ...... 8,706,212 Total ...... $27,175,986
Annual Arithmetic Average (Borrowing Base) ...... $9,058,662
Under the Act as presently in effect, no school district shall incur any nonelectoral debt or lease rental debt, if the aggregate net principal amount of such new debt, together with any other net nonelectoral debt and net lease rental debt then outstanding, would cause the net nonelectoral debt plus net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentage to the School District’s Borrowing Base produces the following product:
Remaining Legal Net Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral Debt and Lease Rental Debt Limit: 225% of Borrowing Base $ 20,381,990 $4,925,000 $15,456,990
*Includes the estimated Bonds offered through this Preliminary Official Statement. Excludes the 2008 Bonds being refunded herein. Does not reflect credits against gross indebtedness that may be claimed for a portion of principal of debt estimated to be reimbursed by Commonwealth aid.
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Debt Service Requirements
Table 15 presents the debt service requirements on the School District’s outstanding general obligation and lease rental indebtedness including debt service on the Bonds.
Table 16 presents data on the extent to which Commonwealth Aid provides coverage for debt service and lease rental requirements.
The School District has never defaulted on the payment of debt service.
TABLE 15 NORTHERN POTTER SCHOOL DISTRICT DEBT SERVICE REQUIREMENTS*
Series of Series A of 2013 2013 Total Year Principal Interest Subtotal Principal Interest Subtotal Requirements 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 Total
*Totals may not add due to rounding.
TABLE 16 NORTHERN POTTER SCHOOL DISTRICT COVERAGE OF DEBT SERVICE AND LEASE RENTAL REQUIREMENTS BY COMMONWEALTH AID*
2011-12 Commonwealth Aid Received ...... $5,980,267 2011-12 Debt Service Requirements ...... $560,793 Maximum Future Debt Service Requirements after Issuance of Bonds ...... Coverage of 2011-12 Debt Service Requirements ...... 10.66 times Coverage of Maximum Future Debt Service Requirements after Issuance of Bonds ...... times *Assumes current State Aid Ratio. See “Commonwealth Aid to School Districts.”
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Future Financing
The School District does not contemplate issuing additional long-term debt in the near future.
LABOR RELATIONS
School District Employees
There are presently 99 employees of the School District, including 56 teachers and administrators and support personnel. The support personnel include secretaries, custodial and maintenance personnel, cafeteria personnel, teacher’s aides, and business personnel.
The School District's teachers are represented by the Northern Potter Education Association, an affiliate of the Pennsylvania State Education Association, under a contract which expires on June 30, 2013.
Pension Program
School districts in Pennsylvania are required to participate in a statewide pension program administered by the State Public School Employees Retirement Board. All of the School District's full-time employees, part-time employees who work more than 80 days in a school year, and hourly employees who work over 500 hours a year participate in the program.
The PSERS Board of Trustees has set the fiscal year 2012-13 employer retirement contribution rate at 12.36 percent of payroll. Both the School District and the Commonwealth are responsible for paying a portion of the employer's share. Employers are divided into two groups; school entities and non-school entities. School entities are responsible for paying 100 percent of the employer share of contributions to PSERS. The Commonwealth reimburses the employer for approximately 60 percent of the payment for employees. School District payments for the past five (5) years have been as follows:
2008-09 ...... $ 99,672 2009-10 ...... 99,579 2010-11 ...... 128,481 2011-12 ...... 196,608 2012-13 (Budgeted) ...... 268,484
The School District is current in all payments. The PSERS complete report is available on the PSERS website on the Internet: www.psers.state.pa.us.
Source: PSERS – Financial Highlights.
Other Post-Employment Benefits
The School District is obligated under collective bargaining agreements to provide future health insurance coverage for current and future retired employees, and to provide retirement severance pay for existing employees. The School District has become subject to the requirements of GASB Statements No. 43 and 45 commencing with the School District’s annual financial statements for the fiscal year ending June 30, 2009. For a full description see “Appendix C- Audited Financial Statements – Note 9”.
LITIGATION
At the time of settlement, the President or Vice-President of the School Board and Solicitor of the School District, will deliver a certificate dated as of the date of delivery of and payment for the Bonds, certifying that there is no litigation pending which challenges the validity or enforceability of the Bonds; or in the event that such litigation is pending, a description of the nature of such litigation, together with an opinion of legal counsel approved by the School District, to the effect that such litigation is without legal merit.
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DEFAULTS AND REMEDIES
In the event of failure of the School District to pay or cause to be paid the interest on or principal of the Bonds, as the same becomes due and payable, the holders of the Bonds shall be entitled to certain remedies provided by the Act. Among the remedies, if the failure to pay shall continue for 30 days, holders of the Bonds shall have the right to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas. The Act provides that any judgment shall have an appropriate priority upon the funds next coming into the treasury of the School District. The Act also provides that upon a default of at least 30 days, holders of at least 25 percent of the Bonds may appoint a trustee to represent them. The Act provides certain other remedies in the event of default, and further qualifies the remedies hereinbefore described.
TAX EXEMPTION AND OTHER TAX MATTERS
Federal Income Tax Matters
On the date of delivery of the Bonds, Rhoads & Sinon LLP, Harrisburg, Pennsylvania, as Bond Counsel to the School District, will issue an opinion to the effect that under existing statutes, regulations and judicial decisions, interest on the Bonds is excludable from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although such interest is taken into account in determining adjusted current earnings of corporations (as defined for federal income tax purposes) for purposes of such alternative minimum tax. This opinion of Bond Counsel will assume the accuracy of representations made by the School District and will be subject to the condition that the School District will comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excluded from gross income for federal income tax purposes. See the proposed text of the opinion of Bond Counsel appended to this Preliminary Official Statement. The School District has covenanted to comply with all such requirements, which include, among others, restrictions upon the yield at which proceeds of the Bonds and other money held for the payment of the Bonds and deemed to be "proceeds" thereof may be invested and the requirement to calculate and rebate any arbitrage that may be generated with respect to investments allocable to the Bonds. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds.
Certain maturities of the Bonds may be sold to the public in the initial offering at a price less than the stated redemption price of such Bonds at maturity (that is, at less than par or the stated principal amount), the difference being “original issue discount”. Generally, original issue discount accruing on a tax-exempt obligation is treated as interest excludable from gross income for federal income tax purposes. In addition, original issue discount that has accrued on a tax-exempt obligation is treated as an adjustment to the issue price of the obligation for the purpose of determining taxable gain upon sale or other disposition of such obligation prior to maturity. The Internal Revenue Code of 1986, as amended, provides specific rules for the accrual of original issue discount on tax-exempt obligations for federal income tax purposes. Prospective purchasers of Bonds being sold with original issue discount should consult their tax advisors for further information.
Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain subchapter S corporations with substantial passive income and Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Bonds. Bond Counsel will express no opinion as to such collateral tax consequences, and prospective purchasers of the Bonds should consult their tax advisors.
No representation is made or can be made by the School District or any other party associated with the issuance of the Bonds as to whether or not any legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the Bonds to inclusion in gross income for Federal income tax purposes or so as to otherwise affect the marketability or market value of the Bonds. Enactment of any legislation that subjects the interest on the Bonds to inclusion in gross income for federal income tax purposes or otherwise imposes taxation on the Bonds or the interest paid thereon may have an adverse effect on the market value or marketability of the Bonds.
Proposed Changes in Federal Tax Laws
From time to time, there are Presidential proposals, proposals of various federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to herein or adversely affect the marketability or market value of the Bonds or otherwise prevent holders of the Bonds from realizing the full benefit of the tax exemption of interest on the Bonds. Further, such proposals may impact the marketability or market value of the Bonds simply by being proposed. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds would be impacted thereby.
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Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The disclosures and opinions expressed herein are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds, and no opinion is expressed as of any date subsequent thereto or with respect to any proposed or pending legislation, regulatory initiatives or litigation.
Pennsylvania Tax Matters
On the date of delivery of the Bonds, Bond Counsel will issue an opinion to the effect that under the laws of the Commonwealth of Pennsylvania (the “Commonwealth”) as presently enacted and construed, the Bonds are exempt from personal property taxes within the Commonwealth and the interest on the Bonds is exempt from the Commonwealth’s Personal Income Tax and the Commonwealth’s Corporate Net Income Tax. See the proposed text of the opinion of Bond Counsel appended to this Preliminary Official Statement.
Profits, gains or income derived from the sale, exchange or other disposition of the Bonds are subject to state and local taxation within the Commonwealth, in accordance with Pennsylvania Act No. 1993-68.
Certain maturities of the Bonds may be sold to the public in the initial offering at a price less than their stated redemption price at maturity (that is, at an “original issue discount”). For Pennsylvania Personal Income Tax purposes, original issue discount on publicly offered obligations is treated under current regulations of the Pennsylvania Department of Revenue as interest and, for purposes of determining taxable gain upon sale or other disposition of an obligation the interest on which is exempt from income taxation by the Commonwealth, as an adjustment to basis. For Pennsylvania Corporate Net Income Tax purposes, original issue discount is to be accorded similar treatment, according to a Private Letter Ruling issued by the Office of the Chief Counsel of the Pennsylvania Department of Revenue dated December 2, 1993, but such Private Letter ruling may be relied upon only by the taxpayer to whom it was addressed.
Prospective purchasers of Bonds issued with original issue discount should consult with their tax advisors for further information and advice concerning the reporting of profits, gains or other income related to a sale, exchange or other disposition of such Bonds for Pennsylvania tax purposes.
No representation is made or can be made by the School District, or any other party associated with the issuance of the Bonds, as to whether or not any legislation now or hereafter introduced and enacted in the Commonwealth will be applied, either prospectively or retroactively, so as to subject interest on such Bonds to taxation in the Commonwealth or so as to otherwise affect the marketability or market value of such bonds. Enactment of any legislation that subjects the interest on such bonds to state or local taxes in the Commonwealth or otherwise imposes taxation on such Bonds may have an adverse effect on the market value or marketability of such bonds.
Federal Income Tax Interest Expense Deductions for Financial Institutions
Under the Internal Revenue Code of 1986, as amended (the “Code”), financial institutions are disallowed 100 percent of their interest expense deductions that are allocable, by a formula, to tax-exempt obligations acquired after August 7, 1986. An exception, which reduces the amount of the disallowance, is provided for certain tax-exempt obligations that are designated or “deemed designated” by the issuer as “qualified tax-exempt obligations” under Section 265 of the Code.
Each of the Bonds has been designated, or is "deemed designated", as a "qualified tax-exempt obligation" for purposes and effect contemplated by Section 265 of the Code (concerning expenses and interest relating to tax-exempt income of certain financial institutions).
Financial institutions intending to purchase Bonds should consult with their professional tax advisors to determine the effect of the interest expense disallowance on their federal income tax liability.
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CONTINUING DISCLOSURE UNDERTAKING
In accordance with the requirement of Rule 15-c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission (the “SEC”), the School District (being an “obligated person” with respect to the bonds, within the meaning of the Rule), will agree to provide certain financial and operating information to the Municipal Rulemaking Board (the “MSRB”) in an electronic format as prescribed by the MSRB, either directly or indirectly through a designated agent as set forth in its Continuing Disclosure Agreement, substantially in the form attached hereto as Appendix C.
With respect to the filing of annual financial and operating information, the School District reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information to the extent necessary or appropriate as a result of a change in legal requirements or a change in the nature of the School District or it operations or financial reporting, but the School District will agree that any such modification will be done in a manner consistent with the Rule.
The School District is required to give notice of certain events as set forth in Section 6 the Continuing Disclosure Agreement (not all of which will be relevant to the School District). The School District may from time to time choose to file notice of other events in addition to those specified in the Continuing Disclosure Agreement, but does not commit to provide notice of the occurrence of any events except those specifically listed in Section 6 of the Continuing Disclosure Agreement.
The School District acknowledges that its undertaking pursuant to the Rule described herein and in the Continuing Disclosure Agreement is intended to be for the benefit of the holders and beneficial owners of the Bonds and shall be enforceable by the older and beneficial owner of the Bonds, but the right of the holders and beneficial owners of the Bonds to enforce the provisions of the School District’s continuing disclosure undertaking shall be limited to a right to obtain specific enforcement, and any failure by the School District to comply with the provisions of the undertaking shall not be an event of default with respect to the Bonds.
The School District’s obligations with respect to continuing disclosure described herein shall terminate upon the prior redemption or payment in full of all of the Bonds or if and when the School District is no longer an “obligated person” with respect to the Bonds, within the meaning of the Rule.
The MSRB has been designated by the SEC to be the central and sole repository for continuing disclosure information filed by issuers of municipal securities since July 1, 2009. Information and notices filed by municipal issuers (and other defined “obligated persons”) with respect to municipal securities issues) are made available through the MSRB’s Electronic Municipal Market Access (EMMA) System, which may be access on the internet at http://www.emma.msrb.org.
RATINGS
Standard & Poor’s Ratings Group has assigned its municipal bond rating of “__” to the Bonds and has done so with the understanding that upon delivery of the Bonds, a municipal bond insurance policy with respect to the Bonds will be issued by __ . Standard & Poor’s Ratings Group has assigned an underlying rating of “__ ” to the Bonds. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: 55 Water Street, New York, New York 10041-0003. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds.
UNDERWRITING
The Underwriter has agreed to purchase the Bonds from the School District, subject to certain conditions precedent, and will purchase all of the Bonds if any of such Bonds are purchased. The Bonds will be purchased for a purchase price of $ , equal to the par value of the Bonds less an underwriters’ discount of $ plus a net original issue premium of $ .
LEGAL OPINION
The Bonds are offered subject to the receipt of the unqualified approving legal opinion of Rhoads & Sinon LLP, of Harrisburg, Pennsylvania, Bond Counsel to the School District. Certain legal matters will be passed upon for the School District by Cox, Stokes & Lantz, P.C., of Wellsboro, Pennsylvania, Solicitor to the School District.
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FINANCIAL ADVISOR
The School District has retained Public Financial Management, Inc., Harrisburg, Pennsylvania, as financial advisor (the “Financial Advisor”) in connection with the preparation, authorization and issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Preliminary Official Statement. Public Financial Management, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.
MISCELLANEOUS
This Preliminary Official Statement has been prepared under the direction of the School District by Public Financial Management, Inc., Harrisburg, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Preliminary Official Statement has been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Bonds, the Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Preliminary Official Statement is not to be construed as a contract with holders of the Bonds. The School District has authorized the distribution of this Preliminary Official Statement.
NORTHERN POTTER SCHOOL DISTRICT Potter County, Pennsylvania
By: David Smoker President, Board of School Directors
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APPENDIX A Demographic and Economic Information Relating to the Northern Potter School District
Population
Table A-1 which follows shows recent population trends for the School District, Potter County and the Commonwealth. Table A-2 shows 2010 age composition and average number of persons per household in Potter County and for the Commonwealth. Average household size for Potter County was lower than the statewide average.
TABLE A-1 RECENT POPULATION TRENDS
Compound Average Annual Percentage Change 2000 2010 2000-2010 School District ...... 4,799 4,584 -0.46% Potter County ...... 18,080 17,457 -0.35% Pennsylvania ...... 12,281,054 12,702,379 0.34% Source: U.S. Bureau of the Census, and the Pennsylvania State Data Center-2000 & 2010 General Housing Characteristics: Pennsylvania.
TABLE A-2 AGE COMPOSITION
0-17 18-64 65+ Persons Per Years Years Years Household Potter County ...... 22.3 58.2 19.5 2.39 Pennsylvania ...... 22.0 62.6 15.4 2.45 Source: U.S. Bureau of the Census, 2010 Census Summary File 1.
A-1
Employment
Overall employment data are not compiled for the School District or the municipalities, but such data are compiled for the County and the PA Labor Market Area (“LMA”).
Table A-3 shows the distribution of employment for the Counties and the LMA for March 2013.
TABLE A-3 DISTRIBUTION OF EMPLOYMENT BY INDUSTRY
ESTABLISHMENT DATA Industry Employment Net Change From: March February January March February March 2013 2013 2013 2012 2013 2012 Total Farm...... 5,800 5,800 5,700 5,600 0 200 Total Private ...... 4,600 4,600 4,600 4,500 0 100 Goods-Producing ...... 1,200 1,200 1,200 1,000 0 200 Manufacturing...... 700 700 700 700 0 0 Service-Providing ...... 4,600 4,600 4,500 4,600 0 0 Trade, Transportation, and Utilities 1,100 1,100 1,100 1,100 0 0 Trade ...... 700 700 800 700 0 0 Information ...... 300 300 300 400 0 -100 Educational and Health Services .... 1,000 1,000 1,000 1,000 0 0 Government ...... 1,200 1,200 1,100 1,100 0 100 Local Government ...... 1,000 1,000 900 900 0 100 Data benchmarked to March 2012 ***Data changes of 100 may be due to rounding***
Source: Pennsylvania State Employment Service.
Table A-4 shows recent trends in employment and unemployment for the Counties and the Commonwealth.
TABLE A-4 RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Compound Average Annual % 2008 2009 2010 2011 2012 2013(1) Rate Potter County Civilian Labor Force (000) . 7.8 7.7 7.9 7.9 7.9 8.0 0.24% Employment (000) ...... 7.2 6.9 7.1 7.2 7.2 7.2 0.00% Unemployment (000) ...... 0.6 0.8 0.8 0.7 0.7 0.8 2.55% Unemployment Rate ...... 7.2 11.0 10.3 9.1 9.1 9.7 Pennsylvania Civilian Labor Force (000) . 6,395.0 6,383.0 6,340.0 6,386.0 6,487.0 6,508.0 0.06% Employment (000) ...... 6,051.0 5,870.0 5,791.0 5,879.0 5,973.0 5,995.0 0.07% Unemployment (000) ...... 344.0 514.0 549.0 507.0 513.0 512.0 -0.04% Unemployment Rate ...... 5.4 8.0 8.7 7.9 7.9 7.9
(1)As of March 2013. Source: Pennsylvania State Employment Service.
