Soledad Unified School District

NEW ISSUE—BOOK-ENTRY ONLY INSURED RATING: S&P: “AA” BANK QUALIFIED UNDERLYING RATINGS: S&P: “A+” Moodys: “A1” M (See “RATINGS” herein) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are “qualified tax-exempt obligations” within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See “TAX MATTERS” herein. $5,000,000 SOLEDAD UNIFIED SCHOOL DISTRICT (County of Monterey, California) General Obligation Bonds 2012 Election, Series A (Bank Qualified) Dated: Date of Delivery Due: August 1, as shown on inside cover The Soledad Unified School District (County of Monterey, California), General Obligation Bonds, 2012 Election, Series A (the “Bonds”) are being issued in the aggregate principal amount of $5,000,000 by the Soledad Unified School District (the “District”) pursuant to certain provisions of the California Government Code and a resolution of the Governing Board of the District adopted on April 17, 2013 (the “Bond Resolution”) for the purpose of financing the acquisition and construction of school facilities. The Bonds were authorized by the registered voters of the District at an election held on November 6, 2012 (the “Authorization”). See “THE BONDS—Authority for Issuance.” The Bonds are the first series of general obligation bonds issued pursuant to the Authorization. The Bonds are payable from ad valorem taxes to be levied within the District pursuant to the California Constitution and other State law. The Board of Supervisors of the County of Monterey has the power and is obligated to levy and collect ad valorem property taxes without limitations as to rate or amount on all the taxable property within the District (except for certain personal property which is taxable at limited rates) in an amount sufficient to pay principal of and interest on the Bonds when due. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein. The Bonds will be issued in denominations of $5,000 principal amount or integral multiples thereof. Interest on the Bonds will accrue from the date of delivery and is payable on February 1 and August 1 of each year, commencing February 1, 2014. The Bonds will be issued in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Bonds. Purchasers of the Bonds will not receive physical delivery of certificates from the District representing their interests in the Bonds being purchased. Payments of principal of and interest on the Bonds will be paid by U.S. Bank National Association, as paying agent (the “Paying Agent”), to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See “APPENDIX E—Book-Entry-Only System.” The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company (“BAM”). See “BOND INSURANCE” . iJ, BAM The Bonds are subject to redemption prior to maturity as described herein. See “THE BONDS—Redemption Provisions.” MATURITY SCHEDULE (See Inside Cover Page) This cover page contains certain information for general reference only. It is not a summary of all the provisions of the Bonds. Prospective investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds were sold pursuant to a competitive bidding process held on May 21, 2013 pursuant to the terms of the Official Notice of Sale for the Bonds. The Bonds will be offered when, as and if issued and received by the Purchaser, subject to approval of legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other conditions. It is anticipated that the Bonds will be available for delivery to DTC on or about June 6, 2013, in New York, New York. This Official Statement is dated May 21, 2013 MATURITY SCHEDULE

$5,000,000 SOLEDAD UNIFIED SCHOOL DISTRICT (County of Monterey, California) General Obligation Bonds 2012 Election, Series A

Base CUSIP*: 83421J

$2,120,000 Current Interest Serial Bonds

Maturity Principal Interest (August 1) Amount Rate Yield Price CUSIP* 2014 $120,000 8.000% 0.500% 108.609% AA3 2015 130,000 7.450 0.750 114.279 AB1 2016 135,000 7.875 1.000 121.282 AC9 2017 140,000 7.150 1.300 123.572 AD7 2018 150,000 7.300 1.500 128.654 AE5 2019 155,000 5.550 1.850 121.421 AF2 2020 160,000 5.000 2.100 119.164 AG0 2021 170,000 5.000 2.350 119.554 AH8 2022 175,000 5.000 2.600 119.433 AJ4 2023 185,000 5.000 2.850 118.834 AK1 2024 190,000 3.000 3.000 100.000 AL9 2025 200,000 3.250 3.150 100.860 AM7 2026 210,000 3.300 3.300 100.000 AN5

$445,000 - 4.000% Current Interest Term Bonds due August 1, 2028; Yield 3.350%; C Price 105.551% ; CUSIP* 83421JAQ8

$725,000 - 3.500% Current Interest Term Bonds due August 1, 2031; Yield 3.500%; Price 100.000%; CUSIP* 83421JAT2

$810,000 - 4.000% Current Interest Term Bonds due August 1, 2034; Yield 3.600%;

Price 103.372%; CUSIP* 83421JAW5

$900,000 - 4.000% Current Interest Term Bonds due August 1, 2037; Yield 3.800%; C Price 101.667% ; CUSIP* 83421JAZ8

* CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference only. Neither the District nor the Purchaser of the Bonds take any responsibility for the accuracy of such CUSIP number. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity. C Priced to first call date of August 1, 2023.