A-2
The larger employers located within Potter County include:
Name Product or Service Charles Cole Memorial Hospital Health Services Morgan Compressors Inc. Manufacturing Cole Care Inc. Wholesale Trade Level 3 Communications LLC Information Admin/Support, Waste Management/ Empereon Marketing LLC Remediation Services Sweden Valley Manor Health Services Northern Potter School District Education Truck-Lite Co Inc. Manufacturing Coudersport Area School District Education Gas Field Specialists Inc. Construction
Source: Center for Workforce Information & Analysis – 4th Quarter 2011.
Income
The data on Table A-5 shows recent trends in per capita income for the School District, the Counties and Pennsylvania over the 2000-2010 period. Per capita incomes in the School District and in the County are somewhat lower than average per capita income in the Commonwealth.
TABLE A-5 RECENT TRENDS IN PER CAPITA INCOME*
Compound Average Annual Percentage Change 2000 2010 2000-2010 School District ...... 14,151 19,504 3.26% Potter County ...... 16,070 20,594 2.51% Pennsylvania ...... 20,880 27,049 2.62%
*Income is defined by the Bureau of the Census as the sum of wage and salary income, non-farm self-employment income, net self-employment income, Social Security and Railroad retirement income, public assistance income, interest, dividends, pensions, etc. before deductions for personal income taxes, Social Security, etc. Income is the population-weighted average for political subdivisions. Source: U.S. Census Bureau
Commercial Activity
Table A-6 shows retail sales for the years 2009 through 2013 for the Counties and the Commonwealth.
TABLE A-6 TOTAL RETAIL SALES (000)
2009 2010 2011 2012 2013 Potter County ...... 112,637 114,088 122,850 121,031 236,020 Pennsylvania ...... 180,948,327 174,483,292 188,193,104 188,149,727 187,412,600
Source: Sales and Marketing Management Magazine
A-3
Transportation
There are 111 miles of Federal Roads and 334 miles of State Roads in Potter County. There are also 634 miles of Township/Borough secondary roads in Potter County. Cherry Springs Airport is located within Potter County on PA 44.
Education
Seneca Highlands Area Vocational Technical School offers secondary and adult students an assortment of certificated and non-certificated programs. Seneca Highlands Area Vocational Technical School is operated by Intermediate Unit 9 of the Pennsylvania Public School System. There are no colleges located in Potter County. However, within a 75 mile radius of the School District are Mansfield University, the University of Pittsburgh at Bradford, Jamestown Community College in Olean, New York, Alfred State College and Alfred University both located in Alfred, New York, St. Bonaventure University in Allegany, New York, and Pennsylvania College of Technology – North Campus in Wellsboro, Pennsylvania.
Recreation
The School District is surrounded by mountains, rolling hills, valleys and unspoiled wilderness. Located within Potter County are eight state park and many acres of state forest and gamelands. These parks include: Cherry Springs State Park, Denton Hill State Park, Lyman Run State Park, Ole Bull State Park, Patterson State Park, Prouty Place State Park, Sinnemahoning State Park (partially located within Cameron County) and Sizerville State Park (also partially located within Cameron County).
Utilities
Telephone service in the School District is provided by Verizon; electric service is provided by Penelec - First Energy; gas service is provided by UGI Utilities Inc.; water and sewer service are provided by the Ulyssess Borough.
A-4
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APPENDIX B Form of Bond Counsel Opinion [Letterhead of Bond Counsel]
[Date of Closing]
Re: Northern Potter School District Potter County, Pennsylvania $______Aggregate Principal Amount General Obligation Bonds, Series __ of 2013 Dated [Date of Closing]
OPINION
We have acted as Bond Counsel for the sale and issuance of its General Obligation Bonds, Series __ of 2013, dated this date, in the aggregate principal amount of ______Dollars ($______) (the “Bonds”), by Northern Potter School District, in Potter County, Pennsylvania (the “School District”), a school district of the Commonwealth of Pennsylvania (the “Commonwealth”).
The Board of School Directors of the School District, by a resolution (the “Resolution”), has authorized and secured the issuance of the Bonds. The Resolution provides that the proceeds of the Bonds are to ______, and to pay related costs, all in accordance with the Local Government Unit Debt Act, 53 Pa.C.S. Chs. 80-82 (the “Debt Act”), of the Commonwealth.
The Resolution contains covenants of the School District to comply with the Internal Revenue Code of 1986, as amended (the “Code”), and applicable regulations promulgated thereunder, to preserve the Federal income tax exemption of the interest on the Bonds. The School District has taken appropriate action to qualify the Bonds as “qualified tax-exempt obligations,” as defined in Section 265(b)(3)(B) of the Code.
As Bond Counsel, we have examined, among other things: the proceedings related to the issuance and delivery of the Bonds, as filed with the Department of Community and Economic Development; an executed counterpart of the Resolution; a certificate of no litigation; a non- arbitrage and rebate compliance certificate of the School District; and usual closing certificates and documents. We have also examined the executed Bonds, and assume that the Bonds, and any separate Bonds that may, from time to time, be issued in exchange therefor, will at all times be issued in registered form as required by the Resolution.
As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify such facts by independent investigation.
884991.1 [Date of Closing] Page 2
Based on the foregoing, we are of the opinion that:
1. The Bonds are valid and binding general obligations of the School District enforceable in accordance with its terms.
2. The School District has covenanted, in the Resolution, to and with registered owners, from time to time, of the Bonds that shall be outstanding, from time to time, pursuant to the Resolution, that the School District: (i) shall include the amount of the debt service for the Bonds, for each fiscal year of the School District in which such sum is payable, in its budget for that year, (ii) shall appropriate such amounts from its general revenues for the payment of such debt service, and (iii) shall duly and punctually pay or cause to be paid from the sinking fund established under the Resolution or any other of its revenues or funds the principal of and interest on the Bonds at the dates and place and in the manner stated in the Bonds, according to the true intent and meaning thereof; and, for such budgeting, appropriation and payment, the School District has pledged, irrevocably, its full faith, credit, and taxing power. The School District has further covenanted in the Resolution that, to the extent funds are not available from other sources for the payment of the principal of, or interest on, the Bonds when due, it will issue Bonds or notes in an amount sufficient to provide for such payment and the School District has the power under the Debt Act, as currently in effect, to issue Bonds or notes for such purpose.
3. Under the laws of the Commonwealth as presently enacted and construed, the Bonds are exempt from personal property taxes in the Commonwealth and the interest on the Bonds is exempt from the Commonwealth’s Personal Income Tax and the Commonwealth’s Corporate Net Income Tax.
4. Assuming investment and application of the proceeds of the Bonds as set forth in the Resolution and the aforementioned non-arbitrage and rebate compliance certificate, the Bonds are not presently “arbitrage bonds” as described in Section 103(b)(2) and Section 148 of the Code and applicable regulations promulgated thereunder.
5. Under present statutes, regulations and judicial decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although it should be noted that in the case of corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. The opinions expressed in this paragraph are subject to the condition that the School District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, or continue to be, excluded from gross income for federal income tax purposes, as the School District has covenanted to do in the Resolution and other aforementioned documents. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income retroactive to the date of issuance of the Bonds.
6. Each of the Bonds is a “qualified tax-exempt obligation” for purposes and effect contemplated by Section 265 of the Code (relating to expenses and interest relating to tax-exempt income of certain financial institutions). The opinion expressed in the preceding sentence is subject to the condition that interest on the Bonds is, and continues to be, excluded from gross income for federal income tax purposes under the Code.
[Date of Closing] Page 3
We express no opinion regarding other federal tax consequences arising with respect to the Bonds.
It is to be understood that rights of holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors’ rights heretofore or hereafter enacted and that their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.
Very truly yours,
APPENDIX C Continuing Disclosure Certificate
CONTINUING DISCLOSURE CERTIFICATE
Re: NORTHERN POTTER SCHOOL DISTRICT, Potter County, Pennsylvania $______Aggregate Principal Amount General Obligation Bonds, Series __ of 2013 Dated ______
(Date of Closing)
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by NORTHERN POTTER SCHOOL DISTRICT, Potter County, Pennsylvania (the “School District”), in connection with the issuance of its General Obligation Bonds, Series ___ of 2013, dated ______(the “Bonds”). The Bonds are being issued pursuant to a Resolution duly adopted by the Board of School Directors of the School District (the “Resolution”). The School District makes the following certifications and representations as an inducement to the Participating Underwriters and others to purchase the Bonds:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the School District for the benefit of the holders 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 filed by the School District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Bondholder” shall mean any registered owner of the Bonds or any person who (i) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any of the Bonds (including persons holding through any nominee, securities depository or other intermediary) or (ii) is treated as the holder of any Bonds for federal income tax purposes.
“Business Day” shall mean a day other than a Saturday, a Sunday, or a day on which the New York Stock Exchange is closed or a day on which banks located in the Commonwealth are authorized or required by law or executive order to close.
“Commonwealth” shall mean the Commonwealth of Pennsylvania.
“Listed Events” shall mean any of the events listed in Section 6 of this Disclosure Certificate.
“MSRB” shall mean the Municipal Securities Rulemaking Board.
885004.1 “Official Statement” shall mean the final official statement relating to the Bonds prepared by or on behalf of the School District and distributed in connection with the offering and sale of the Bonds by the Participating Underwriters.
“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with the primary offering of the Bonds.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.
“SEC” shall mean the United States Securities and Exchange Commission.
SECTION 3. Filing of Annual Reports. The School District shall file with the MSRB within 270 days following the close of each of the School District’s fiscal years, beginning with its fiscal year ending June 30, 2013, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate.
The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, that if the audited financial statements of the School District for the most recent completed fiscal year are not available to be included in the Annual Report when filed, such audited financial statements may be filed separately from the balance of the Annual Report, as provided in the following paragraph.
If the audited financial statements of the School District for the most recent fiscal year are not available as of the date on which the Annual Report is to be filed, the audited financial statements shall be filed with the MSRB as soon as they are available, and the Annual Report, when filed, shall contain a statement to that effect and a statement of the date by which the School District reasonably expects the audited financial statements to become available and to be filed with the MSRB.
SECTION 4. Content of Annual Reports. The School District’s Annual Report shall contain or incorporate by reference the following financial information and operating data with respect to the School District:
financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units
a summary of the budget for the current fiscal year
the total assessed value and market value of all taxable real estate for the current fiscal year
the taxes and millage rates imposed for the current fiscal year
the real property tax collection results for the most recent fiscal year, including (1) the real estate levy imposed (expressed both as a millage rate and an
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aggregate dollar amount), (2) the dollar amount of real estate taxes collected that represented current collections (expressed both as a percentage of such fiscal year's levy and as an aggregate dollar amount), (3) the amount of real estate taxes collected that represented taxes levied in prior years (expressed as an aggregate dollar amount), and (4) the total amount of real estate taxes collected (expressed both as a percentage of the current year's levy and as an aggregate dollar amount)
a list of the ten (10) largest real estate taxpayers and, for each, the total assessed value of real estate for the current fiscal year
pupil enrollment figures, including enrollment at the end of the most recent fiscal year, current enrollment and projected enrollment for the beginning of the next fiscal year, including a breakdown between elementary and secondary enrollment (to the extent reasonably feasible)
Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the School District or related public entities, which have been made available to the public on the MSRB’s internet website or filed with the SEC. The School District shall clearly identify each other document so incorporated by reference.
The School District reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information to the extent necessary or appropriate as a result of a change in legal requirements or a change in the nature of the School District or its operations or financial reporting, but the School District will agree that any such modification will be done in a manner consistent with the Rule.
SECTION 5. Notices of Late Filing of Annual Information. If the School District has failed to file, or is unable to file, an Annual Report with the MSRB within the time set forth in Section 3 above, the School District will file, in a timely manner, a notice with the MSRB stating such fact and, if appropriate, the date by which the School District expects to file the Annual Report.
SECTION 6. Reporting of Listed Events. In a timely manner not in excess of ten (10) Business Days after the occurrence of the event, the School District will file with the MSRB notice of the occurrence of any of the following events with respect to the Bonds:
(1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with
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respect to the tax-exempt status of the Bonds, or other material events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the School District; (13) the consummation of a merger, consolidation, or acquisition involving the School District or the sale of all or substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee, or the change of name of a trustee, if material.
The School District may from time to time choose to provide notice of the occurrence of certain other events affecting the Bonds or the School District, in addition to those listed above, if, in the judgment of the School District, such other event is material with respect to the Bonds, but the School District does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above.
SECTION 7. Manner of Filing. All filings to be made with the MSRB in accordance with this Disclosure Certificate are to be filed in such electronic format as is prescribed by the MSRB and accompanied by such identifying information as is prescribed by the MRSB.
As of the date of this Disclosure Certificate, the rules of the MSRB require all such filings to be made using the MSRB’s Electronic Municipal Market Access System (“EMMA”) at http://emma.msrb.org.
SECTION 8. Dissemination Agent. The School District may, at any time and from time to time, appoint or engage another person (the “Dissemination Agent”) to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge such Dissemination Agent, with or without appointing a successor and without notice to Bondholders.
SECTION 9. Termination of Disclosure Obligation. The School District’s obligations under this Disclosure Certificate shall terminate upon the prior redemption or payment in full of all of the Bonds or if and when the School District no longer remains an “obligated person” with respect to the Bonds, within the meaning of the Rule.
SECTION 10. Default. In the event of a failure of the School District to comply with any provision of this Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the School District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default with respect to the Bonds, and the
- 4 - sole remedy under this Disclosure Certificate in the event of any failure of the School District to comply with this Disclosure Certificate shall be an action to compel performance.
SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the School District, the Participating Underwriters and Bondholders, and shall create no rights in any other person or entity.
IN WITNESS WHEREOF, The School District causes this Continuing Disclosure Certificate to be executed on its behalf by the (Vice) President of the Board of School Directors all as of the date set forth above.
NORTHERN POTTER SCHOOL DISTRICT, Potter County, Pennsylvania
By: ______Timothy A. Ford President of the Board of School Directors
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APPENDIX D Audited Financial Statements
NORTHERN POTTER SCHOOL DISTRICT
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
FISCAL YEAR ENDED JUNE 30, 2012
WITH REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
NORTHERN POTTER SCHOOL DISTRICT
TABLE OF CONTENTS
2012 FINANCIAL STATEMENTS
Page
Transmittal Letter ...... 1
Schedule of Report Distribution ...... 2
Independent Auditors’ Report ...... 3
Management’s Discussion and Analysis ...... 4-11
Government-wide Financial Statements Statements of Net Assets...... 12 Statements of Activities ...... 13
Financial Statements Combined Balance Sheets - All Governmental Funds ...... 14 Combined Statements of Revenue, Expenditures and Changes in Fund Equity - All Governmental Funds ...... 15 Statement of Revenue, Expenditures and Changes in Fund Equity - Budget and Actual - General Fund ...... 16 Statements of Fiduciary Net Assets - Fiduciary Funds ...... 17 Statements of Changes in Fiduciary Net Assets - Fiduciary Funds ...... 18 Statements of Net Assets - Proprietary Fund ...... 19 Statements of Revenue, Expenses and Changes in Net Assets - Proprietary Fund ...... 20 Statements of Cash Flows - Proprietary Fund...... 21 Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Assets ...... 22 Reconciliation of Governmental Funds Revenue, Expenditures and Changes in Fund Equity to the Statement of Activities ...... 23 Notes to the Financial Statements ...... 24-35
Supplementary Information Comparative Statements of Revenue and Expenditures - General Fund ...... 36 Statement of Cash Receipts and Disbursements - Activity Fund ...... 37 Schedule of Funding Progress ...... 38 Schedule of Expenditures of Federal Awards ...... 39 Notes to Schedule of Expenditures of Federal Awards ...... 40 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 ...... 41-42 Independent Auditors’ Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 ...... 43-44 Schedule of Findings and Questioned Costs ...... 45-48 Management Letter ...... 49-54
TRANSMITTAL LETTER
Pennsylvania Department of Education Bureau of Budgets and Fiscal Management Bureau Director 333 Market Street – 4th Floor Harrisburg, PA 17126-0333
Gentlemen:
Enclosed you will find the audit package for the Northern Potter School District for the year ended June 30, 2012.
We have audited the financial statements of the Northern Potter School District for the year ended June 30, 2012 and have issued our report thereon dated February 12, 2013. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
In addition, we have issued a management letter dated February 12, 2013, which is included in the audit package.
BUFFAMANTE WHIPPLE BUTTAFARO, P.C.
Olean, New York February 12, 2013
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Member of the American Institute of Certified Public Accountants Private Companies Practice Section
NORTHERN POTTER SCHOOL DISTRICT
SCHEDULE OF REPORT DISTRIBUTION
Agency No. of Copies
Board of Education Northern Potter School District Ulysses, Pennsylvania 16948 ...... 12
Pennsylvania Department of Education Bureau of Budgets and Fiscal Management Bureau Director 333 Market Street – 4th Floor Harrisburg, Pennsylvania 17126-0333 ...... 1
Commonwealth of Pennsylvania Bureau of Audits Verizon Tower – 6th Floor 303 Walnut Street Harrisburg, Pennsylvania 17101-1830 ...... 1
Single Audit Clearinghouse 1201 E 10th Street Jeffersonville, Indiana 47132 ...... 1
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INDEPENDENT AUDITORS' REPORT
To the President and Members of The Board of Education Northern Potter School District Ulysses, Pennsylvania
We have audited the accompanying financial statements of the governmental activities, business-type activities and each major fund of Northern Potter School District as of and for the year ended June 30, 2012 which collectively comprise the Northern Potter School District’s basic financial statements as listed in the accompanying Table of Contents. We have also audited the fiduciary fund types of the Northern Potter School District as of June 30, 2012, as displayed in the District’s basic financial statements. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year summarized comparative information has been derived from the District’s June 30, 2011 financial statements and, in our report dated February 7, 2012, we expressed unqualified opinions on the respective financial statements of the governmental activities and each major fund.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, business-type activities and each major fund of the Northern Potter School District as of June 30, 2012, and the respective changes in financial position, thereof and the respective budgeting comparison of the General Fund and the cash flows of the business-type activities for the year then ended in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated February 12, 2013 on our consideration of the District’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and important for assessing the results of our audit.
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and budgetary comparison information on pages 4 through 11 and 16 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.
Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the Northern Potter School District’s basic financial statements as a whole. The combining and individual fund financial statements and schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. The schedule of expenditures of federal awards is presented as required by U.S. Office of Management and Budget Circular A-133, “Audits of States, Local Governments, and Non-Profit Organizations,” and is also not a required part of the financial statements of Northern Potter School District. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
BUFFAMANTE WHIPPLE BUTTAFARO, P.C.
Olean, New York February 12, 2013 -3-
Member of the American Institute of Certified Public Accountants Private Companies Practice Section
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 4
I. Discussion and Analysis III. Overview of the Financial Statements
The following is a discussion and analysis of the Northern This annual report consists of three parts: MD&A (this Potter School District’s financial performance for the section), the basic financial statements, and required year ended June 30, 2012. The section is a summary of supplementary information. The basic financial the District’s financial activities based on currently known statements include two kinds of statements that present facts, decisions, or conditions. It is based on both the different views of Northern Potter School District. government-wide and fund-based financial statements. The results of the current year are discussed in A. Reporting the School District as a Whole (District- comparison with the prior year, with an emphasis placed wide Financial Statements): on the current year. This section is only an introduction and should be read in conjunction with the District’s The district-wide statements report information about financial statements, which follows this section. the School District as a whole using accounting methods similar to those used by private-sector II. Financial Highlights companies. Activities that are fiduciary in nature are not included in these statements. The following items are the financial highlights experienced by the Northern Potter School District 1. Statement of Net Assets during the fiscal year ended June 30, 2012: The Statement of Net Assets (page 12) shows Overall net assets of the District increased the “assets” (what is owned), “liabilities” (what is $151,000 during the fiscal year ended June 30, owed) and the “net assets” (the resources that 2012. This consisted of an increase in would remain if all obligations were settled) of the governmental activities in the amount of District. The Statement categorizes assets to $175,000 and a decrease in business-type show that some assets are very liquid, such as activities $24,000. cash and cash equivalents. Some assets are
restricted for certain purposes or reserved for The District’s total revenue decreased emergencies and cash flow purposes. Some approximately 3% from $9,651,000 during year assets are invested in “fixed” or “capital” assets, ended June 30, 2011 to $9,329,000 during June such as buildings, equipment and other long-lived 30, 2012. This decrease was primarily the result property; and some assets are available to fund of the District no longer receiving Fiscal budgets of the following year. Stabilization funding and a significant reduction in Education Jobs funding. These decreases were 2. Statement of Activities
partially offset by an increase in state education The Statement of Activities (page 13) shows subsidy. amounts of program-specific and general District The District’s total expenses decreased revenue used to support the various functions. approximately 6% from $9,797,000 during the The Statement of Net Assets and Statement of year ended June 30, 2011 to $9,178,000 during Activities divide the activities of the District into two the year ended June 30, 2012. This decrease categories: governmental activities (the school was primarily related to a decrease in salaries, functions, including instruction, support services, non- equipment and supply purchases. These instructional services, etc.; property taxes, state and decreases were partially offset by increases in federal revenue usually support most of these retirement system contribution expense and functions) and proprietary activities. special education costs. The two district-wide statements report the School The District had capital additions during the District’s net assets and how they have changed. Net current fiscal year in the amount of $44,000, assets – the difference between the District’s assets which was comprised of $38,000 in the and liabilities – is one way to measure the District’s governmental activities and $6,000 in business financial health or position. Over time, increases or type activities. The current year additions were decreases in the District’s net assets are an indicator primarily related to the installation of a cell phone of whether its financial position is improving or tower and various equipment purchases. deteriorating, respectively. To assess the District’s overall health, you need to consider additional non- financial factors such as changes in the District’s property tax base and the condition of school buildings and other facilities.
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 5
III. Overview of the Financial Statements III. Overview of the Financial Statements (continued) (continued)
B. Reporting the District’s Most Significant B. Reporting the District’s Most Significant Funds (Fund Financial Statements): Funds (Fund Financial Statements):
The fund financial statements provide more detailed 1. Governmental Funds (continued) information about the District’s funds, focusing on its most significant or major funds – not the District as a whole. view that helps you determine whether there are Funds are accounting devices the District uses to keep more or fewer financial resources that can be track of specific sources of funding and spending on spent in the near future to finance the District’s particular programs. Significance of funds is determined programs. Because this information does not based on the proportional size of the funds, the relative encompass the additional long-term focus of the importance of the activities of the funds to the District’s district-wide statements, additional information at operations, and the existence of legal budget the bottom of the governmental funds statements requirements. Internal Service funds are never reported explains the relationship (or differences) between as major funds, but are combined and presented in a them. separate column. 2. Fiduciary Funds The District has two kinds of funds: The District is the trustee, or fiduciary, for assets 1. Governmental Funds that belong to others, such as the scholarship fund and the student activities funds. The District Most of the District’s basic services are included is responsible for ensuring that the assets in governmental funds, which generally focus on reported in these funds are used only for their (1) how cash and other financial assets that can intended purposes and by those to whom the readily be converted to cash flow in and out and assets belong. The District excludes these the balances left at year-end that are available for activities from the district-wide financial spending. Consequently the governmental funds statements because it cannot use these assets to statements provide a detailed short-term finance its operations.
Figure A-1 - Major Features of the District-Wide Statements and Fund Financial Statements
Fund Financial Statements District-Wide Governmental Funds Fiduciary Funds Scope Entire district (except fiduciary The activities of the District that are Instances in which the District funds) not proprietary or fiduciary, such as administers resources on behalf special education and building of someone else, such as maintenance scholarship programs and student activities monies Required financial Statement of Net Assets Balance Sheet Statement of Fiduciary Net Assets statements Statement of Activities Statement of Revenue, Expenditures, Statement of Changes in Fiduciary and Changes in Fund Balances Net Assets Accounting basis and Accrual accounting and Modified accrual accounting and Accrual accounting and economic measurement focus economic resources focus current financial focus resources focus Type of asset/liability All assets and liabilities, both Generally, all assets expected to be All assets and liabilities, both information financial and capital, short- used up and liabilities that come due short-term and long-term; funds term and long-term during the year or soon thereafter; do not currently contain capital no capital assets or long-term assets, although they can liabilities included Type of inflow/outflow All revenues and expenses Revenues for which cash is received All additions and deductions during information during the year, regardless of during or soon after the end of the the year, regardless of when cash when cash is received or paid year; expenditures when goods or is received or paid services have been received and the related liability is due and payable
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 6
Figure A-2 - Required Components of the District’s IV. Financial Analysis of the School District as Whole Annual Financial Report Net Assets
The District’s total reporting entity net assets were approximately $4,740,000 as of June 30, 2012. The components of net assets include: invested in capital assets, net of related debt of $2,979,000; restricted net assets for capital reserve in the amount of $260,000 and unrestricted net assets of $1,501,000.
Changes in Net Assets
The District’s total government-wide revenue decreased by 3% to $9,329,000. Approximately 25%, 26% and 47% of total revenue is derived from the property taxes, operating grants and state sources, respectively. The remaining 2% comes from federal aid, interest earned, local sources, charges for services and other sources.
The total cost of all programs and services of the District decreased 6% to $9,178,000. The District’s expenses cover a range of services, with 61% related to instruction and 30% related to support services.
Figure A-3 – Condensed Statement of Net Assets Northern Potter School District Condensed Statement of Net Assets (in thousands of dollars)
Governmental Activities Business-type Activities Total 2012 2011 % Change 2012 2011 % Change 2012 2011 % Change Assets Current and other as sets$ 2,909 $ 2,688 8%$ 56 $ 206 -73%$ 2,965 $ 2,894 2% Capital assets 6,954 7,264 -4% 7 6 14% 6,961 7,270 -4% Total assets $ 9,863 $ 9,952 -1%$ 63 $ 212 -70%$ 9,926 $ 10,164 -2%
Liabilities Other liabilities$ 818 $ 813 1%$ 211 $ 336 -37%$ 1,029 $ 1,149 -10% Long-term debt outstanding 4,157 4,427 -6% - - n/a 4,157 4,427 -6% Total liabilities 4,975 5,240 -5% 211 336 -37% 5,186 5,576 -7%
Net assets Invested in capital assets, net of related debt 2,972 2,988 -1% 7 6 14% 2,979 2,994 -1% Restricted 260 259 0% - - n/a 260 259 0% Unrest rict ed (defi cit) 1,656 1,465 13% (155) (130) 19% 1,501 1,335 12% Total net assets (deficit) 4,888 4,712 4% (148) (124) 19% 4,740 4,588 3% Total liabilities and net assets $ 9,863 $ 9,952 -1%$ 63 $ 212 -70%$ 9,926 $ 10,164 -2%
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 7
Figure A-4 – Changes in Net Assets from Operating Results Northern Potter School District Changes in Net Assets from Operating Results (in thousands of Dollars)
Gove rn m ent al A ctivities Business-type activities Total 2 01 2 2 01 1 % Ch an ge 2 01 2 20 11 % Ch an ge 2 01 2 20 11 % Chan ge Revenue Program revenue C h arge s fo r s ervice s$ 1 $ 7 -83 %$ 1 24 $ 12 0 3 %$ 1 25 $ 12 7 -2% Operating grants and contributions 2,193 2 ,5 18 -13 % 2 11 21 5 -2% 2,4 04 2 ,73 3 -1 2% G e ne ra l re v en ue Taxes 2,366 2 ,4 03 -2 % - - n /a 2,3 66 2 ,40 3 -2% Interest earned 2 3 0% - - n /a 2 3 0 % Local sources 59 71 -16 % - - n /a 59 7 1 -1 6% S ta te s ource s 4 ,3 57 3,540 23% - - n /a 4,3 57 3 ,54 0 23 % Fe de ra l sou rce s / inte rf und tran sfe rs 16 7 74 -98 % - - n /a 16 77 4 -9 8% T ota l re ven ue 8 ,9 94 9 ,3 16 -3 % 3 35 33 5 0 % 9,3 29 9 ,65 1 -3%
Expenses Instruction 5,521 5 ,9 70 -8 % - - n /a 5,5 21 5 ,97 0 -8% Support services 2,887 2 ,9 83 -3 % - - n /a 2,8 87 2 ,98 3 -3% Non -instructional services 137 2 21 -38 % - - n /a 1 37 22 1 -3 8% Othe r uses Transfers and other uses 7 - 100 % - - n /a 7 - n/a D eb t se rvice - in te re st 2 67 2 87 -7 % - - n /a 2 67 28 7 -7% B usiness-type (food service fund) - - n /a 3 59 33 6 7 % 3 59 33 6 7 % Total expenses 8,819 9 ,4 61 -7 % 3 59 33 6 7 % 9,1 78 9 ,79 7 -6%
Change in net assets $ 175 $ (1 45) $ (24 ) $ (1) $ 1 51 $ (14 6)
IV. Financial Analysis of the School District as a IV. Financial Analysis of the School District as a Whole (continued) Whole (continued)
Figure A-5 through figure A-8 and the narrative that follows Governmental Activities - Revenue (continued) considers the operations of governmental activities, along with revenue and net costs percentages for governmental During the year ended June 30, 2012, the District saw activities. a decrease in program revenue, which resulted from a decrease in operating grants and contributions and Governmental Activities - Revenue charges for services which decreased $325,000 and $6,000, respectively, in comparison with prior year Revenue of the District’s governmental activities revenue. Decreases in operating grants and decreased 3% while total expenses decreased 7%. The contributions were primarily the result of decreases in District’s total net assets increased approximately rental subsidies and PA Accountability funds. $175,000 during the fiscal year ended June 30, 2012. The District’s federal sources which represent Figure A-4 presents the major sources of revenue of the $16,000 or 0% of total governmental revenue District’s governmental activities. Total revenue of the decreased approximately $758,000 or 98% in District totaled $8,994,000 for the fiscal year ended June comparison to the prior year. The District’s federal 30, 2012. The most significant changes in the District’s subsidy decrease was primarily related to the District’s governmental revenue are more thoroughly discussed as loss of ARRA Stabilization funding and a significant follows: decline in ARRA Education Jobs funds.
Tax revenue which represents approximately 25% of Governmental Activities - Expenses the District’s total revenue for governmental activities decreased 2% during the year ended June 30, 2012. Figure A-8 presents the cost of each of the District’s five The decrease primarily resulted from decreases in largest expenditure-types, which include; instruction, earned income and occupational taxes. support services, non-instructional services and other financing uses; as well as each expenditure-type’s net cost The District’s state sources which represent (total cost less fees generated by the activities and $4,357,000 or 47% of total governmental revenue intergovernmental aid). The net cost shows the financial increased approximately 23% in comparison with the burden that was placed on the District’s taxpayers and prior year. The District’s State subsidy increase was Commonwealth of Pennsylvania by each of these primarily related to the transition from Federal aid to functions. Total costs of the District’s governmental state aid in the form of higher basic education funding. activities were $8,819,000.
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 8
IV. Financial Analysis of the School District as a IV. Financial Analysis of the School District as a Whole (continued) Whole (continued)
Governmental Activities - Expenses (continued) Governmental Activities - Expenses (continued)
The most significant changes in the District’s The District’s other financing uses decreased $13,000 governmental expenses are more thoroughly discussed as during the current year ended June 30, 2012. follows: Transfers and other uses increased approximately $7,000, while debt service costs decreased The District’s instruction costs decreased by approximately $20,000. approximately $449,000 or 8% which was primarily due to a decrease in expenditures related to salaries, For governmental activities, the District received equipment and supply purchases. approximately $2,194,000 of operating grants and charges for services from its state and federal grants The District’s support services costs decreased by which subsidized certain programs of the District. approximately $96,000 or 3% during the year ended June 30, 2012, primarily as a result of a decrease in Most of the Districts net costs ($6.6 million) were transportation expenses. financed by real property taxes and state aid.
Non-instructional costs of the District decreased approximately $84,000 or 38% during the year ended June 30, 2012 which was the result of a decrease in transportation, supplies and equipment purchases in student activities.
Figure A-6 – District-wide Expenses Figure A-5 – District-wide Sources of Revenue
Northern Potter School District Northern Potter School District Expenses Sources of revenue State sources Federal sources 47% Refund of prior year Debt Service - Charges for services 0% revenue Interest Food service 1% expenses 0% 3% 4%
Non-instructional services 2%
Operating grants and contributions Support services Instruction 26% 30% 61% Local sources 1% Property taxes 25% Sale of property Interest earned 0% For the year ended June 30, 2012 0% For the year ended June 30, 2012
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 9
Figure A-7 – Expenditures Supported with Program Revenue Northe rn Potte r Sc hool Distr ict Expenditures supported with program revenue (in thousands of dollars)
Governmental Activities Business-type Activities Total 2012 2011 2012 2011 2012 2011
Expenditures supported with general revenue (from taxes & other sources)$ 6,625 75%$ 6,936 73%$ 24 7%$ 1 0%$ 6,649 72%$ 6,937 71%
Expenditures supported with program revenue 2,194 25% 2,525 27% 335 93% 335 100% 2,529 28% 2,860 29%
Total expenditures related to governmental activities $ 8,819 100%$ 9,461 100%$ 359 100%$ 336 100%$ 9,178 100%$ 9,797 100%
Figure A-8 – Net Cost of Governmental Activities Northern Potter School District N e t Cos t of D is tr ict-w ide expe nse s (in thousa nds of dollar s)
Total cost of services Net cos t of services 201 2 20 11 Ch an ge 2 01 2 2 011 Ch an ge
Instruction$ 5,521 $ 5,970 $ (44 9) $ 4,296 $ 4,655 $ (3 59 ) Support services 2,887 2 ,9 83 (9 6) 2, 230 2,2 76 (46 ) N on -instructio nal service s 13 7 2 21 (8 4) 129 2 11 (82 ) Othe r uses - transfers 7 - 7 7 - 7 Debt service - interest 267 2 87 (2 0) (37 ) (2 06 ) 1 69 Food service 359 3 36 2 3 24 1 23
Total $ 9,178 $ 9,797 $ (61 9) $ 6,649 $ 6,937 $ (2 88 )
V. Financial Analysis of the School District’s Funds V. Financial Analysis of the School District’s Funds (continued) It is important to note that variances between years for the General Fund (continued) governmental fund financial statements (Balance Sheets and Statement of Revenue, Expenditures and Changes in The District’s general fund unassigned fund balance Fund Equity) are not the same as variances between was approximately $805,000 as of June 30, 2012. years for the District-wide financial statements (Statement The District’s nonspendable fund balance at June 30, of Net Assets and Statement of Activities). The District’s 2012 was approximately $41,000. governmental funds are presented on the current financial The District had assigned fund balance outstanding resources measurement focus and the modified accrual as of June 30, 2012 in the amount of approximately basis of accounting, while the statement of net assets are $285,000. presented on the full accrual method of accounting. The District’s committed fund balance at June 30, Therefore, governmental funds do not include long-term 2012 was approximately $569,000. debt liabilities for the funds’ projects and capital assets The District’s total assets increased approximately purchased by the funds. $220,000 while liabilities decreased $11,000 during the year ended June 30, 2012. The increase in assets Governmental funds will include the proceeds received was primarily due to an increase in cash which was from the issuance of debt, the current payments for capital partially offset by a decrease in interfund receivables. assets, and the current payments for debt. Below is a The decrease in liabilities was associated with a description of the most significant changes to the fund decrease in deferred revenue partially offset by an financial statements from that reported in the previous increase in accounts payable. year. Total revenue in the District’s general fund decreased General Fund approximately $539,000, while total expenditures decreased approximately $645,000. Decreases The District’s general fund revenue exceeded its resulted from Fiscal Stabilization funding being expenditures by approximately $230,000. eliminated and Education Jobs funding being significantly reduced which required the District to reduce expenditures.