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract between any bond owner and the District. No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Purchaser to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District . No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District in any press release and in any oral statement made with the approval of an authorized officer of the District or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the District or any other entity described or referenced herein since the date hereof. Involvement of Purchaser. The Purchaser has provided the following statement for inclusion in this Official Statement: The Purchaser has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Purchaser does not guarantee the accuracy or completeness of such information. Document Summaries. All summaries of the Bond Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The Series A Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Series A Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Series A Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, the County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement. Website. The District maintains a website. However, the information presented on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. Insurance. Build America Mutual Assurance Company (“BAM”) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “Bond Insurance” and “APPENDIX G - Specimen Municipal Bond Insurance Policy.”

SOLEDAD UNIFIED SCHOOL DISTRICT (COUNTY OF MONTEREY, CALIFORNIA)

Board of Trustees Name Office Term Expiration Fabian Barrera President November 2015 Edward Lopez Vice President November 2013 Gloria Ledesma Clerk November 2015 Marie Berlanga Trustee November 2015 Lucio Rios Trustee November 2013

District Administrators

Jorge Guzmán, Interim Superintendent

Holly Scudder, Chief Business Officer

Cresta McIntosh, Chief Academic Officer

Leigh Butler, Chief Human Resources Officer

PROFESSIONAL SERVICES

Financial Advisor

Dale Scott & Company Inc. San Francisco, California

Bond Counsel and Disclosure Counsel

Jones Hall, A Professional Law Corporation San Francisco, California

Paying Agent

U.S. Bank National Association San Francisco, California

iii

TABLE OF CONTENTS

INTRODUCTION...... 1 Lease Obligations ...... 38 Issuing Authority ...... 1 State Preschool Loans...... 38 The District...... 1 Long-term borrowing ...... 39 Purpose ...... 1 Investment of District’s Funds ...... 39 Description of the Bonds ...... 2 STATE FUNDING OF EDUCATION AND Sources of Payment for the Bonds ...... 2 RECENT STATE BUDGETS...... 40 Bond Insurance...... 2 General ...... 40 Offering and Delivery of the Bonds ...... 2 State Funding of Education ...... 40 Tax Matters...... 2 Recent State Budgets...... 41 Other Information...... 3 Periodic Reports ...... 45 THE BONDS ...... 3 Future Budgets...... 45 Authority for Issuance of the Bonds...... 3 Legal Challenges to State Funding of The Financing Plan...... 4 Education ...... 46 Estimated Sources and Uses of Funds...... 4 CONSTITUTIONAL AND STATUTORY General Provisions...... 4 PROVISIONS AFFECTING DISTRICT Description of the Bonds ...... 5 REVENUES AND APPROPRIATIONS...... 46 Redemption Provisions...... 5 Article XIIIA of the California Constitution...... 46 Book-Entry System; Manner of Payment...... 7 Legislation Implementing Article XIIIA...... 47 Registration, Transfer and Exchange of Bonds...... 8 Unitary Property ...... 47 Defeasance...... 9 Article XIIIB of the California Constitution ...... 48 Bond Insurance...... 9 Article XIIIC and Article XIIID of the Debt Service Schedule...... 11 California Constitution...... 49 Combined Debt Service for District General Proposition 26...... 49 Obligation Bonds ...... 12 Proposition 98 and Proposition 111 ...... 50 SECURITY AND SOURCES OF PAYMENT Proposition 39...... 51 FOR THE BONDS ...... 13 Proposition 1A and Proposition 22...... 52 Ad valorem taxes ...... 13 Future Initiatives...... 53 Debt Service Fund ...... 13 TAX MATTERS...... 53 TAX BASE FOR REPAYMENT OF BONDS CERTAIN LEGAL MATTERS...... 55 Ad valorem Property Taxes ...... 14 Absence of Litigation ...... 55 Assessed Valuation...... 15 Compensation of Certain Professionals...... 55 Appeals of Assessed Valuation ...... 16 RATINGS ...... 55 Assessed Valuation and Parcels by Land Use...... 17 CONTINUING DISCLOSURE OBLIGATION ...... 55 Assessed Valuation per Parcel of Single COMPETITIVE SALE OF BONDS ...... 56 Family Homes...... 18 ADDITIONAL INFORMATION...... 56 Tax rates ...... 19 APPENDIX A GENERAL INFORMATION The Teeter Plan...... 20 CONCERNING CITY OF Largest Taxpayers...... 21 SOLEDAD AND COUNTY OF Direct and Overlapping Debt...... 21 MONTEREY THE DISTRICT...... 24 APPENDIX B AUDITED FINANCIAL General Information ...... 24 STATEMENTS FOR FISCAL Employment...... 24 YEAR ENDING Retirement Programs ...... 25 JUNE 30, 2012 Other Post-Employment Benefits...... 27 APPENDIX C FORM OF BOND COUNSEL Insurance...... 28 OPINION DISTRICT FINANCES ...... 29 APPENDIX D FORM OF CONTINUING Financial Statements...... 29 DISCLOSURE CERTIFICATE Summary of Revenues, Expenditures, and APPENDIX E BOOK-ENTRY ONLY SYSTEM Changes in Fund Balances ...... 30 APPENDIX F MONTEREY COUNTY Budget Procedure ...... 30 INVESTMENT POOL General Fund Budget...... 32 APPENDIX G SPECIMEN MUNICIPAL BOND Reports and Certifications ...... 32 INSURANCE POLICY State Funding of Education ...... 33 Average Daily Attendance...... 34 Revenue Sources...... 34 Expenditures ...... 37 Long-term Debt ...... 38