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 10
VI. General Fund Budgetary Highlight VII. Capital Asset and Debt Administration
Over the course of the year, the District makes many Capital Assets budget transfers. After such transfers, the revised budget presents actual expenditures being approximately As depicted in Figure A-10, as of June 30, 2012, the $143,000 above the revised budget. The most significant District had invested approximately $6,961,000 in a broad negative variance was in the area of instruction which range of capital assets, including reconstruction projects, totaled $230,000 above the revised budget. The most transportation vehicles and other various equipment. significant positive variance was in the area of support Capital additions made during the year ended June 30, services which totaled $73,000 below the revised budget. 2012, totaled approximately $44,000 and were primarily On the other hand, resources available for appropriations related to the installation of a cell phone tower and various were approximately $373,000 above the final budgeted equipment purchases. More detailed information about the amount. Significant variance of revenue items consisted District’s capital assets is presented in the notes of the of federal sources and state sources which totaled financial statements. $41,000 and $670,000, respectively, above the revised budget. These increases were partially offset by local Long-term Debt sources which totaled $119,000 below the revised budget. As depicted in Figure A-11, as of June 30, 2012, the District had approximately $4,157,000 in bonds, notes Figure A-9 – General Fund Budget vs. Actual outstanding, retirement incentive liabilities and Northern Potter School District General Fund - Budget vs Actual Comparison (in thousands of dollars) compensated absences, decreased approximately 6% as compared with the previous year. This decrease was Revised primarily the result the District making regularly scheduled Bu dg et A ctu al Diff erenc e % Revenue debt service payments in the current year and not issuing Local sources$ 2,727 $ 2, 608 $ (119) -4% any new debt. S tat e so urces 5, 310 5, 980 670 13% Federal sources 380 421 41 11% Ot he r so urces 219 - (219) -1 00% Figure A-10 – Capital Assets Total revenue $ 8, 636 $ 9, 009 $ 373 4% Northern Potter School District Capital Assets (net of depreciation) Expenditures In struct ion$ 5, 039 $ 5, 269 $ (230) -5% Governmental Activities & Total District-wide S upp ort s ervice s 2, 817 2, 744 73 3% 2012 2011 Change Non-instructional services 158 138 20 13% Facilities acquisition and construction 30 61 (31) -1 04% Debt service 559 560 (1) 0% Land$ 55,983 $ 55,983 0% Op erat in g tra nsf ers 7 - 7 1 00% B uilding an d c onst ruction - Ot he r u ses 26 7 19 74% in-progress 12,190,043 12,161,413 0% Total ex pe nditures $ 8, 636 $ 8, 779 $ (143) -2% Furniture and equipment 3,273,172 3,257,813 0% Accumulated depreciation (8,558,265) (8,204, 855) 4%
Total Capital Assets, net $ 6,960,933 $ 7,270,354 -4%
Figure A-11 – Outstanding Long-term Debt Northern Potter School District Outstanding Long-Term Debt and Liabilities
Governmental Activities & Total District-wide 2012 2011 Change Bonds payable$ 3,927,200 $ 4,221,009 -7% Other post-employment benefits 11,802 12,926 -9% Retirement incentive 169,645 151,990 12% Compensated absences 48,510 41,390 17%
Total Long-Term Debt $ 4,157,157 $ 4,427,315 -6%
NORTHERN POTTER SCHOOL DISTRICT MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Page 11
VIII. Factors Bearing on the District’s Future
At the time these financial statements were prepared and audited, the District was aware of the following circumstances that could significantly affect its financial health in the future:
The District continues to prepare for anticipated increases in the PSERS retirement rates.
The District continues to be uncertain of the level of state and federal aid.
IX. Contacting the District’s Financial Management
This financial report is designed to provide citizens, taxpayers, customers and investors and creditors with a general overview of the finances of the District and to demonstrate our accountability with the money we receive. If you have any questions about this report or need additional financial information, please contact:
Northern Potter School District District Administrative Offices Attention: Ms. Mary Ransom Business Manager 745 SR 49 Northern Potter Road Ulysses, Pennsylvania 16948
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF NET ASSETS AS OF JUNE 30, Page 12
2012 Governmental Business-Type 2011 Activities Activities Total Total
Assets Cash
Unrestricted$ 2,032,402 $ 48,836 $ 2,081,238 $ 1,745,865 Receivables Taxes, net 227,736 - 227,736 285,970 State and federal aid 333,193 - 333,193 369,789 Due from other business-type activities 207,187 - 207,187 330,728 Due from other fiduciary funds 65,254 - 65,254 108,803 Inventories 41,113 7,770 48,883 50,719 Prepaid assets 2,080 - 2,080 2,080 Capital assets, net 6,954,096 6,837 6,960,933 7,270,354 Total assets$ 9,863,061 $ 63,443 $ 9,926,504 $ 10,164,308
Liabilities Current liabilities Accounts payable and retainage payable$ 283,974 $ - $ 283,974 $ 241,217 Accrued liabilities 475,871 - 475,871 466,060 Accrued interest 55,000 - 55,000 55,000 Due to governmental activities - 207,187 207,187 330,728 Deferred revenue 3,438 4,259 7,697 55,676 Long-term liabilities Portion due or payable within one year Bonds payable 250,000 - 250,000 323,230 Portion due or payable after one year Bonds payable 3,677,200 - 3,677,200 3,897,779 Other post-employment benefits 11,802 - 11,802 12,926 Retirement incentive payable 169,645 - 169,645 151,990 Compensated absences 48,510 - 48,510 41,390 Total liabilities 4,975,440 211,446 5,186,886 5,575,996
Net Assets Invested in capital assets, net of related debt 2,971,896 6,837 2,978,733 2,994,345 Restricted for Capital 260,161 - 260,161 259,426 Unrestricted Board designated 854,132 - 854,132 569,038 Undesignated (deficit) 801,432 (154,840) 646,592 765,503 Total net assets (deficit) 4,887,621 (148,003) 4,739,618 4,588,312 Total liabilities and net assets$ 9,863,061 $ 63,443 $ 9,926,504 $ 10,164,308
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, Page 13
2011 2012 Net (Expense) IndirectProgram Revenues Net (Expense) Revenue and Changes i n Net Assets Revenue and Expenses Charges for Operating Governmental Business-Type Changes in Expenses Allocation Services Grants Activities Activities Total Net Assets
Functions/Programs Governmental Activities: Instruction$ 5,283,157 $ 237,780 $ 175 $ 1,224,906 $ (4,295,856) $ - $ (4,295,856) $ (4,655,405) Instructional student support 567,176 28,928 - 158,695 (437,409) - (437,409) (364,307) Administrative and financial support services 935,450 9,405 - 52,545 (892,310) - (892,310) (867,536) Operation and maintenance of plant services 719,787 36,947 - 20,796 (735,938) - (735,938) (772,933) Pupil transportation 522,800 28,617 - 424,558 (126,859) - (126,859) (225,864) Other support services 31,499 6,566 - - (38,065) - (38,065) (44,425) Student activi ties 132,764 - - 8,376 (124,388) - (124,388) (206,200) Community services 4,607 - - - (4,607) - (4,607) (4,400) Refunds of prior year revenue 6,658 - - - (6,658) - (6,658) (68) Debt service 266,529 - - 303,204 36,675 - 36,675 205,631 Depreciation 348,243 (348,243) ------
Total governmental activities 8,818,670 - 175 2,193,080 (6,625,415) - (6,625,415) (6,935,507)
Business-type activities: Food services 358,976 - 123,735 211,121 - (24,120) (24,120) (1,087) Total functions and programs$ 9,177,646 $ - $ 123,910 $ 2,404,201 (6,625,415) (24,120) (6,649,535) (6,936,594)
General Revenues Real property taxes 2,069,120 - 2,069,120 2,064,059 Property taxes, levied for general purposes 296,892 - 296,892 338,871 Interest earnings 2,456 112 2,568 3,211 Other local sources 59,406 - 59,406 70,563 State sources 4,356,613 - 4,356,613 3,539,894 Federal sources 16,242 - 16,242 773,979
Total general revenues 6,800,729 112 6,800,841 6,790,577
Change in net assets 175,314 (24,008) 151,306 (146,017)
Net assets (deficit) - beginning of year 4,712,307 (123,995) 4,588,312 4,734,329
Net assets (deficit) - end of year $ 4,887,621 $ (148,003) $ 4,739,618 $ 4,588,312
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT COMBINED BALANCE SHEETS - ALL GOVERNMENTAL FUNDS AS OF JUNE 30, Page 14
Governmental Funds
2012 2011 Capital (Memo only) (Memo only) General Projects Total Total Assets
Unrestricted cash and cash equivalents$ 1,772,241 $ - $ 1,772,241 $ 1,313,702 Restricted cash - 260,161 260,161 259,426 Taxes receivable 234,736 - 234,736 292,970 Intergovernmental receivables 333,193 - 333,193 346,602 Due from other funds 272,441 - 272,441 439,531 Prepaid expenses 2,080 - 2,080 2,080 Inventories 41,113 - 41,113 41,113 Total assets$ 2,655,804 $ 260,161 $ 2,915,965 $ 2,695,424
Liabilities and Fund Equity
Liabilities Accounts payable$ 283,974 $ - $ 283,974 $ 241,217 Accrued salaries and benefits 475,871 - 475,871 466,060 Deferred revenue 195,712 - 195,712 258,817 Total liabilities 955,557 - 955,557 966,094
Fund Equity Fund Equity: Nonspendable 41,113 - 41,113 41,113 Committed 569,038 260,161 829,199 828,464 Assigned 285,094 - 285,094 - Unassigned 805,002 - 805,002 859,753 Total fund equity 1,700,247 260,161 1,960,408 1,729,330 Total liabilities and fund equity$ 2,655,804 $ 260,161 $ 2,915,965 $ 2,695,424
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT COMBINED STATEMENTS OF REVENUE, EXPENDITURES AND CHANGES IN FUND EQUITY - ALL GOVERNMENTAL FUNDS FOR THE YEARS ENDED JUNE 30, Page 15
Governmental Funds
2012 2011 Capital (Memo only) (Memo only) General Projects Total Total Revenue Local sources$ 2,607,702 $ 735 $ 2,608,437 2,976,129 State sources 5,980,267 - 5,980,267 5,684,857 Federal sources 421,124 - 421,124 887,590 Total revenue and other sources 9,009,093 735 9,009,828 9,548,576
Expenditures Instruction 5,269,041 - 5,269,041 5,727,333 Support services 2,744,198 - 2,744,198 2,800,116 Noninstructional services 137,371 - 137,371 228,885 Facility acquisition, construction, and improvement services 61,144 - 61,144 109,481 Other financing uses Debt service 560,338 - 560,338 556,738 Refund of prior year's receipts 6,658 - 6,658 68 Total expenditures and other financing uses 8,778,750 - 8,778,750 9,422,621
Excess of revenue and other sources over expenditures over expenditures and other financing uses 230,343 735 231,078 125,955
Fund equity, beginning of year 1,469,904 259,426 1,729,330 1,603,375
Fund equity, end of year $ 1,700,247 $ 260,161 $ 1,960,408 $ 1,729,330
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND EQUITY - BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2012 Page 16
Current Favorable Year's (Unfavorable) Original Revised Revenue andRevised Budget Budget Expenditures Budget Revenues Local sources$ 2,726,639 $ 2,726,639 $ 2,607,702 $ (118,937) State sources 5,309,774 5,309,774 5,980,267 670,493 Federal sources 380,093 380,093 421,124 41,031 Other sources 219,287 219,287 - (219,287) Total revenue 8,635,793 8,635,793 9,009,093 373,300
Expenditures Instruction Regular programs 4,192,955 4,192,955 4,268,045 (75,090) Special programs 571,887 571,887 737,278 (165,391) Vocational education programs 267,350 267,350 260,829 6,521 Other instructional programs 6,944 6,944 2,889 4,055 Total instruction 5,039,136 5,039,136 5,269,041 (229,905) Support Services Pupil personnel 199,758 199,758 191,785 7,973 Instructional staff 213,806 213,806 267,905 (54,099) Administration 760,493 760,493 761,353 (860) Pupil health 80,963 80,963 78,113 2,850 Business 176,559 176,559 174,531 2,028 Operation and maintenance 703,018 703,018 687,273 15,745 Student transportation services 643,887 643,887 528,215 115,672 Central support services 6,500 6,500 23,524 (17,024) Other support services 32,499 32,499 31,499 1,000 Total support services 2,817,483 2,817,483 2,744,198 73,285 Noninstructional services Student activities 153,436 153,436 132,764 20,672 Community services 4,400 4,400 4,607 (207) Total noninstructional services 157,836 157,836 137,371 20,465 Facilities acquisition, construction and improvement services 30,000 30,000 61,144 (31,144) Other financing uses Budgetary reserve 26,000 26,000 - 26,000 Debt service 558,838 558,838 560,338 (1,500) Refunds of prior year receipts - - 6,658 (6,658) Interfund transfers 6,500 6,500 - 6,500 Total other financing uses 591,338 591,338 566,996 24,342 Total expenditures and other financing uses 8,635,793 8,635,793 8,778,750 (142,957)
Excess revenue and other sources over expenditures and other financing uses $ - $ - 230,343 $ 230,343
Fund equity, beginning of year 1,469,904
Fund equity, end of year $ 1,700,247
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF FIDUCIARY NET ASSETS - FIDUCIARY FUNDS AS OF JUNE 30, Page 17
Private 2011 Purpose Agency 2012 (Memo only) Trusts Fund Total Total Assets Cash$ 250 $ 139,233 $ 139,483 $ 216,112 Investments 83,292 5,066 88,358 87,752 Other receivable - 1,159 1,159 1,159
Total assets$ 83,542 $ 145,458 $ 229,000 $ 305,023
Liabilities Due to governmental activities$ - $ 65,254 $ 65,254 $ 108,803 Other liabilities - 40,685 40,685 67,722 Student extraclassroom activity funds - 39,519 39,519 45,496
Total liabilities - 145,458 145,458 222,021
Net assets Restricted 83,542 - 83,542 83,002
Total liabilities and net assets$ 83,542 $ 145,458 $ 229,000 $ 305,023
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF CHANGES IN FIDUCIARY NET ASSETS - FIDUCIARY FUNDS FOR THE YEARS ENDED JUNE 30, Page 18
2012 2011 Additions Gifts and contributions $ 1,200 $ 25,250 Interest earnings 1,147 1,217
Total additions 2,347 26,467
Deductions Scholarships awarded 1,807 1,600
Change in net assets 540 24,867
Net assets - beginning of year 83,002 58,135
Net assets - end of year $ 83,542 $ 83,002
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF NET ASSETS - PROPRIETARY FUND AS OF JUNE 30, Page 19
2012 2011 Assets Cash and cash equivalents$ 48,836 $ 172,737 Intergovernmental receivables - 23,187 Inventories 7,770 9,606 Capital assets, net 6,837 6,180
Total assets $ 63,443 $ 211,710
Liabilities Deferred revenue $ 4,259 $ 4,977 Due to other funds 207,187 330,728
Total liabilities 211,446 335,705
Net Assets Invested in capital assets 6,837 6,180 Accumulated deficit (154,840) (130,175)
Total accumulated deficit (148,003) (123,995)
Total liabilities and net assets$ 63,443 $ 211,710
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN NET ASSETS - PROPRIETARY FUND FOR THE YEARS ENDED JUNE 30, Page 20
2012 2011 Operating revenue Food service revenue$ 123,735 $ 119,305
Operating expenses Salaries and benefits 180,920 169,494 Purchased services - 2,015 Purchased food 162,271 157,036 Depreciation 5,167 5,143 Other operating expenses 10,618 1,934
Total operating expenses 358,976 335,622
Non-operating revenues State sources 29,100 27,132 Federal sources 182,021 188,098 Interest income 112 29
Total non-operating revenues 211,233 215,259
Change in net assets (24,008) (1,058)
Total accumulated deficit, beginning (123,995) (122,937)
Total accumulated deficit, ending $ (148,003) $ (123,995)
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT STATEMENTS OF CASH FLOWS - PROPRIETARY FUND FOR THE YEARS ENDED JUNE 30, 2008 Page 21
2012 2011
Cash flows from operating activities Cash received from State and Federal sources$ 212,974 $ 194,136 Cash received from sale of meals 123,735 119,305 Cash paid to vendors (150,437) (147,819) Cash paid to employees (180,920) (169,494) Cash received from (paid to) other funds (123,541) 137,397 Interest received 112 29 Net cash provided by (used in) operating activities (118,077) 133,554
Cash flows from investing activities Equipment purchases (5,824) -
Net increase (decrease) in cash (123,901) 133,554
Cash balance, beginning of year 172,737 39,183
Cash balance, end of year $ 48,836 $ 172,737
Reconciliation of net loss to net cash provided by (used in) operating activities
Net loss $ (24,008) $ (1,058)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 5,167 5,143 Changes in assets and liabilities: (Increase) decrease in intergovernmental receivables 23,187 (815) (Increase) decrease in inventory 1,836 (6,795) Decrease in accounts payable - (157) Decrease in deferred revenue (718) (161) Increase (decrease) in due to other funds (123,541) 137,397 Net cash provided by (used in) operating activities$ (118,077) $ 133,554
Supplemental Schedule of Non-Cash Activities Activities not affecting cash flows are as follows: Surplus food $ 21,334 $ 20,118 Total non-cash activity$ 21,334 $ 20,118
See accompanying independent auditors’ report and notes to financial statements.
NORTHERN POTTER SCHOOL DISTRICT RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS AS OF JUNE 30, 2012
Total fund balances - governmental funds $ 1,960,408
Amounts reported for governmental activities in the statement of net assets are different because:
Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Capital assets consist of the following at year-end: Cost of the assets$ 15,365,362 Accumulated depreciation (8,411,266) 6,954,096
Property taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. The District has also reserved approximately 2% or $7,000 of delinquent taxes receivable. 185,274
Interest on long-term liabilities is not accrued in governmental funds, but rather is recognized as an expenditure when due. (55,000)
Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of the following: Bonds payable (3,927,200) Other post-employment benefits (11,802) Retirement incentive payable (169,645) Compensated absences (48,510) (4,1 57,157)
Total net assets - governmental activities $ 4,887,621
See accompanying independent auditors’ report and notes to financial statements.
Page 22
Total Capital and Long-term Reclassification Statement of Governmental Tax Related Debt and Net Funds Items Transactions Eliminations Assets Assets
Cash$ 2,032,402 $ - $ - $ - $ 2,032,402 Taxes receivable 234,736 (7,000) - - 227,736 Intergovernmental receivable 333,193 - - - 333,193 Due from other funds 272,441 - - - 272,441 Prepaid expenses 2,080 - - - 2,080 Inventories 41,113 - - - 41,113 Capital assets, net - 6,954,096 - - 6,954,096
Total assets$ 2,915,965 $ 6,947,096 $ - $ - $ 9,863,061
Liabilities and Fund Equity
Liabilities Accounts payable$ 283,974 $ - $ - $ - $ 283,974 Accrued liabilities 475,871 - - - 475,871 Accrued interest - - 55,000 - 55,000 Deferred revenue 195,712 (192,274) - - 3,438 Bonds payable - - 3,927,200 - 3,927,200 Other post-employment benefits - - 11,802 - 11,802 Retirement incentive payable - - 169,645 - 169,645 Compensated absences - - 48,510 - 48,510 Total liabilities 955,557 (192,274) 4,212,157 - 4,975,440
Fund equity & net as sets 1,960,408 7,139,370 (4,212,157 ) - 4,887,621
Total liabilities and fund equity$ 2,915,965 $ 6,947,096 $ - $ - $ 9,863,061
NORTHERN POTTER SCHOOL DISTRICT RECONCILIATION OF GOVERNMENTAL FUNDS REVENUE, EXPENDITURES AND CHANGES IN FUND EQUITY TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012
Total net change in fund balances - governmental funds 231,078
Amounts reported for governmental activities in the statement of activities are different because:
Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Activity for the current fiscal year ended was as follows: Capital outlays 38,165 Depreciation expense (348,243) (310,078)
Because some property taxes will not be collected for several months after the District's year end, they are not considered as "available" revenues in the governmental funds. Deferred revenue changed by this amount during the year. (15,844)
Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 295,338
Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. (1,529)
In the statement of activities, certain operating expenses - compensated absences and special termination benefits - 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. (23,651)
Change in net assets of governmental activities 175,314
See accompanying independent auditors’ report and notes to financial statements.
Page 23
Total Capital and Long-term Reclassification Statement of Governmental Tax Related Debt and Activities Funds Items Transactions Eliminations Totals Revenue Real property taxes$ 2,084,964 $ (15,844) $ - $ - $ 2,069,120 Property taxes, levied for general purposes 296,892 - - - 296,892 Interest and earnings 2,456 - - - 2,456 Other local sources 224,125 - - (164,719) 59,406 State sources 5,980,267 - - (1,623,654) 4,356,613 Federal sources 421,124 - - (404,882) 16,242 Total revenue 9,009,828 (15,844) - (2,193,255) 6,800,729
Expenditures Instruction 5,26 9,041 228,245 23,651 (1,225,081) 4,295,856 Instructional student support 543,652 28,928 - (135,171) 437,409 Administrative and financial support services 935,450 9,405 - (52,545) 892,310 Operation and maintenance of plant services 687,273 36,947 - 11,718 735,938 Pupil transportation 522,800 28,617 - (424,558) 126,859 Central support 23,524 - - (23,524) - Other support services 31,499 6,566 - - 38,065 Student activities 132,764 - - (8,376) 124,388 Community services 4,607 - - - 4,607 Facilities acquisition and improvement 61,144 (28,630) - (32,514) - Refunds of prior years revenues 6,658 - - - 6,658 Debt service 560,338 - (293,809) (303,204) (36,675) Total expenditures 8,778,750 310,078 (270,158) (2,193,255) 6,625,415
Excess (deficiency) of revenue over expenditures 231,078 (325,922) 270,158 - 175,314 Net change for year $ 231,078 $ (325,922) $ 270,158 $ - $ 175,314
NORTHERN POTTER SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 Page 24
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES POLICIES (continued)
A. Reporting Entity B. Basis of Presentation (continued)
The Northern Potter School District is governed by 2. Fund Financial Statements the Education Law and other general laws of the State of Pennsylvania. The governing body is the Board of The fund statements provide information about Education. The scope of activities included within the the District’s funds, including fiduciary funds. accompanying financial statements are those transactions Separate statements for each fund category which comprise School District operations, and are (governmental, proprietary and fiduciary) are governed by or significantly influenced by, the Board of presented. The emphasis of fund financial statements Education. Essentially, the primary function of the School is on major governmental funds, each displayed in a District is to provide education for pupils. Support services separate column. such as transportation of pupils, administration, finance a. Governmental Fund Types and plant maintenance are also included. The financial reporting entity includes all funds, account groups, Governmental funds are those funds used to functions and organizations over which the School District account for and report the operations of the officials exercise oversight responsibility. Oversight School District. The acquisition, use, and responsibility is determined on the basis of financial balances of financial resources and related interdependency, selection of governing authority, assets and liabilities are reported therein. The designation of management, ability to significantly measurement focus is the determination of influence operations and accountability for fiscal matters. changes in financial position rather than net B. Basis of Presentation income determination. The following funds and aggregate governmental fund types are employed 1. District-wide Statements in accounting for and reporting School District operations. The District reports the following The Statement of Net Assets and the Statement major governmental funds: of Activities present financial information about the District’s governmental activities. These statements General Fund - The General Fund is the include the financial activities of the overall principal operating fund of the School District and government in its entirety, except those that are is used to account for all financial resources fiduciary. Eliminations have been made to minimize except those required to be accounted for in double counting of internal transactions. another fund.
Governmental activities generally are financed Capital Projects Funds - The Capital Projects through taxes, state subsidy, intergovernmental Funds are used to account for and report revenues, and other exchange and non-exchange financial resources to be used for the acquisition transactions. Operating grants include operating- or construction or renovation of major capital specific and discretionary (either operating or capital) facilities or equipment. These projects are grants. Business-type activities include the District’s approved by the Pennsylvania Department of food service operation which is financed through sales Education and a portion of the costs will be and reimbursement of breakfasts and lunches. reimbursed with state subsidy in future years.
The Statement of Activities presents a comparison between direct expenses and program revenue for each function of the District’s governmental activities. Direct expenses are those that are specifically associated with and are clearly identifiable to a particular function. Program revenues include charges paid by the recipients of 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. Revenue that is not classified as program revenues, including all taxes, are presented as general revenue.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 25
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) POLICIES (continued)
B. Basis of Presentation (continued) C. Measurement Focus and Basis of Accounting (continued) 2. Fund Financial Statements (continued)
b. Proprietary Fund Types Expenditures are recorded when the related fund liability is incurred, except for principal and interest on Proprietary Fund Types are used to account general long-term debt, claims and judgments, and and report activities that are similar to business compensated absences, which are recognized as operations in the private sector where the focus is expenditures to the extent they have matured. General on determining net income and cash flows. capital asset acquisitions are reported as expenditures in Proprietary Fund Types include the following governmental funds. Proceeds of general long-term debt fund: and acquisitions under capital leases are reported as other Food Service Fund - Accounts for all revenue and financing sources.
expenses pertaining to cafeteria operations. D. Inventory c. Fiduciary Fund Types
Fiduciary Fund Types are used to account Inventories of food in the Food Service Fund are for fiduciary activities. Fiduciary activities are recorded at cost on a first-in, first-out basis or in the case those in which the District acts as trustee or of surplus food, at stated value, which approximates agent for resources that belong to others. These market.
activities are not included in the district-wide financial statements, because their resources do E. Budgeting Policies - Governmental Fund Types not belong to the District, and are not available to 1. General be used. Included in the Fiduciary Fund are Expendable and Non-expendable Trust Funds The School District's policy relating to budgetary and Agency Funds. Agency Funds are custodial information as shown in the accompanying financial in nature and generally are accounted for on the statements is for the School District administration to cash basis which approximates the modified culminate a proposed budget for approval by the accrual basis of accounting. Board of Education prior to commencement of a new C. Measurement Focus and Basis of Accounting fiscal year. Appropriations established by adoption of the budget constitute a limitation on expenditures, The district-wide and fiduciary fund financial which may be incurred. statements are reported using the economic resources 2. Encumbrances measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are Encumbrance accounting, under which purchase recorded at the time liabilities are incurred, regardless of orders, contracts and other commitments for the when the related cash transaction takes place. Non- expenditure of moneys are recorded in order to exchange transactions, in which the District gives or reserve applicable appropriations, is employed as a receives value without directly receiving or giving equal control in preventing overexpenditure of established value in exchange, include property taxes, grants and appropriations. Open encumbrances are reported as donations. On an accrual basis, revenue from property a reservation of fund equity since such commitments taxes is recognized in the fiscal year for which the taxes will be honored through budget appropriations in the are levied. Revenue from grants and donations is subsequent year. Encumbrances do not constitute recognized in the fiscal year in which all eligibility expenditures or liabilities. requirements have been satisfied. F. Local Taxes The governmental fund statements are reported using the current financial resources measurement focus and Real property taxes are levied annually by the Board the modified accrual basis of accounting. Under this of Education and received by tax collectors by December method, revenues are recognized when measurable and 31. Uncollected real property taxes are subsequently available. The District considers all revenues reported in enforced by Potter County. An amount representing the governmental funds to be available if the revenues are uncollected real property taxes transmitted to the County collected within the current period or soon enough for relevy is recorded as deferred revenue until collected thereafter to be used to pay liabilities of the current period, by the County. Per capita, occupation and realty transfer except for real property taxes, which are considered to be taxes are levied annually by the Board of Education. available if they are collected within 60 days after the end Uncollected taxes are subsequently enforced by the tax of the fiscal year. collectors.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 Page 26
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) POLICIES (continued)
G. Capital Assets H. Long-Term Debt (continued)
Capital assets are reported at actual cost for 3. Retirement Payable acquisitions subsequent to June 30, 2003. For assets acquired prior to June 30, 2003, estimated historical costs, The District provides retirement incentives for all based on appraisals conducted by independent third-party teachers and administrative staff at a rate of $500 for professionals, was used. Donated assets are reported at each year of service at the District at a maximum of estimated fair market value at the time received. 35 years. Similarly, all maintenance staff receive $100 per year of service at a maximum of 35 years. The Capitalization thresholds (the dollar value above retirement incentives may be applied against future which asset acquisitions are added to the capital asset health insurance. The District has reported a liability accounts), depreciation methods, and estimated useful in the district-wide financial statements in the amount lives of capital assets reported in the district-wide of $169,645 as of June 30, 2012 related to retirement statements as follows: incentive payable.
Capitalization Depreciation Estimated I. Retirement Threshold Method Useful Life The School District provides retirement benefits for all Buildings $ 4,000 Straight-line 25-40 years its full-time and some part-time teachers and employees Land through the Pennsylvania Public School Employees' improvements $ 4,000 Straight-line 10-20 years Retirement System. The retirement system computes the Furniture and equipment $ 4,000 Straight-line 5-10 years cost of retirement benefits based upon employees' compensation earned during the fiscal year. Transportation vehicles $ 4,000 Straight-line 5-10 years The Retirement System bills the School District each quarter of the current year. Retirement expense is
recorded on the accrual method in all funds. H. Long-Term Debt J. Interfund Activity 1. General Long-Term Indebtedness
Bonds, general obligation notes and capital notes The amounts reported on the Statement of Net Assets are recognized when issued. for due to and from other funds represents amounts due between different fund types (governmental activities, 2. Compensated Absences business-type and fiduciary funds). Eliminations have The District provides compensated absences been made for amounts due to and due from within the benefits for all teachers and administrative staff at $30 same fund type. A detailed description of the individual per day for each day of unused sick leave in excess of fund balances at year-end is provided subsequently in 50 days. Similarly, all maintenance staff receive $15 these notes.
per day for each day of unused sick leave in excess of During the course of operations, the Northern Potter 50 days. All support professional employees receive School District has numerous transactions between $30 per day for each unused sick day over 50 days. funds, including expenditures and transfers of revenue to Such payment shall be made as a non-elective provide services and construct assets. Eliminations have employer voluntary contribution into an IRC § 403(b) been also made for amounts transferred to and from the account of the employee. same fund type.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 Page 27
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) POLICIES (continued)
K. Fund Equity K. Fund Equity (continued)
1. Governmental Funds 1. Governmental Funds (continued)
The Governmental Accounting Standards Board c. Committed (continued) (GASB) has issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions 1. Designation for Sick Leave Retirement Payment (GASB 54). This Statement defines the different types of fund balances that a governmental entity The designation for sick leave retirement must use for financial reporting purposes payment is used to pay for the accrued unused sick leave owed to an employee upon termination GASB 54 requires the fund balance amounts to of service with the District. be reported within one of the fund balance categories listed below: 2. Designation for Benefit Rate Stabilization Fund
a. Nonspendable This designation is designed to fund the Fund balance associated with assets that are anticipated increase in the District’s required inherently nonspendable in the current period contribution rate to the Pennsylvania Employees’ because of their form or because they must be Retirement System in future years. maintained intact, including inventories, prepaids, long-term loans and notes receivable, and 3. Designation for Health Care Stabilization Fund property held for relate (unless the proceeds are The purpose of the designation is to fund the restricted, committed, or assigned). anticipated increase in the District’s health Nonspendable Fund Balance includes the insurance costs to its employees. following category: d. Assigned 1. Inventory Reserve Fund balance intended to be used by the This reserve is used to limit the investment in District for specific purposes but does not meet inventory and to restrict that portion of fund the criteria to be restricted or committed. Along balance which is unavailable for appropriation. with the District’s Board of Education, the This reserve is accounted for in the General Business Manager and Treasurer has been Fund. authorized to assign fund balance amounts for b. Restricted specific purposes through the establishment of an encumbrance. Fund balance amounts that can be spent only for specific purposes stipulated by 1. Encumbrance Accounting
constitutional, external resource providers Encumbrance accounting, under which including creditors, grantors, contributors, etc., or purchase orders, contracts, and other through enabling legislation. The District had the commitments of the expenditure of monies are following restricted fund balance as of June 30, recorded in order to reserve that portion of the 2012. applicable appropriation, is used in the General 1. Endowment Scholarship Reserve Fund, Special Revenue Funds, and Capital Projects Fund. If resources have already been This reserve is used to account for restricted or committed for encumbrances, the endowments, scholarships and other funds held encumbered amounts will be included with in trust by the School District. These monies and restricted or committed resources. If resources earnings must be used for the specific purpose of have not already been restricted or committed, the original contributions. amounts encumbered are considered assigned for the purpose of the expected expenditure. c. Committed
Fund balance amounts that can be used only 2. Appropriated Fund Equity
for specific purposes determined by a formal General fund- The amount of $285,094 had action of the District’s Board of Education, which been designated as the amount estimated to be is the District’s highest level of decision-making appropriated to reduce taxes for the year ending authority. Committed fund balance includes the June 30, 2013. following categories:
NORTHERN POTTER SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 Page 28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) POLICIES (continued)
K. Fund Equity (continued) K. Fund Equity (continued) 3. Order of Fund Balance Spending Policy 1. Governmental Funds (continued) (continued)
e. Unassigned c. Assigned fund balance created specifically for the expenditure (encumbered fund balance); The residual classification of the general fund and includes all spendable amounts not d. Assigned fund balance within funds other than contained in other classifications. the General Fund of the District to which the expenditure relates; 2. Government-wide financial statements e. Unassigned fund balance. a. Invested in Capital Assets, Net of Related L. Estimates Debt Management uses estimates and assumptions in This designation of net assets is used to preparing financial statements. Those estimates and accumulate the capital asset balance in the statement assumptions affect the reported amounts of assets and of net assets less accumulated depreciation and liabilities, the disclosure of contingent assets and liabilities outstanding balances of any bonds, mortgages, notes, and the reported revenue and expenditures/expenses. or other borrowings that are attributable to the acquisition, construction, or improvement of those M. Cash and Cash Equivalents assets. For financial statement purposes, all highly liquid b. Restricted investments with original maturities of three months or less are considered as cash equivalents. This includes This category represents amounts that can be certificates of deposit, treasury notes and treasury bills, spent only for specific purposes stipulated by and investments in the Pennsylvania Local Government constitutional, external resource providers including Investment Trust (PLGIT) and Pennsylvania School creditors, grantors, contributors, etc., or through District Liquid Asset Fund (PSDLAF). enabling legislation. N. Investments c. Unrestricted
Investments are carried at market which approximates This category represents net assets of the District cost. not restricted for any other purpose.