OFFICIAL STATEMENT

$5,000,000 SOLEDAD UNIFIED SCHOOL DISTRICT (COUNTY OF MONTEREY, CALIFORNIA) GENERAL OBLIGATION BONDS 2012 ELECTION, SERIES A (Bank Qualified)

INTRODUCTION

This Introduction is not a summary of the Official Statement. It is only a brief description of, and guide to, and is qualified by, more complete and detailed information contained in the remainder of the Official Statement and the documents summarized or described in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement, and potential investors should thoroughly review it prior to purchasing the Bonds.

The purpose of this Official Statement, which includes the cover page and Appendices hereto (the “Official Statement”), is to provide certain information concerning the issuance, sale and delivery of the Soledad Unified School District (County of Monterey, California) General Obligation Bonds, 2012 Election, Series A (the “Bonds”) in the aggregate principal amount of $5,000,000.

Issuing Authority

The Bonds are being issued under certain provisions of the Government Code of the State of California, including Section 53506 et seq. of the Government Code (the “Act”), and pursuant to a resolution adopted by the Board of Trustees of the District on April 17, 2013 (the “Bond Resolution”). Issuance of the Bonds was approved by two-thirds of voters within the District at an election held on November 6, 2012 (the “Authorization”). See “THE BONDS—Authority for Issuance” herein.

The District

The District is a unified school district located in Monterey County in the heart of the Salinas Valley. The District serves approximately 4,500 students, providing K-12 education, as well as adult and alternative education programs. The District currently operates five elementary schools, one middle schools, three high schools, and one adult school. For more information regarding the District and its finances, see “THE DISTRICT” and “DISTRICT FINANCES” herein.

Purpose

The net proceeds of the Bonds will be used to finance the acquisition and construction of school facilities approved pursuant to the Authorization, including preliminary design of projects described in the Authorization. See “FINANCING PLAN."

Description of the Bonds

The Bonds. The Bonds will be issued as current interest bonds, and will be dated their date of delivery thereof (the “Dated Date”) and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple thereof. The Bonds mature on August 1 in the years indicated on the inside front cover page hereof.

Registration. The Bonds will be issued as fully registered bonds, and will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. See “APPENDIX E—Book-Entry-Only System.”

Denominations. Individual purchases of interests in the Bonds will be available to purchasers of the Bonds in the denominations of $5,000 principal amount or any integral multiple thereof.

Redemption. The Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. See “THE BONDS—Redemption Provisions” herein.

Payments. Interest on the Bonds accrues from the date of delivery and is payable semiannually on each February 1 and August 1, commencing February 1, 2014.

Sources of Payment for the Bonds

The Bonds are general obligations of the District, payable solely from the proceeds of ad valorem property taxes. The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem taxes, when due, upon all property within the District subject to taxation, without limitation of rate or amount (except certain property which is taxable at limited rates) for the payment of the Bonds and the interest thereon. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “TAX BASE FOR REPAYMENT OF BONDS” herein.

Bond Insurance

The scheduled payment of principal and accreted value of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company (“BAM”). See “BOND INSURANCE.”

Offering and Delivery of the Bonds

The Bonds are offered when, as and if issued, subject to approval as to their legality by Bond Counsel. It is anticipated that the Bonds in book-entry form will be available for delivery through The Depository Trust Company (“DTC”) in New York, New York on or about June 6, 2013.

Tax Matters; Bank Qualified

In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming continuing compliance with certain covenants set forth in the documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the “Code”), as described herein, interest on the Bonds is excluded from gross income of the owners thereof for federal income tax

purposes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. The District has designated the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Internal Revenue Code of 1986. Such section provides an exception to the prohibition against the ability of a “financial institution” (as defined in the Internal Revenue Code of 1986) to deduct its interest expense allocable to tax-exempt interest. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. For a more complete description, see “TAX MATTERS.”

Other Information

This Official Statement speaks only as of its date, and the information contained herein is subject to change.

Copies of documents referred to herein and information concerning the Bonds are available from the Assistant Superintendent, Chief Business Official, Soledad Unified School District, 425 Gabilan Dr., Soledad, California 93960; (831) 678-6400. The District may impose a charge for copying, mailing and handling.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and references to documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties by reference to each of such documents, statutes and constitutional provisions.

The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the District. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

THE BONDS

Authority for Issuance of the Bonds

The Bonds represent the first series of the bonds issued pursuant to the Authorization. The voters authorized the issuance and sale of not more than $40,000,000 of general obligation bonds to upgrade classroom computer technology, expand vocational education facilities, build a new middle school, and renovate classrooms and facilities throughout the district. The Bonds are being issued by the District under and pursuant to the Act, and other applicable laws, and all laws amendatory thereof or supplemental thereto insofar as they govern, and pursuant to the provisions of the Bond Resolution. After the issuance of the Bonds, $35,000,000 shall remain under the Authorization for issuance by the District.

The Bonds were authorized by the voters of the District pursuant to provisions of the Constitution of the State of California. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” herein.

As covenanted by the District pursuant to the Authorization, the District has established a Citizens’ Oversight Committee to review District expenditures of bond proceeds and progress in completing the projects specified in the measure, and to make periodic reports to the public in order to ensure that bond funds are spent only for authorized purposes.

The Financing Plan

The proceeds of the Bonds will be used to finance the projects approved by the District’s voters at the Bond Election, which passed with a 74.48% affirmative vote. The abbreviated text of the ballot measure approved by the voters is:

"To upgrade classroom computer technology; expand vocational education facilities; build a new middle school; renovate classrooms and facilities at Ferrero, Franscioni, Gabilan, Ledesma, and San Vicente Elementary, Main Street Middle, Chalone, Pinnacles, and Soledad High Schools and Soledad Adult School; shall Soledad Unified School District issue $40 million of bonds with interest rates below legal limits, independent citizen oversight, no money for administrator salaries, and all funds spent locally and not taken by the State and spent elsewhere?"

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of the Bond proceeds are as follows:

Sources:

Par Amount of Bonds $5,000,000.00 Original Issue Premium 368,301.55 Total Sources $5,368,301.55

Uses:

Building Fund $5,000,000.00 Underwriter’s Discount 94,801.55 Cost of Issuance* 250,000.00 Bond Insurance Premium 23,500.00 Total Uses $5,368,301.55

* Includes legal fees, financial advisor fees, paying agent fees, rating agency fees, printing, and other miscellaneous expenses.

General Provisions

The Bonds will be issued in fully registered form only, without coupons. No Bond will have principal maturing on more than one principal maturity date. The Bonds will be initially registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Interest on

and principal or accreted value of the Bonds are payable in lawful money of the United States of America. Principal is payable when due upon surrender of the Bonds at the trust office of the Paying Agent. For information about the securities depository and DTC’s book-entry system, see “APPENDIX E—Book- Entry-Only System.”

Description of the Bonds

The Bonds will be dated the date of their delivery, and bear interest at the rates set forth on the inside cover page hereof, payable by check or draft on February 1 and August 1 of each year, commencing on February 1, 2014 (each, an “Interest Payment Date”), until payment of the principal amount thereof, computed using a year of 360 days consisting of twelve 30-day months. The Bonds authenticated and registered on any date prior to the close of business on January 15, 2013, will bear interest from the date of their delivery. The Bonds authenticated during the period between the fifteenth day of the calendar month immediately preceding an Interest Payment Date (the “Record Date”) and the close of business on that Interest Payment Date will bear interest from that Interest Payment Date. Any other Bond will bear interest from the Interest Payment Date immediately preceding the date of its authentication. If, at the time of authentication of any Bond, interest is then in default on outstanding Bonds, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.

The principal of the Bonds is payable in lawful money of the United States of America upon the surrender thereof at the principal corporate trust office of the Paying Agent with respect to the Bonds, initially U.S. Bank National Association (the “Paying Agent”), at the maturity thereof or upon redemption prior to maturity. Payment of interest on any Bond on each Interest Payment Date (or on the following business day, if the Interest Payment Date does not fall on a business day) will be made to the person appearing on the registration books of the Paying Agent with respect to the Bonds as the registered owner thereof (the “Owner”) as of the preceding Record Date, such interest to be paid by check or draft mailed to such Owner at such Owner’s address as it appears on such registration books or at such other address as the Owner may have filed with the Paying Agent for that purpose on or before the Record Date. The Owner of an aggregate principal amount of $1,000,000 or more of Bonds may request in writing to the Paying Agent that such Owner be paid interest by wire transfer to the bank and account number on file with the Paying Agent as of the applicable Record Date.

Redemption Provisions

Optional Redemption. The Bonds maturing on or after August 1, 2024 are subject to optional redemption in whole or in part at the option of the District from any lawfully available source on August 1, 2023 or on any date thereafter, at a price equal to the principal amount of the Bonds called for redemption, without premium, together with accrued interest thereon to the date fixed for redemption.

Mandatory Sinking Fund Redemption. The Bonds maturing on August 1, 2028, shall be subject to mandatory sinking fund redemption on August 1 of each year, commencing August 1, 2027, as shown below, at a redemption price equal to the principal amount thereof called for redemption, together with accrued interest thereon to the date fixed for redemption, without premium.