NOTE 2 - EXPLANATION OF CERTAIN DIFFERENCES 3. Order of Fund Balance Spending Policy BETWEEN GOVERNMENTAL FUND STATEMENTS
When more than one classification of fund AND DISTRICT-WIDE STATEMENTS balance of the District are eligible to be utilized for an expenditure of the District, the order in which the fund Due to the differences in the measurement focus and balance classifications will be utilized will be as basis of accounting used in the governmental fund follows: statements and the district-wide statements, certain financial transactions are treated differently. The basic
financial statements contain a full reconciliation of these a. Restricted fund balance for which action has items. The differences result primarily from the economic been taken by the Board of Education, a focus of the Statement of Activities, compared with the designated school official, or by the voters of the current financial resources focus of the governmental District, specifically designating funds to the funds. expenditure;
b. Committed fund balance for which action has been taken by the Board of Education, a designated school official, or by the voters of the District, specifically designating funds to the expenditure;
NORTHERN POTTER SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 Page 29
NOTE 2 - EXPLANATION OF CERTAIN DIFFERENCES NOTE 2 - EXPLANATION OF CERTAIN DIFFERENCES BETWEEN GOVERNMENTAL FUND STATEMENTS BETWEEN GOVERNMENTAL FUND STATEMENTS AND DISTRICT-WIDE STATEMENTS (continued) AND DISTRICT-WIDE STATEMENTS (continued)
A. Total Fund Equity of Governmental Funds vs. Net B. Statement of Revenues, Expenditures and Assets of Governmental Activities Changes in Fund Equity vs. Statement of Activities (continued) Total fund equity of the District’s governmental funds differs from “net assets” of governmental activities reported in the Statement of Net Assets. 3. Long-term Debt Transaction Differences This difference primarily results from the additional long-term economic focus of the Statement of Net Long-term debt transaction differences Assets versus the solely current financial resources occur because both interest and principal focus of the governmental fund Balance Sheets. payments are recorded as expenditures in the governmental fund statements, whereas interest payments are recorded in the Statement of B. Statement of Revenues, Expenditures and Activities as incurred, and principal payments are Changes in Fund Equity vs. Statement of recorded as a reduction of liabilities in the Activities Statement of Net Assets
Differences between the governmental funds NOTE 3 - CASH AND INVESTMENTS Statement of Revenues, Expenditures and Changes
in Fund Equity and the Statement of Activities fall into A. Deposits one of three broad categories, which are summarized below. The School District invests excess funds with banks or trust companies authorized to do business in 1. Long-term Revenue Differences Pennsylvania. During the year ended June 30, 2012, the School District's investments included interest bearing Long-term revenue differences arise checking accounts (including money market type because governmental funds report revenue only investments), deposits to the Pennsylvania Local when they are considered “measurable” and Government Investment Trust (PLGIT), deposits to the “available”, whereas the Statement of Activities Pennsylvania School District Liquid Asset Fund (PSDLAF) reports revenue when earned. Differences in and U.S. Government notes and bills. These consist of long-term expenses arise because governmental permissible investments in obligations of the U.S. Treasury funds report on a modified accrual basis, whereas and U.S. Agencies or certificates of deposit, which are fully the accrual basis of accounting is used on the insured or collateralized as provided by Pennsylvania law. Statement of Activities. All funds were held by commercial banks, PSDLAF and PLGIT as authorized by the Board of Education as the 2. Capital Related Differences official depositories for the District's funds.
The District's cash and investments are required to be Capital related differences include the secured (for funds in excess of the FDIC insurance difference between proceeds for the sale of limitation of $250,000) by a pledge of governmental capital assets reported on governmental fund securities having a market value at least equal to the statements and the gain or loss on the sale of amount on deposit. The banks use the pooling method to assets as reported on the Statement of Activities, pledge securities for all public funds that are on deposit. and the difference between recording an This method allows the depository to pledge securities in expenditure for the purchase of capital items in one lump sum that covers all public funds on deposit at the the governmental fund statements and bank. depreciation expense on those items as recorded in the Statement of Activities. Custodial credit risk is the risk that in the event of a bank failure the District’s deposits may not be returned to it. While the District does not have a specific policy with regards to custodial credit risk, State statutes govern the District’s investment policies. At June 30, 2012, the District’s bank deposits were fully collateralized.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 30
NOTE 3 - CASH AND INVESTMENTS (continued) NOTE 4 - CAPITAL ASSETS (continued)
A. Deposits (continued) Governmental Proprietary
Total financial institution (bank) balances at June 30, Depreciation expense: 2012, including certificates of deposit, were approximately Instruction $ 237,780 $ - Support services 110,463 - $2,366,000 of which $250,000 was secured by FDIC Non-instructional services - 5,167 insurance and $2,116,000 was secured by the banks as required by Act 72 of 1971. $ 348,243 $ 5,167
B. Investments NOTE 5 - INDEBTEDNESS
The following is a summary of the carrying value and A. Summary of Long-Term Debt market value of the District’s investments as of June 30, 2012: The following is a summary of long-term debt obligations outstanding as of June 30: Certificate of deposits Carrying /Market Value Agency Fund: Balance at Balance at 1.00% due 07/13/13 $ 5,066 June 30, Current June 30, Private Purpose Trust Fund: 2012 Portion 2011 4.70% due 07/30/12 $ 1,399 4.70% due 09/04/12 5,035 Retirement Benefits $ 169,645 $ - $ 151,990 0.95% due 10/27/13 15,253 Compensated 2.95% due 10/01/15 11,477 Absences 48,510 - 41,390 0.55% due 12/24/12 1,019 1991 Serial Bonds- 0.95% due 10/27/13 24,838 Series B - - 303,230 0.45% due 11/17/12 24,271 2008 Series Bonds 3,927,200 250,000 3,917,779 $ 83,292 Other Post- NOTE 4 - CAPITAL ASSETS Employment Benefits 11,802 - 12,926 Capital asset balances and activity for the year ended $ 4,157,157 $ 250,000 $ 4,427,315 June 30, 2012 were as follows: B. Bonds Payable Beginning Ending Balance Additions Balance The following is a description of the terms of the long- 6/30/11 (Disposals) 6/30/12 term bonds issued, and reported here under the terms of the financing agreement, in connection with the Governmental activities: construction of the school building projects: Capital assets Land $ 55,983 $ - $ 55,983 Outstanding Buildings and Description of Issue June 30, 2012 Improvements 12,161,413 28,630 12,190,043 Furniture and Building Reconstruction – issued on Equipment 3,109,801 9,535 3,119,336 1/29/08 to refund 9/1/04 bond issuance.
Total depreciable Maturity date of 9/1/24, bonds carry historical cost 15,327,197 $ 38,165 15,365,362 interest from 3.50%-4.00%. $ 4,135,000
Less accumulated Less: unamortized bond issuance costs depreciation: 8,063,023 $ 348,243 8,411,266 on issuance of bonds. (207,800)
Total net book value $ 7,264,174 $ 6,954,096 $ 3,927,200
Proprietary activities:
Equipment $ 148,012 $ 5,824 $ 153,836
Less accumulated depreciation: 141,832 $ 5,167 146,999
Total net book value $ 6,180 $ 6,837
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 31
NOTE 5 – INDEBTEDNESS (continued) NOTE 6 - CONTINGENCIES AND COMMITMENTS
C. Maturity A. Federal and State Grants
A summary of principal and interest payments on the The School District participates in both state and serial bond is as follows: federal assisted grant programs. These programs are subject to program compliance audits by the grantors
or their representatives. The School District is 2008 Series Bonds potentially liable for any expenditures which may be June 30, Principal Interest disallowed pursuant to the terms of these grant programs. Management is not aware of any material 2013 $ 250,000 $ 148,551 items of noncompliance which would result in the 2014 260,000 138,351 disallowance of program expenditures. 2015 270,000 128,426 2016 280,000 118,801 2017 295,000 108,923 b. Self-Insurance 2018-2022 1,625,000 379,220 2023-2025 1,155,000 68,554 The School District is self-insured against unemployment claims. Based upon historical claims $ 4,135,000 $ 1,090,826 and management’s anticipated claims, no reserve as of June 30, 2012 is deemed necessary. D. Long-Term Debt Interest c. Risk Financing and Related Insurance Interest expense for the year ended amounted to $175,670 which related to serial bonds and is 1. General Information recorded in the General Fund. The Northern Potter School District is exposed E. Debt Issuance costs and amortization to various risks of loss related to torts, theft of, damage to, and destruction of assets; errors and Debt issuance costs resulting from the bond and omissions; natural disasters, etc. These risks are other debt refinancing are being amortized over the covered by commercial insurance purchased from life of the relating debt using the interest method. independent third parties. Settled claims from these These costs are accordingly reduced from the risks have not exceeded commercial insurance outstanding principal balances of the bonds. coverage for the past two years.
F. Defeasement of Debt 2. Risk Sharing Pools
In prior years, the District defeased certain For its employee health and accident coverage, general obligations and other bonds by placing the Northern Potter School District is a participant in a proceeds of new bonds in an irrevocable trust to Blue Cross and Blue Shield Medical Plan consortium, provide for future debt service payments on the old a public entity risk pool operated for the benefit of bonds. Accordingly, the trust account assets and individual governmental units located within the liability for the defeased bonds are not included in the Seneca Highlands Intermediate Unit 9. The School District’s statements. District pays monthly premiums to the Plan for this
health coverage.
The Plan provides health coverage for its members and all claims are paid from the total premiums contributed by the members of the consortium. Excess claims over premiums are funded from a stabilization fund held by the Seneca Highlands Intermediate Unit Insurance Trust, while premiums in excess of the claims are refunded to the
Insurance Trust.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 32
NOTE 7 - INTERFUND TRANSACTIONS NOTE 8 - RETIREMENT PLAN (continued)
B. Funding Policy (continued) Interfund receivable and payable balances at June 30, 2012 are as follows:
3. Contributions required of employers are based Interfund Interfund upon an actuarial valuation. For fiscal year Receivable Payable ended June 30, 2012 the rate of employer contribution was 8.65 percent of covered payroll. General Fund $ 272,441 $ - The 8.65 percent rate was composed of .65 Food Service Fund - 207,187 percent health insurance premium assistance Fiduciary Funds - 65,254 and 8.00 of pension contribution. The District's required contributions for the current year and Total $ 272,441 $ 272,441 two preceding years were:
NOTE 8 - RETIREMENT PLAN 2012 $ 348,000 2011 220,000 The School District participates in a contributory 2010 188,000 retirement plan administered by the Public School Employees' Retirement System (PSERS). 4. The District contributions made to the system were equal to 100 percent of the contributions A. Plan Description required for each year.
1. PSERS is a cost-sharing multiple employer defined benefit plan. 5. The State of Pennsylvania funds employee contributions by requiring the Districts to report 2. Benefits include retirement and disability, the entire local and state share (8.65% and legislative mandated ad hoc cost of living 5.64% during the years ended June 30, 2012 and adjustments and health care, insurance 2011, respectively) and then reimburses the premiums to qualifying annuitants. District for its portion (approximately 4.33% and
3. The employer and employee obligations to 2.82% during the years ended June 30, 2012 and contribute are established by authority of the 2011, respectively) through state aid payments. Public School Employees' Retirement Code (Act No. 96 of October 2, 1975, as amended). NOTE 9 – OTHER POST EMPLOYMENT BENEFITS
4. The system issues a comprehensive annual A. Plan Description financial report that includes financial statements and required supplementary information for the The District maintains a single-employer defined plan. A copy of the report may be obtained by benefit healthcare plan (the Plan). The Plan provides writing to Public School Employees' Retirement medical and dental insurance benefits to eligible System, PO Box 125, Harrisburg, PA 17108- retirees and their spouses. Benefit provisions are 0125. based on bargaining agreements as negotiated from time to time. The Plan does not issue a publicly B. Funding Policy available financial report. Eligibility for the Plan is established by the District and specified in the 1. The contribution policy is established in the District’s employment contracts. Public School Employees' Retirement Code and requires contributions by active members, B. Funding Policy
employers, and the Commonwealth. The required contribution is based on projected
pay-as-you-go financing requirements, with no current 2. Most active members contribute at 6.50 percent funding of actuarially determined liabilities. of the member's compensation. Members joining
the System on or after July 22, 1983 contribute at 7.50 percent.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 33
NOTE 9 – OTHER POST-EMPLOYMENT BENEFITS NOTE 9 – OTHER POST-EMPLOYMENT BENEFITS (continued) (continued)
C. Annual OPEB Cost and Net OPEB Obligation D. Funding Status and Funding Progress (continued) The District’s annual other post-employment benefit (OPEB) expense is calculated based on the Actuarial valuations of an ongoing plan involve annual required contribution of the District (ARC), an estimates of the value of reported amounts and amount actuarially determined in accordance with assumptions about the probability of occurrence of GASB 45. The ARC represents a level funding that, if events into the future. Examples include assumptions paid on an ongoing basis, is projected to cover the about future employment, mortality, and the normal cost each year and to amortize unfunded healthcare cost trend. Amounts determined regarding actuarial liabilities for a period not to exceed 30 years. the funded status of the Plan and the annual ARC of The following table summarizes the District’s the District are subject to continual revision as actual annual OPEB cost for 2012, the amount actually results compared with past expectations and new contributed to the Plan, and changes in the District’s estimates are made about the future. The schedule of net OPEB obligation: funding progress presents multi-year trend information that shows whether the actuarial value of plan assets Normal Cost $ 16,102 are increasing or decreasing over time relative to the Amortization of unfunded actuarial accrued liabilities of benefits. actuarial accrued liability 22,867 Interest adjustment 582 E. Actuarial Methods and Assumptions Annual required contribution adjustment (794) Projection of benefits for financial reporting Annual OPEB cost (expense) 38,757 purposes are based on the Plan as understood by the Contributions made (39,881) District and Plan members and include the types of Increase in net OPEB obligation (1,124) benefits provided at the time of each valuation and the Net OPEB obligation – beginning of historical pattern of sharing benefit costs between the Year 12,926 Net OPEB obligation-end of year $ 11,802 District and Plan members. The actuarial methods and assumptions used included techniques that are
designed to reduce the effects of short-term volatility The District’s annual OPEB cost, the percentage in actuarial accrued liabilities and the actuarial value of annual OPEB cost contributed to the plan, and the of assets, consistent with the long-term perspective of net OPEB obligation for 2012, 2011 and 2010 are as the calculations. Valuation assumptions are as follows: follows:
Fiscal Annual Annual Net Year OPEB OPEB Cost OPEB Retirement age for active employees – based on the Ended Cost Contributed Obligation PSERS plan experience and vary by age, service and 6/30/12 $ 38,757 102.9% $ 11,802 gender. 6/30/11 $ 38,830 88.56% $ 12,926 Marital status – 30% of employees are assumed to be 6/30/10 $ 38,969 78.23% $ 8,484 married and have a spouse covered by the plan at retirement. Male spouses are assumed to be two D. Funding Status and Funding Progress years older than female spouses. Mortality – Separate rates are assumed pre- As of June 30, 2012, the actuarial accrued liability retirement and post-retirement using the rates for benefits was $360,672, all of which was unfunded. assumed in the PSERS defined benefit pension plan The covered payroll (annual payroll of active actuarial valuation. employees covered under the plan) was $3,484,016 Turnover – Rates of withdrawal vary by age, gender and the ratio of unfunded actuarial liability to the and years of service. Rates for new employees start covered payroll was 10.35%. at 14% for both men and women and decrease with age and service.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 34
NOTE 9 – OTHER POST-EMPLOYMENT BENEFITS NOTE 11- DEFERRED REVENUE (continued) Deferred revenue is reported on the District’s
combined balance sheet. Deferred revenue arises when E. Actuarial Methods and Assumptions potential revenue does not meet both the measurable and (continued) available criteria for recognition in the current period.