$445,000 Term Bond Maturing on August 1, 2028

Redemption Date (August 1) Principal Amount

2027 $220,000 2028 225,000 Total $445,000

The Bonds maturing on August 1, 2031, shall be subject to mandatory sinking fund redemption on August 1 of each year, commencing August 1, 2029, as shown below, at a redemption price equal to the principal amount thereof called for redemption, together with accrued interest thereon to the date fixed for redemption, without premium.

$725,000 Term Bond Maturing on August 1, 2031

Redemption Date (August 1) Principal Amount

2029 $235,000 2030 240,000 2031 250,000 Total $725,000

The Bonds maturing on August 1, 2034, shall be subject to mandatory sinking fund redemption on August 1 of each year, commencing August 1, 2032, as shown below, at a redemption price equal to the principal amount thereof called for redemption, together with accrued interest thereon to the date fixed for redemption, without premium.

$810,000 Term Bond Maturing on August 1, 2034

Redemption Date (August 1) Principal Amount

2032 $260,000 2033 270,000 2034 280,000 Total $810,000

The Bonds maturing on August 1, 2037, shall be subject to mandatory sinking fund redemption on August 1 of each year, commencing August 1, 2035, as shown below, at a redemption price equal to the principal amount thereof called for redemption, together with accrued interest thereon to the date fixed for redemption, without premium.

$900,000 Term Bond Maturing on August 1, 2037

Redemption Date (August 1) Principal Amount

2035 $290,000 2036 300,000 2037 310,000 Total $900,000

Selection of Bonds for Redemption. Whenever less than all of the Outstanding Bonds of any one maturity are designated for redemption, the Paying Agent shall select the Outstanding Bonds of such maturity to be redeemed by lot in any manner deemed fair by the Paying Agent. For purposes of such selection, each Bond shall be deemed to consist of individual Bonds of $5,000 denominations each, which may be separately redeemed.

Notice of Redemption. The Paying Agent shall cause notice of any redemption to be mailed, first-class mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, to (a) an Information Service, (b) a Securities Depository, and (c) the respective Owners of any Bonds designated for redemption, at their addresses appearing on the Registration Books; provided that neither failure to receive such notice may nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of such Bonds.

Such notice shall state (i) that the Bonds or a designated portion thereof are to be redeemed, (ii) the numbers and CUSIP numbers of the Bonds to be redeemed; (iii) the date of notice and the date of redemption; and (iv) the place or places where the Bonds must be submitted for redemption, descriptive information about the Bonds, including the dated date, interest rate and stated maturity date. Such notice shall further state that on the specified date there shall become due and payable upon each Bond to be redeemed, the portion of the principal amount of such Bond to be redeemed, together with interest accrued to said date, and redemption premium, if any, and that from and after such date interest with respect thereto shall cease to accrue and be payable.

Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the District shall execute and the Paying Agent shall authenticate, if required, and deliver to the Owner thereof, at the expense of the District, a new Bond or Bonds of authorized denominations, and of the same maturity, equal in aggregate principal amount to the unredeemed portion of the Bond(s) surrendered.

Right to Rescind Notice of Redemption. The District has the right to rescind any notice of the optional redemption of Bonds under subsection (a) of this Section by written notice to the Paying Agent on or prior to the dated fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Series A Bonds then called for redemption. The District and the Paying Agent shall have no liability to the Series A Bond Owners or any other party related to or arising from such rescission of redemption. The Paying Agent shall mail notice of such rescission of redemption to the respective Owners of the Series A Bonds designated for redemption, at their addresses appearing on the Registration Books, and also to the Securities Depositories and the Municipal Securities Rulemaking Board.

Book-Entry System; Manner of Payment

When issued, the Bonds will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). Beneficial owners of the Bonds will not

receive physical Bonds representing their interests in the Bonds, but will receive a credit balance on the books of the nominees for such beneficial owners.

The principal and interest represented by the Bonds will be paid by the Paying Agent by wire transfer on the payment date to Cede & Co., as nominee for DTC, which will in turn remit such principal and interest to “DTC Participants” for subsequent disbursement to the Beneficial Owners of the Bonds.

So long as all Outstanding Bonds are registered in the name of Cede & Co. or its registered assign, (a) all payments of principal and interest represented by the Bonds will be made in accordance with the letter of representations which has been issued by the District and delivered to The Depository Trust Company; and (b) the District and the Paying Agent will reasonably cooperate with Cede & Co., as sole registered Owner, or its registered assign in effecting payment of the principal and prepayment premium, if any, and interest due with respect to the Bonds by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due. Upon any such payment to Cede & Co., or its registered assign, of principal or prepayment premium, if any, or interest due with respect to an Outstanding Bond, all liability with respect to the amount so paid will be satisfied.