Deferred revenue also arises when resources are received Healthcare cost trend rate – A rate of 8.0% initially, by the District before it has a legal claim to them, as when reduced by 0.5% per year to 5.5% in 2014. Rate grant monies are received prior to the incurrence of gradually decreases from 5.3% in 2015 to 4.2% in qualifying expenditures. In subsequent periods, when 2099. both recognition criteria are met, or when the District has Health insurance premiums – 2009 health insurance legal claim to the resources, the liability for deferred premiums are used as the basis for calculation of the revenue is removed and revenue is recognized. As of present value of total benefits to be paid. June 30, 2012, deferred revenue amounted to $195,712. Salary – Salary increases is used only for spreading Of this balance $192,274 pertains to taxes receivable at contributions over future pay under the entry age the end of the fiscal year less amounts collected within normal cost method. Salary increases are composed thirty days subsequent to the year-end, while $3,438 of a 3% cost of living adjustment, 1% real wage pertains to proceeds received in advance of qualifying growth factor and for teachers and administrators a expenditures related to the District’s physical education merit increase which ranges from 3% to .25%. grant. Deferred revenue is recognized as revenue in the Discount rate and cost method - Based on the Statement of Activities. historical and expected returns of the District’s
general assets, a discount rate of 4.5% was used. In NOTE 12 - COMPENSATED ABSENCES addition, the valuation method utilized for this plan is
called the Entry Age Normal Method. The District does not accrue a liability for Amortization – The unfunded actuarial accrued liability accumulating, nonvesting sick leave, since payment is is being amortized as a level dollar amount on an based on an uncontrollable future event (sickness). In open basis over thirty years. accordance with the provisions of Government Accounting
Standards Board Statement No. 16, the value of NOTE 10 - RECEIVABLES accumulating, nonvesting sick leave is considered a A. Taxes Receivable contingent liability. The District reports approximately $48,000 at June 30, 2012 for accumulating, nonvesting Taxes receivable amounted to $234,736 at June sick leave. The District accrued $48,510 as of June 30, 30, 2012 and consist of the estimated delinquent real 2012, in the statement of net assets for accumulating, property taxes levied by the District but uncollected vesting sick leave. during the last three years. The taxes are ultimately collectible either by payment from the property owner NOTE 13 – ACCUMULATED DEFICIT or from the proceeds of a public sale of the levied property; however, the District recorded a $7,000 As of June 30, 2012, the District had an accumulated reserve for potential uncollectible delinquent real deficit in the amount of approximately $148,000 in the estate taxes on the district-wide financial statements. Food Service Fund resulting from net losses from
B. Intergovernmental Receivable operations in the current and prior years. Management is continually reviewing its options to alleviate the remaining Included in the intergovernmental receivable deficit. balance of $333,193 in the general fund are amounts related to a receivable from the Pennsylvania NOTE 14 - OVERDRAWN APPROPRIATIONS – Department of Education for reimbursement of social GENERAL FUND security, retirement, grant receivables from the Federal and State governments, amounts due from Northern Potter School District’s total expenditures the Seneca Highlands Intermediate Unit of Education in the General Fund exceeded total appropriations by and amounts related to tuition receivable from various approximately $143,000, which was primarily the result of local school districts. the expenditures that are incurred from grants that were previously administered through the intermediate unit. Revenue related to these expenditures were also not budgeted the current or previous years.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012 Page 35
NOTE 15 – FUND EQUITY NOTE 17 – RELATED PARTY
A. Classification The School District is one of various school districts of The District’s fund equity is comprised of various the Seneca Highland Area Vocational-Technical School components Authority (Vo-Tech). Vo-Tech is controlled and governed Balance by the joint board which is composed of school board June 30, members of the member school districts. Direct oversight Category / Fund Description 2012 of Vo-Tech’s operation is the responsibility of the joint board. The School District’s share of annual operating and capital costs for Vo-Tech fluctuates based on a Nonspendable: percentage enrollment in the school. The Seneca Highlands Intermediate Unit 9 provides several services to General Fund Reserve for inventory $ 41,113 the School District. These services include special education, Title 1 administration, hospitalization, a local area network, and enrichment services. Committed: During the fiscal year ended June 30, 2007, the Vo- General Reserve for health Tech issued long-term debt to finance a building- Insurance $ 311,618 improvement project. Northern Potter School District, Reserve for retirement 236,075 along with the component school districts, are committed Reserve for sick leave 21,345 to pay its allocated portion of the future long-term debt. $ 569,038 During the fiscal year ended June 30, 2012, the District Assigned: incurred principal and interest costs related to the long- term debt in the amount of $32,705 and $27,892 respectively. Below is a schedule of District’s future costs General Fund Designated for subsequent associated with their payment of the long-term debt. years $ 285,094
Restricted: June 30, Principal Interest
2013 $ 33,760 $ 26,563 Capital Projects Reserve for capital projects $ 260,161 2014 35,343 25,181 2015 36,398 23,814 Reserve for endowment 2016 37,980 22,452 Fiduciary Fund Scholarships $ 83,542 2017 39,563 21,007 2018-2022 222,606 80,198 NOTE 16 – LITIGATION 2023-2027 272,719 29,569 $ 678,369 $ 228,785 In September 2009, a complaint was filed by parents of a student against the District, a principal and former The District will receive rental subsidy from the superintendent. The lawsuit has various causes of action, Pennsylvania Department of Education based on including violations of Individuals with Disabilities payments of principal and interest related to the Vo-Tech Education Act, 42 U.S.C. 1983 and Article 1, Section 26 of building project. The District recognized rental subsidy the Pennsylvania Constitution and punitive damages. The revenue during the current fiscal year in the amount of case was filed in Federal Court and is in the discovery $39,800 for current year payments made on the project phases. The District is being represented by a law firm appointed by its insurance company. The District believes NOTE 18 – SUBSEQUENT EVENTS it has meritorious defenses and intends to defend this litigation vigorously. Subsequent events were evaluated through February 12, 2013, which is the date that the audit report was The School District, in the normal course of its issued. operations, is involved in various litigation and arbitration cases. Management is of the opinion that any unfavorable outcome resulting from these actions would not have a material effect on the School District’s financial position.
SUPPLEMENTARY INFORMATION
NORTHERN POTTER SCHOOL DISTRICT COMPARATIVE STATEMENTS OF REVENUE AND EXPENDITURES - GENERAL FUND
Fiscal years ended June 30, 2012 2011 Revenue Local sources: Taxes: Current real estate taxes$ 1,862,759 $ 1,862,467 Per capita 76,288 78,879 Realty transfer and earned income 217,110 256,587 Public utility realty tax 3,494 3,405 Payment in lieu of taxes 22,460 22,460 Delinquent real estate taxes 199,745 202,303 Total tax revenue 2,381,856 2,426,101 Interest earnings 1,721 2,276 Federal revenue received from intermediate and local sources 160,819 469,166 Rentals - 307 Community service activities 4,986 15,550 Tuition and other reimbursement - 1,135 Refunds of prior year expenditures 42,797 - Miscellaneous 15,523 60,688 Total local sources 2,607,702 2,975,223 State sources: Basic instructional subsidy 4,121,331 3,513,853 Tuition 1,030 - Rental 303,204 492,442 Transportation 424,558 457,911 Special education 421,381 422,302 Social security and retirement 368,838 300,714 Vocational education 34,884 44,275 Health services 10,832 10,821 Extra grants 1,405 60,836 Property tax relief subsidy 235,282 235,295 PA accountability grant 57,522 146,408 Total state sources 5,980,267 5,684,857 Federal sources: Titl e I 238,866 - Titl e II 59,795 - Fiscal education stabilization ARRA - 486,020 Education Jobs fund, ARRA 4,465 287,959 Other restricted federal grants in aid 117,998 113,611 Total federal sources 421,124 887,590 Total revenue and other sources $ 9,009,093 $ 9,547,670
See accompanying independent auditors’ report on supplementary information.
Page 36
Fiscal years ended June 30, 2012 2011 Expenditures Instruction: Regular programs $ 4,268,045 $ 4,756,053 Special programs 737,278 679,265 Vocational education programs 260,829 259,264 Other instructional programs 2,889 32,751 Total instruction 5,269,041 5,727,333 Support services: Pupil personnel 191,785 187,668 Instructi onal staff 267,905 251,087 Administration: Board services 16,712 9,938 Tax collections 86,391 78,530 Legal 31,819 8,013 Superintendent 245,730 234,686 Principals 380,701 367,824 Total administration 761,353 698,991 Pupil health 78,113 72,839 Business 174,531 203,350 Operation and maintenance of plant services 687,273 686,309 Student transportation services 528,215 651,353 Central support services 23,524 14,551 Other support services 31,499 33,968 Total other support services 1,523,155 1,662,370 Total support services 2,744,198 2,800,116 Noninstructional services: Student activities 132,764 224,485 Community services 4,607 4,400 Total noninstructional services 137,371 228,885 Facilities acquisition, construction and improvement 61,144 109,481 Debt service 560,338 556,738 Other financing uses: Refund of pri or years' receipts 6,658 68 Total expenditures and other financing uses 8,778,750 9,422,621
Excess of revenue and other sources over expenditures and other financing uses $ 230,343 $ 125,049
NORTHERN POTTER SCHOOL DISTRICT STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS - ACTIVITY FUND Page 37
Total Total Balances Total Receipts & Payments Balances June 30, 2011 Receipts Balances & Adjustments June 30, 2012 Extraclassroom activities:
Band$ 3,140 $ 23,162 $ 26,302 $ 26,978 $ (676) Biology C lub 858 - 858 - 858 Cheerleaders 282 - 282 - 282 Chorus 1,501 319 1,820 1,121 699 Class of 2008 1,211 - 1,211 - 1,211 Class of 2009 47 - 47 47 - Class of 2011 1,885 - 1,885 750 1,135 Class of 2012 2,771 2,580 5,351 5,301 50 Class of 2013 2,418 7,679 10,097 6,824 3,273 Class of 2014 - 3,230 3,230 2,167 1,063 Drama Club 2,327 2,772 5,099 3,368 1,731 FFA 7,448 23,479 30,927 23,625 7,302 FHA 5 355 360 346 14 Future Business Leaders 786 - 786 72 714 General Activity 1,882 4,111 5,993 4,096 1,897 Language C lub 303 - 303 - 303 Library 3,940 413 4,353 4,086 267 National Honor Society 155 288 443 185 258 Panther Tales 379 - 379 - 379 Student C ouncil 1,098 1,258 2,356 1,283 1,073 Varsity C lub 3,789 7,439 11,228 5,592 5,636 Yearbook 5,888 14,799 20,687 13,226 7,461 Yellow Ribbon Club 779 - 779 - 779 Interest 55 38 93 189 (96) Children's School Account 2,549 4,176 6,725 2,819 3,906
Total activi ty fu nd $ 45,496 $ 96,098 $ 141,594 $ 102,075 $ 39,519
See accompanying independent auditors’ report on supplementary information.
NORTHERN POTTER SCHOOL DISTRICT SCHEDULE OF FUNDING PROGRESS Page 38
Unfunded Actuarial Actuarial Ratio of Actuarial Actuarial Accrued Accrued UAAL to Valuation Value of Liability Liability Funded Covered Covered Date Assets ("AAL") ("UAAL") Ratio Payroll Payroll
July 1, 2009$ - $ 360,672 $ 360,672 0%$ 3,484,016 10.35%
See accompanying independent auditors’ report on supplementary information.
NORTHERN POTTER SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Page 39
Accrue d or Accrued or Pass-through Grant Period Program or (Deferred) (Deferred) Source Federal Grantor's Beginning/ Award Grant Revenue) Revenue) Federal Gran tor/Pass Through Grantor Code CFD A # N umber Ending D ate Amount Received 7/1/11 Revenue Expenditure 6/30/12
Direct Award from the U.S. Department of Education
Physical Education Grant 1 84.215 Q215F080133 7/01/10-9/30/11$ 129,834 $ 56,594 $ (56,594) $ 56,594 $ 56,594 $ - Physical Education Grant 1 84.215 Q215F080133 7/01/11-9/30/12 131,499 36,642 - 41,238 41,238 4,596 261,333 93,236 (56,594) 97,832 97,832 4,596
Passed through the Pennsylvania Departm ent of Education Title VI - Rural and Low Income Schools 2 84.358 007-12-0300 7/01/11-6/30/12 17,069 17,069 - 17,069 17,069 - ARRA Education Stabilization - Basic Ed 2 84.394 126-11-0300 7/01/10-6/30/11 486,020 162,007 162,007 - - - ARR A Education Jobs Funding 2 84.394 140-14-1990 7/01/11-6/30/12 4,465 - - 4,465 4,465 4,465 Title I - Improving Basic Programs * 2 84.010 013-12-0300 7/01/11-6/30/12 289,075 66,710 - 238,866 238,866 172,156 Title II - Improving Teacher Quality 2 84.367 020-12-0300 7/01/11-6/30/12 59,795 13,901 - 59,795 59,795 45,894 856,424 259,687 162,007 320,195 320,195 222,515
Passed through the Sene ca Highlands Interm ediate Unit #9 Title I - Low incom e * 3 84.010 013-12-0509 7/01/10-9/30/11 311,398 90,478 47,993 42,485 42,485 - Title I, ARR A * 3 84.389 127-11-0509 7/01/09-9/30/11 202,048 155 155 - - - Title IIA - Improving Teacher Quality 3 84.367 020-12-0509 7/01/10-9/30/11 68,695 65,888 65,888 - - - IDEA ** 3 84.027 062-12-0009 7/01/10-9/30/11 86,426 15,948 15,948 - - - IDEA ** 3 84.027 062-12-0009 7/01/11-9/30/12 91,151 91,151 - 91,151 91,151 - IDEA 619** 3 84.173 131-12-0009 7/01/11-9/30/12 1,647 - - 1,647 1,647 1,647 IDEA ARRA ** 3 84.392 128-11-0009 7/01/09-9/30/11 105,698 25,536 - 25,536 25,536 - 867,063 289,156 129,984 160,819 160,819 1,647
Passed through the Galeton Area School District
N ational Environm ental Education Act 4 66.951 NE83484101-0 9/01/10-12/31/12 - 3,097 - 3,097 3,097 - Total U .S. Environmental Protection Age ncy - 3,097 - 3,097 3,097 -
Total U.S. Department of Education 1,984,820 645,176 235,397 581,943 581,943 228,758
U .S. Department of Agriculture Passed Through the Pennsylvania Department of Education: N ational School Breakfast Program *** 5 10.553 365 7/01/11-6/30/12 n/a 45,877 5,361 40,516 40,516 - N ational School Lunch Program *** 5 10.555 362 7/01/11-6/30/12 n/a 130,442 16,095 114,347 114,347 - FNS Equipment Grant 5 10.579 146 7/01/11-6/30/12 n/a 5,824 - 5,824 5,824 - 182,143 21,456 160,687 160,687 - Passed through the Pennsylvania Departm ent of Agriculture
N ational School Lunch Program -non-cash assistance *** 6 10.555 n/a 7/01/10-6/30/11 n/a - (4,977) 4,977 4,977 - N ational School Lunch Program -non-cash assistance *** 6 10.555 n/a 7/01/11-6/30/12 n/a 20,616 - 16,357 16,357 (4,259) 20,616 (4,977) 21,334 21,334 (4,259)
Total U.S. Department of Agriculture 202,759 16,479 182,021 182,021 (4,259)
Total Federal Assistance $ 1,984,820 $ 847,935 $ 251,876 $ 763,964 $ 763,964 $ 224,499
Sources of Federal Funds are:
(1) Direct award from United States Department of Education (2) United States Department of Education passed through the Pennsylvania Department of Educa tion (3) United States Department of Education passed through the Pennsylvania Department of Educa tion through to the Seneca Highlands Interme diate Unit #9 (4) United States Department of Education passed through the Galeton School District (5) United States Department of Agriculture passed through the Pennsylvania Department of Educa tion (6) United States Department of Agriculture value of donated food pa ssed through the Penn sylvania Department of Agriculture
*, **, *** Constitutes a cluster of Federal program s
See accompanying independent auditors’ report on supplementary information.
NORTHERN POTTER SCHOOL DISTRICT NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2012 Page 40
Note 1 - Basis of Presentation
The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the Northern Potter School District and is presented on the modified accrual basis of accounting. The information in the schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Government and Non-Profit Organizations. Therefore, some amounts presented in the schedule may differ from amounts presented in, or used in the preparation of the basic financial statements.
Note 2 - Non-monetary Federal Program
The accompanying Northern Potter School District is the recipient of a non-monetary federal award program. During the year ended June 30, 2012, the District reported in the Schedule of Federal Awards $21,334 of donated commodities at fair market value received and disbursed.
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
To the President and Members of the Board of Education Northern Potter School District Ulysses, Pennsylvania
We have audited the financial statements of the governmental activities, business-type activities and each major fund of Northern Potter School District as of and for the year ended June 30, 2012, which collectively comprise Northern Potter School District’s basic financial statements and have issued our report thereon dated February 12, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
Management of Northern Potter School District is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Northern Potter School District‘s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies or material weaknesses and therefore there can be no assurance that deficiencies, significant deficiencies and material weaknesses have been identified. However, as discussed below, we identified two deficiencies in internal control over financial reporting that we consider to be material weaknesses.
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 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. We consider the deficiencies in the District’s internal control described in the accompanying schedule of findings and questioned costs as items II.A.2012-1 and II.A.2012-2 to be material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Northern Potter School District’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.
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Members of American Institute of Certified Public Accountants Private Companies Practice Section
We noted other matters that we have reported to management of Northern Potter School District in a separate letter dated February 12, 2013.
Northern Potter School District’s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit Northern Potter School District’s responses and, accordingly, we express no opinion on them.
This report is intended for the information and use of the Board of Education, management, federal and state awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.
BUFFAMANTE WHIPPLE BUTTAFARO, P.C.
Olean, New York February 12, 2013
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INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDNACE WITH OMB CIRCULAR A-133
To the President and Members of the Board of Education Northern Potter School District Ulysses, Pennsylvania
Compliance
We have audited the compliance of Northern Potter School District with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2012. Northern Potter School District’s major federal programs are identified in the Summary of Audit Results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of Northern Potter School District’s management. Our responsibility is to express an opinion on Northern Potter School District’s compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Governmental 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 Northern Potter School District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide legal determination on Northern Potter School District’s compliance with those requirements.
In our opinion, Northern Potter School District complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2012.
Internal Control Over Compliance
The management of Northern Potter School District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered Northern Potter School District's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of the internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over compliance.
Our consideration of the 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 the internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. However, as discussed below, we did identify one deficiency in internal control over compliance and its operation that we consider to be a material weakness.
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Member of American Institute of Certified Public Accountants Private Companies Practice Section
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 award 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. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item III.B.2012-3 to be a material weakness.
We noted other matters that we have reported to management of Northern Potter School District in a separate letter dated February 12, 2013.
Northern Potter School District’s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit Northern Potter School District’s response and, accordingly, we express no opinion on it.
This report is intended for the information and use of the Board of Education, management and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.
BUFFAMANTE WHIPPLE BUTTAFARO, P.C.
Olean, New York February 12, 2013
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NORTHERN POTTER SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2012 Page 45
I. SUMMARY OF AUDIT RESULTS
1. The independent auditors’ report expresses an unqualified opinion on the financial statements of Northern Potter School District.
2. Two material weaknesses relating to the audit of the financial statements were reported in the 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. These material weaknesses are described in the accompanying schedule of findings and questioned costs as items II.A.2012-1 and II.A.2012-2.
3. No instances of noncompliance material to the financial statements of Northern Potter School District were disclosed during the audit as reported in the 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.
4. There was one material weakness disclosed during the audit of the major federal assistance programs as reported in the Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133. This material weakness is described in the accompanying schedule of findings and questioned costs as item III.B.2012-3.
5. The auditors’ report on compliance for the major federal assistance programs for the Northern Potter School District expresses an unqualified opinion.
6. Audit findings that are required to be reported in accordance with Section 510(a) of OMB Circular A-133 are reported in this schedule.