As long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references in this Official Statement to the registered owners mean Cede & Co. and not the Beneficial Owners, as defined herein, of the Bonds. See “APPENDIX E—Book-Entry-Only System.”

Registration, Transfer and Exchange of Bonds

If the book-entry system is discontinued, the District shall cause the Paying Agent to maintain and keep at its principal corporate trust office all books and records necessary for the registration, exchange and transfer of the Bonds.

If the book-entry system is discontinued, the person in whose name a Bond is registered on the Bond Register shall be regarded as the absolute owner of that Bond. Payment of the principal and interest on any Bond shall be made only to or upon the order of that person; neither the District nor the Paying Agent shall be affected by any notice to the contrary, but the registration may be changed as provided in the Bond Resolution.

Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the Principal Office of the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. The District may charge a reasonable sum for each new Bond issued upon any transfer.

Whenever any Bond or Bonds shall be surrendered for transfer, the District shall execute and the Paying Agent shall authenticate and deliver a new Bond or Bonds, for like aggregate principal amount. No transfers of Bonds shall be required to be made (a) 15 days prior to the date established by the Paying Agent for selection of Bonds for redemption; or (b) with respect to a Bond which has been selected for redemption.

Bonds may be exchanged at the principal office of the Paying Agent located in San Francisco, California for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The District may charge a reasonable sum for each new Bond issued upon any exchange (except in the case of any exchange of temporary Bonds for definitive Bonds). No exchanges of Bonds

shall be required to be made (a) 15 days prior to the date established by the Paying Agent for selection of Bonds for redemption, or (b) with respect to a Bond after such Bond has been selected for redemption.

Defeasance

Upon the deposit, in trust, at or before maturity, of money or securities in the necessary amount, as provided below, to pay any outstanding Bond (whether upon or prior to its maturity date), then all liability of the District in respect of such Bond shall cease and be completely discharged, except only that thereafter the owner thereof shall be entitled only to payment of the principal of and interest on such Bond by the District, and the District shall remain liable for such payment, but only out of such money or securities deposited with the Paying Agent as aforesaid for such payment.

Whenever in the Bond Resolution it is provided or permitted that there be deposited with or held in trust by the Paying Agent money or securities in the necessary amount to pay any Bonds, the money or securities so to be deposited or held may include money or securities held by the Paying Agent in the funds and account established pursuant to the Bond Resolution and shall be:

(a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity; or

(b) United States Treasury notes, bonds, bills, or certificates of indebtedness or those for which the faith and credit of the United States are pledged for the payment of principal and interest (not callable by the issuer thereof prior to maturity) the principal of and interest on which when due, in the opinion of a certified public accountant, knowledgeable in calculation of amounts necessary to defease municipal securities, delivered to the District, will provide money sufficient to pay the debt service on the Bonds to be paid, as such debt service becomes due; provided in each case, that the Paying Agent shall have been irrevocably instructed (by the terms of the Bond Resolution or by request of the District) to apply such money to the payment of such debt service on such Bonds.

BOND INSURANCE

Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company (“BAM”) will issue its Municipal Bond Insurance Policy for the Bonds (the “Policy”). The Policy guarantees the scheduled payment of principal of, Maturity Value of, or in the case of Convertible CABs, the Conversion Value of, and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

Build America Mutual Assurance Company

BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM.

The address of the principal executive offices of BAM is: 1 World Financial Center, 27th Floor, 200 Liberty Street, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com.

BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law.

BAM’s financial strength is rated “AA/Stable” by Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of BAM should be evaluated independently. The rating reflects the S&P’s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn.

Capitalization of BAM

BAM’s total admitted assets, total liabilities, and total capital and surplus, as of March 31, 2013 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $486.0 million, $6.2 million, and $479.8 million, respectively.

BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions.

BAM’s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM’s website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published.

BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “BOND INSURANCE”.

DEBT SERVICE SCHEDULE

Debt Service for the Bonds

The amounts required for the payment of the principal of and interest on the Bonds (assuming no optional redemption) are as follows:

Soledad Unified School District Bonds Debt Service Schedule

Bond Year Ending Total Annual August 1 Principal Interest Debt Service 2014 $120,000.00 $259,010.43 $379,010.43 2015 130,000.00 215,083.75 345,083.75 2016 135,000.00 205,398.75 340,398.75 2017 140,000.00 194,767.50 334,767.50 2018 150,000.00 184,757.50 334,757.50 2019 155,000.00 173,807.50 328,807.50 2020 160,000.00 165,205.00 325,205.00 2021 170,000.00 157,205.00 327,205.00 2022 175,000.00 148,705.00 323,705.00 2023 185,000.00 139,955.00 324,955.00 2024 190,000.00 130,705.00 320,705.00 2025 200,000.00 125,005.00 325,005.00 2026 210,000.00 118,505.00 328,505.00 2027 220,000.00 111,575.00 331,575.00 2028 225,000.00 102,775.00 327,775.00 2029 235,000.00 93,775.00 328,775.00 2030 240,000.00 85,550.00 325,550.00 2031 250,000.00 77,150.00 327,150.00 2032 260,000.00 68,400.00 328,400.00 2033 270,000.00 58,000.00 328,000.00 2034 280,000.00 47,200.00 327,200.00 2035 290,000.00 36,000.00 326,000.00 2036 300,000.00 24,400.00 324,400.00 2037 310,000.00 12,400.00 322,400.00 Total $5,000,000.00 $2,935,335.43 $7,935,335.43

Combined Debt Service for District General Obligation Bonds

In addition to the Bonds, the District has other series of general obligation bonds currently outstanding, which are secured by ad valorem taxes upon all property subject to taxation by the District (the “General Obligation Bonds”). Debt service on all of the District’s outstanding General Obligation Bonds, including the Bonds (assuming no optional redemptions) is as follows:

Soledad Unified School District Aggregate Debt Service Schedule for General Obligation Bonds

Bond Year Ending Outstanding General Total Annual August 1 Obligation Bonds* The Bonds Debt Service 2013 $925,000.00 -- $925,000.00 2014 945,000.00 $379,010.43 1,324,010.00 2015 965,000.00 345,083.75 1,310,084.00 2016 985,000.00 340,398.75 1,325,399.00 2017 1,010,000.00 334,767.50 1,344,768.00 2018 1,030,000.00 334,757.50 1,364,758.00 2019 1,055,000.00 328,807.50 1,383,808.00 2020 1,075,000.00 325,205.00 1,400,205.00 2021 1,100,000.00 327,205.00 1,427,205.00 2022 115,000.00 323,705.00 438,705.00 2023 115,000.00 324,955.00 439,955.00 2024 - 320,705.00 320,705.00 2025 - 325,005.00 325,005.00 2026 - 328,505.00 328,505.00 2027 - 331,575.00 331,575.00 2028 - 327,775.00 327,775.00 2029 - 328,775.00 328,775.00 2030 - 325,550.00 325,550.00 2031 - 327,150.00 327,150.00 2032 - 328,400.00 328,400.00 2033 - 328,000.00 328,000.00 2034 - 327,200.00 327,200.00 2035 - 326,000.00 326,000.00 2036 - 324,400.00 324,400.00 2037 - 322,400.00 322,400.00 Total $9,320,000 $7,935,335.43 $17,255,337.00 * Bonds outstanding include the District’s outstanding General Obligation Bonds 1995 Election, Series 1997 and 1995 Election, Series B. Both series were issued as Capital Appreciation Bonds, therefore the debt service shown above represents the final accreted (maturity) value.

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

Ad Valorem Taxes

The Bonds are general obligations of the District, payable solely from ad valorem taxes levied and collected by the County. The Board of Supervisors of the County has the power and is obligated to levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the District subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates). Such taxes are required to be levied annually, in addition to all other taxes, during the period that the Bonds are outstanding in an amount sufficient to pay the principal and Maturity Value of and interest on the Bonds when due. Such taxes, when collected, will be deposited into a debt service fund for the Bonds (the “Debt Service Fund”), which is maintained by the County Treasurer-Tax Collector, in an amount sufficient for the payment of principal of and interest on the Bonds when due. Although the County is obligated to levy an ad valorem tax for the payment of the Bonds, the Bonds are not a debt of the County.

The amount of the ad valorem tax levied by the County to repay the Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds. A reduction in the assessed valuation of taxable property in the District caused by economic factors beyond the District’s control, such as economic recession, slower growth, or deflation of land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the District and necessitate an unanticipated increase in the annual tax levy.

The District intends to issue additional general obligation bonds under the Authorization, which are payable from ad valorem taxes on a parity basis. In addition to the general obligation bonds issued by the District, there is other debt issued by entities with jurisdiction in the District, which is payable from ad valorem taxes levied on parcels in the District. See “TAX BASE FOR REPAYMENT OF BONDS— Direct and Overlapping Debt” below.

District property taxes are assessed and collected by the County in the same manner and at the same time, and in the same installments as other ad valorem taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts, and bear the same proportionate penalties and interest after delinquency, as do the other ad valorem taxes on real property.

Debt Service Fund

The Debt Service Fund is pledged for the payment of principal and interest on the Bonds. The moneys in the Debt Service Fund, to the extent necessary to pay the principal and interest on the Bonds as the same become due and payable, shall be transferred by the County to the Paying Agent, which, in turn, shall pay such moneys to DTC to pay the principal and Maturity Value and interest on the Bonds. DTC will thereupon make payments of principal and interest on the Bonds to the DTC Participants who will thereupon make payments of principal and interest to the beneficial owners of the Bonds. See “APPENDIX E—Book-Entry-Only System.”