7. The programs tested as major programs include:
Program Expenditures Name CFDA# Type Amounts
ESEA - Title I 84.010 Type B $ 281,351 National School Breakfast Program *** 10.553 Type B 40,516 National School Lunch Program *** 10.555 Type B 114,347 National School Lunch Program – Noncash assistance *** 10.555 Type B 21,334
Total Federal assistance tested $ 457,548
Total Federal assistance $ 763,964
Percent of total programs tested 60%
*** Constitutes a cluster of major programs.
8. The threshold for distinguishing between Types A and B programs was $300,000.
9. Northern Potter School District does not qualify as a low-risk auditee.
NORTHERN POTTER SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2012 Page 46
ІІ. FINANCIAL STATEMENT AUDIT - FINDINGS
A. INTERNAL CONTROL OVER FINANCIAL REPORTING
2012-1 Purchase Order System
Year ended June 30, 2012
Condition and criteria: During the audit, we noticed that certain controls were lacking in the area of purchasing of goods and services. We noticed various instances whereby purchases were made during the 2011-12 fiscal year without the documentation of prior authorization or approval from management.
Effect: By not instituting a strong internal control system in the area of purchases and cash disbursements, the District could incur expenditures that were not authorized by the Board of Education during the budget process. Also, expenditures may be incurred which do not coincide with management’s’ expectations or philosophy in providing an education to the students of the District.
Auditors’ Recommendations: An effective internal control system is necessary in the purchasing of goods and services to provide better control over expenditures. The District should attempt to use purchase orders for all expenditures. During instances in which a purchase order is not possible, a purchase requisition or some other form of documentation should be utilized to signify prior approval was granted. All purchase orders should be examined and approved by a designated member of management prior to the goods or services are ordered. A signature and date should accompany each purchase order, which evidences that such steps were taken. Lastly, the District may also consider enhancing its control over open purchase orders, and possibly put limits or threshold as to the maximum purchase amount under each open purchase order, along with limits on individual purchases.
School District’s Response: The District has communicated the importance of incorporating a strong internal control system over purchases and cash disbursements to ensure proper approval and authorization for expenditures is taking place on all purchases.
Year ended June 30, 2011
A similar finding was reported upon during the fiscal year ended June 30, 2011.
2012-2 Adjusting Journal Entries, Required Disclosures and Draft Financial Statements
Year ended June 30, 2012
Condition and Criteria: During the current year, adjusting journal entries, along with footnote disclosures were proposed by the auditors and accepted by the District to properly reflect the financial statements in accordance with generally accepted accounting principles. Some of the adjustments and footnotes were related to converting to the full accrual method for GASB 34 purposes, reclassifying interfund receivable and payable balances and recording certain receivable and liabilities. In addition, the draft of the financial statements were prepared by the auditors and accepted by the District.
Effect: The American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards Number 115, entitled Communicating Internal Control Related Matters in an Audit. This new standard considers the need for significant adjusting journal entries and assistance when preparing the financial statements to be indicative of an internal control deficiency.
Auditors’ Recommendation: Although auditors may continue to provide such assistance both now and in the future, under the new pronouncement, the District should continue to review and accept both proposed adjusting journal entries and footnote disclosures, along with the draft financial statements.
NORTHERN POTTER SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2012 Page 47
ІІ. FINANCIAL STATEMENT AUDIT – FINDINGS (CONTINUED)
A. INTERNAL CONTROL OVER FINANCIAL REPORTING (CONTINUED)
2012-2 Adjusting Journal Entries, Required Disclosures and Draft Financial Statements (continued)
Year ended June 30, 2012 (continued)
School District’s Response: The District has received, reviewed and accepted all journal entries, footnote disclosures and draft financial statements proposed for the current year audit and will continue to review similar information in future years. Further, the District believes it has a thorough understanding of these financial statements and the ability to make informed judgments based on these financial statements. Lastly, the District considers such assistance provided by the auditors to be the most cost effective in preparing such information.
Year ended June 30, 2011
A similar finding was reported upon during the fiscal year ended June 30, 2011.
B. COMPLIANCE
Year ended June 30, 2012
No compliance findings are being reported upon during the fiscal year ended June 30, 2012.
Year ended June 30, 2011
No compliance findings were reported upon during the fiscal year ended June 30, 2011.
NORTHERN POTTER SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2012 Page 48
III. MAJOR FEDERAL AWARD PROGRAMS AUDIT – FINDINGS AND QUESTIONED COSTS
A. COMPLIANCE
Year ended June 30, 2012
No compliance findings were reported upon during the fiscal years ended June 30, 2012.
Year ended June 30, 2011
No compliance findings were reported upon during the fiscal years ended June 30, 2011.
B. INTERNAL CONTROL OVER COMPLIANCE
2012-3 Adjusting Journal Entries, Required Disclosures and Draft Financial Statements
Year ended June 30, 2012
Same finding as II.A.2012-2 above is being reported upon during the fiscal year ended June 30, 2012.
Year ended June 30, 2011
Similar finding was reported upon during the fiscal year ended June 30, 2011.
February 12, 2013
To the President and Members of The Board of Education Northern Potter School District Ulysses, Pennsylvania
To the Board Members and Administration:
We have completed our audit of the District’s financial statements for the fiscal year ended June 30, 2012 and have issued our reports thereon dated February 12, 2013. Our audit report expressed an opinion which states that the District's financial statements are in accordance with generally accepted accounting principles in the United States of America for governments and school districts located in the Commonwealth of Pennsylvania. In addition, we have issued a separate report on internal controls over financial reporting and compliance with laws and regulations as required by Government Auditing Standards.
In planning and performing our audit of the financial statements of the Northern Potter School District for the year ended June 30, 2012, 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 and its operation. Except as noted within the body of such reports, the District generally was in compliance with laws and regulations and maintains a reasonable system of accounting internal controls.
Attached to this letter is a summary of additional comments which we desire to bring to the Board and Administration’s attention involving various matters. Although such matters were not of sufficient nature to be disclosed in the previously mentioned reports, we do feel the comments should be reviewed and acted upon primarily by the business staff. In addition, attached to this letter is a summary of revenue and expense comparisons and analysis of fund equity for the school years ended June 30, 2008 through June 30, 2012.
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Members of American Institute of Certified Public Accountants Private Companies Practice Section
NORTHERN POTTER SCHOOL DISTRICT REVENUE AND EXPENDITURES COMPARISON AND ANALYSIS OF FUND EQUITY - GENERAL FUND (AMOUNTS IN $1,000) Page 50
06/30/12 06/30/11 06/30/10 06/30/09 06/30/08 Revenue and other sources Tax revenue$ 2,382 $ 2,426 $ 2,442 $ 2,361 $ 2,563 Other local sources 226 548 1,093 776 712 State aid 5,980 5,685 5,772 6,381 6,156 Federal aid 421 888 701 6 3 All other - - - 14 4,215 9,009 9,547 10,008 9,538 13,649
Expenditures and other uses Instruction 5,269 5,727 6,018 5,657 5,404 Administration 761 699 656 638 608 Other support services 1,983 2,101 2,154 2,115 2,110 Noninstructional services 138 229 183 204 192 Facilities acquisition and improvement 61 109 132 77 88 Debt service 560 557 558 571 473 Interfund transfers - - 36 13 621 All other 7 - 2 6 4,221 8,779 9,422 9,739 9,281 13,717
Excess (deficiency) of revenue over expenditures 230 125 269 257 (68)
Fund equity Beginning of year 1,470 1,344 1,075 818 886 Residual equity transfer - 1 - - - End of year$ 1,700 $ 1,470 $ 1,344 $ 1,075 $ 818
Analysis of fund equity Nonspendable Reserve for inventory$ 41 $ 41 $ 41 $ 41 $ 74 Committed Reserve for insurance 312 312 312 312 312 Reserve for retirement 236 236 236 236 236 Reserve for sick leave 21 21 21 21 21 Assigned Reserve for encumbrances - - 17 126 193 Next year's budget 285 - - 100 349 Unassigned (deficit) 805 860 717 238 (367) $ 1,700 $ 1,470 $ 1,344 $ 1,074 $ 818
NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF ADDITIONAL COMMENTS FOR THE YEAR ENDED JUNE 30, 2012 Page 51
Activity Fund
Point of Sale Records
We noted several instances where the receipt of cash lacked point of sale records. Each cash receipt received by the central treasurer should be accompanied by supporting documentation which reconciles cash received to participation times rates/fees. Due to the lack of point of sale records, cash receipts are not adequate to permit the application of the necessary auditing procedures to indicate whether receipts were recorded and deposited in a timely matter. We recommend that point of sale records be filled out in detail or an appropriate summary be attached by the student treasurer and teacher advisor. Point of sale records should be consistent and should track such information as gross margins for each activity. All point of sale records should be reviewed and closely scrutinized by the central treasurer. Any deviances from that expected should be immediately investigated.
Student Involvement
During our audit of the extraclassroom activities fund, we noticed several instances a student’s signature was lacking from documentation related to cash receipts of fundraisers. An activity fund is defined as “an organization within the School District whose activities are conducted by students and whose financial support is raised other than taxation or through charges of the Board of Education”. We recommend that students become involved with these activities by maintaining individual activity fund ledgers, recording all cash received and cash disbursed.
Sales Tax
As noted during our audit, it appears as though Pennsylvania State sales tax was not being correctly collected or remitted for many fundraisers in the extraclassroom activity fund. We recommend that all advisors are made aware of those fundraisers deemed to be classified as taxable versus non-taxable.
Inactive Activity Funds and Negative Balances
During the audit of the extra classroom we noted was certain activities (Class of 2008, Class of 2011, Biology Club, Cheerleaders, Panther Tales, Language Club and Yellow Ribbon Club) which seemed to be inactive accounts. We recommend activities deemed to be inactive should be closed out and transferred to the Trust and Agency Fund or General Fund. In addition, two funds (band and interest) had negative balances and therefore utilized other activity funds’ balances to fund certain activities. We recommend that the District closely monitor activity funds with negative balances and strictly prohibit borrowing funds from other activities.
Supporting Documentation
During our audit, we noted certain transactions that lacked supporting documentation, such as an invoice, to support the disbursement recorded by the District. We recommend that a copy of the invoice or receipt be obtained for all disbursements prior to payout.
Fundraiser Approval/ Gross Margin Analysis
The District should consider a form to document the approval of all fundraisers. This form should include a description of the fundraising activities, the timeframe for the activity, and the expected revenue and expenditures. At the conclusion of the fundraiser the Activity is expected to compare the actual revenue and expenditures to the expected results. We recommend that going forward these forms be required to be completed for each individual fundraiser. Further, we recommend that these forms be filed separate from the receipts and disbursements records and that they be analyzed by someone in an oversight role to ensure that fundraisers meet budgeted expectations and achieve appropriate margins.
NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF ADDITIONAL COMMENTS FOR THE YEAR ENDED JUNE 30, 2012 Page 52
Food Service Fund
By performing a five year trend analysis we noticed a continual operating deficit over the past several years. We recommend that management and the Board thoroughly investigate this trend. In order to ensure the Food Service Fund operates efficiently and effectively, management should discuss its options with regard to a change in lunch prices, change in food selection or having the General Fund subsidize additional costs incurred. Through June 30, 2012, the Northern Potter School District’s Food Service Fund had an accumulated deficit of approximately $148,000. We recommend that the District consider transferring fund equity from the General Fund to the Food Service Fund to alleviate this accumulated deficit. The transfer of equity could be made by the District’s General Fund forgiving a portion of the balance due from the Food Service Fund.
Designation of Fund Balance
As of June 30, 2012, the District had approximately $569,000 committed for expected retirement system and medical insurance cost increases. These levels are consistent with that committed in the prior fiscal year. We recommend the District review levels committed for expected future year increases on an annual basis and appropriately make adjustments to fund balance. In addition, we recommend that the District ensure that as designations are established and utilized, it documents its rationale to support the purpose and dollar level of reserves. Lastly, the District should consider forming a long-term plan with regards to the funding of its reserves.
Equipment and Inventory
It is extremely important for all entities to have processes in place so that assets are properly safeguarded against loss or misuse. The following are internal controls that the District should consider implementing.
Maintenance and Operating Supplies
Additionally, the District should maintain a perpetual inventory system for maintenance equipment. A physical inventory should be performed on an annual basis and compared with the perpetual inventory with any differences investigated. The physical and perpetual inventory reports should be provided to the business office for review and comparison with records maintained by the industrial appraisal company.
Fixed Assets
An annual inventory of School District property, equipment and material should be performed, with any discrepancies between the physical count and the District’s appraisal being investigated and explained. Adherence to this policy is a sound accounting practice that helps to safeguard the District’s assets, and limits the possibility of their loss or misappropriation.
Packing Slips/Receiving of Goods
We noted that the packing slips which serve as proof of shipment are not routinely accounted for. This step serves as verification that all shipments have been made to the District and the sale should be billed. We recommend that the District attach the packing slip to the voucher packet to document this transaction. The packing slips also should be signed, evidencing proof of review, by someone independent of the individual responsible for purchasing the good or service.
Financial Plan
The District should consider preparing projections of future revenue and expenditures and should consider developing a three to five year financial plan. This plan is particularly important as a result of the potential for future declines in Federal and State subsidy, increases in contractual expenditures, including increases in retirement system contribution rates. We realize that such a plan will require the use of estimates and assumptions of information such as the amount of expected Federal and State Aid, expected rate increase in retirement systems and health insurance, potential increase in salaries, etc. However, we believe this plan could be a very useful tool that the District can utilize when negotiating employee contracts, setting future tax rates, purchasing future equipment, establishing designations and utilizing fund balance.
NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF ADDITIONAL COMMENTS FOR THE YEAR ENDED JUNE 30, 2012 Page 53
Policies and Procedures
In today’s environment it is critical to have good governance and for governmental entities to continually review, update and monitor its policies. We believe it is a prudent practice to periodically review and update policies and procedures of the District. Some of the areas that have received recent scrutiny in the governmental sector which the District may wish to consider reviewing include the following:
Conflict of Interest Policy – We recommend that the District adopt a formal policy covering potential conflict of interest situations. This policy should identify all business relationships and other dealings between the District and its Board of Education, employees and other such parties with whom business is conducted with. The District should also require all Board of Education members and members of management to sign a written statement which would identify any business relationships. These written statements should be reviewed and updated on an annual basis.
An important component of the governance process is to ensure that all employees have a full understanding of all policies adopted by the Board of Education. As such, the District may wish to include a policy review with members of its staff as part of a professional development day. This may provide for an ideal setting whereby Management could communicate to the entire staff the importance placed on such policies.
Technology
Disaster Recovery Plan
Ensuring that all IT systems are properly backed up is essential for school districts. Although, the District typically performs restore tests throughout the year, there is no formal schedule as to when these backups are performed. We recommend that the District perform backup restore tests on a regular basis, which should be adequately documented. In addition, the District should develop a comprehensive disaster recovery plan which outlines the procedures it would take in the event that all stored data files were lost unexpectedly in its technology plan.
Informal Policies
During inquiries, we understand that the District has informal policies which guide personnel and IT staff in creating and changing employee passwords, suspending terminated employees account access, routine workstation and server audit policy and workstation and workstation data security. The District should attempt to formalize these internal policies and communicate to the IT staff.
In addition, the District should identify those individuals that currently have access to various modules within its accounting software. A listing of individuals with rights to perform various accounting transactions should be maintained, reviewed and verified by someone independent of the business office on a regular basis. As part of this process, restrictions should be placed on certain functions such as the individual processing payroll should not have access to the payroll module where changes to pay rates are made.
Risk Assessment
The District currently has not performed a formal assessment of risks, including an assessment of risk of the District’s susceptibility to fraudulent activity. A risk assessment is a process involving the identification, analysis and management of risks of material misstatement of the financial statements and includes developing financial reporting objectives, the management of financial reporting risks and the consideration of fraud risk, including the potential for misappropriation of District assets and the potential for fraudulent financial reporting. An effective risk assessment will result in the evaluation of the internal controls in existence, and the development and implementation of additional or mitigating controls in response to the determination of risks. We recommend that the District consider documenting such a risk assessment, and that management and the Board use this process as a guide in continuing to enhance its control environment in which fraud risks are reduce to a low level. This risk assessment should be evaluated periodically as conditions change.
NORTHERN POTTER SCHOOL DISTRICT SUMMARY OF ADDITIONAL COMMENTS FOR THE YEAR ENDED JUNE 30, 2012 Page 54
Cash Receipts
During the current year, the District had someone independent of the cash receipts function open mail on a daily basis. We recommend that this individual also maintain a cash receipts log which details all cash received by the District. At certain times during the year, someone independent of the cash receipts function should then reconcile the log to the general ledger and bank statements. Any differences should be immediately investigated.
Grants
Reimbursements
During the audit, we noticed that claims for reimbursements for the District’s Federal programs are not being filed throughout the grants fiscal year. Although these forms are not required by the Pennsylvania Department of Education to be submitted throughout the year, by not doing so, the District’s general fund is subsidizing Federal programs expenditures for part of the fiscal year. We recommend that the District closely monitor expenditures in the Federal programs and for those grants that incur significant expenditures during the year, claims for reimbursement should be submitted on a monthly, quarterly, or semi-annual basis.
Physical Education Grant
During the prior year, the District received a three-year, Physical Education Grant, which has a matching component whereby a local share of cash or in-kind contributions is required. The District should maintain a database throughout the fiscal year that collects information related to the value of in-kind contributions. This database should be reviewed and monitored by management on a continual basis. For those contributions that serve both the grant and general education services, an estimated amount specifically attributable to the grant program should be determined and used as the match. In addition, because the grant was developed in consortium with other school districts and Northern Potter School District is the lead agency, reporting should be provided to the other districts on a regular basis throughout the year.
Annual Review of Title I School-wide Plan
As part of federal Title I school-wide program guidelines, school districts are required to perform an annual evaluation of the results achieved by the school-wide program. Through this annual evaluation process the District is required to compare the results to the original school-wide plan and modify it accordingly. Through conversations with District personnel, we concluded that the annual evaluation process is in fact taking place, however the process was not formally being documented. We recommend the District develop a narrative or memorandum which documents the results and conclusions drawn from this annual evaluation process. Any revisions or modifications required in the school-wide plan should also be documented through this process.