The Debt Service Fund is required by law to be maintained by the Treasurer-Tax Collector of the County of Monterey. The accrued interest and any premium received by the County from the sale of the

Bonds shall be accounted for separately in the Debt Service Fund and used only for payment of principal of and interest on the Bonds. If, after payment in full of the Bonds and all other outstanding Bonds payable from the Debt Service Fund, there remain excess tax moneys, any such excess amounts shall be transferred to the general fund of the District insofar as such transfer is permitted by applicable law. Notwithstanding, all funds held pursuant to the Bond Resolution shall be applied solely in a manner which is consistent with the requirements of applicable state and federal tax law, including but not limited to the requirements of federal tax law, if any, relating to the yield at which such proceeds are permitted to be invested.

Except as required to be paid to the federal government to comply with federal income tax requirements, interest earned on the investment of monies held in the Debt Service Fund shall be retained in the Debt Service Fund and used for the payment of the principal of, and interest on, the Bonds and premium, if any, on the Bonds, when due.

TAX BASE FOR REPAYMENT OF BONDS

The information in this section describes ad valorem property taxation, assessed valuation, and other measures of the tax base of the District. The Bonds are payable solely from ad valorem taxes levied and collected by the County on taxable property in the District. The District’s General Fund is not a source for the repayment of the Bonds.

Ad Valorem Property Taxes

Beginning in 1978-79, Proposition 13 and its implementing legislation permitted each county to levy and collect all property taxes (except for levies to support prior voter-approved indebtedness), and prescribed how levies on county-wide property values were to be shared with local taxing entities within each county.

Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. However, upon a change in ownership of property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a “floating lien date”). For assessment and collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”

The County levies a 1% property tax on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of “situs” growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide special and school districts. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County.

Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment plus a $20 cost on the second installment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax-defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent

taxes and the delinquency penalty, plus a $15 redemption fee and a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and is then subject to sale by the County Treasurer.

Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent if unpaid on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning November 1 of the fiscal year, and a lien may be recorded against the assesses. The taxing authority has four ways of collecting unsecured personal property taxes: (a) a civil action against the taxpayer; (b) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (c) filing a certificate of delinquency for record in the County Recorder’s office, in order to obtain a lien on certain property of the taxpayer; and (d) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of the exemptions. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions.

Assessed Valuation

The assessed valuation of property in the District is established by the tax assessing authority for the county in which such property is located, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the “full cash value” of the property, as defined in Article XIIIA of the California Constitution. For a discussion of how properties currently are assessed, see “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” herein. Property within the District has a total assessed valuation for fiscal year 2012-13 of $1,170,101,371. Shown in the following table are the assessed valuations for the District for Fiscal Years 2003-04 through 2012-13.

Soledad Unified School District Historic Net Assessed Valuations Fiscal Years 2003-04 through 2012-13

Fiscal Year Local Secured Utility Unsecured Total % Change 2003-04 $746,061,317 $17,446,105 $24,350,337 $787,857,759 -- 2004-05 884,320,335 21,271,641 21,513,879 927,105,855 17.7% 2005-06 1,053,515,392 19,976,407 25,028,116 1,098,519,915 18.5 2006-07 1,278,546,644 16,781,283 28,935,509 1,324,263,436 20.5 2007-08 1,432,685,820 1,895,120 30,240,199 1,464,821,139 10.6 2008-09 1,413,038,193 1,955,810 32,272,125 1,447,266,128 -1.21 2009-10 1,174,734,771 1,955,810 37,413,292 1,214,103,873 -16.1 2010-11 1,066,783,153 1,955,810 34,500,270 1,103,239,233 -9.13 2011-12 1,098,939,525 1,955,810 50,721,843 1,151,617,178 4.39 2012-13 1,114,665,436 2,371,446 53,064,489 1,170,101,371 1.60 ______Source: California Municipal Statistics, Inc.

Economic and other factors beyond the District’s control, such as general market decline in land values, disruption in financial markets that may reduce availability of financing for purchasers of property, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by the State and local agencies and property used for qualified education, hospital, charitable or religious purposes), or the complete or partial destruction of the taxable property caused by a natural or manmade disaster, such as earthquake, flood or toxic contamination, could cause a reduction in the assessed value of taxable property within the District. Any such reduction would result in a corresponding increase in the annual tax rate levied by the County to pay the debt service with respect to the Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein.

Appeals of Assessed Valuations

Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. County assessors may independently reduce assessed values as well based upon the above factors or reductions in the fair market value of the taxable property. In most cases, an appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. Any reduction in the assessment ultimately granted as a result of such appeal applies to the year for which application is made and during which the written application was filed. Such reductions are subject to yearly reappraisals and may be adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Article XIIIA of the California Constitution” herein.

A second type of assessment appeal involves a challenge to the base year value of an assessed property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.

No assurance can be given that property tax appeals in the future will not significantly reduce the assessed valuation of property within the District.

Assessed Valuation and Parcels by Land Use

The following table shows a breakdown of local secured property assessed value and parcels within the District by land use for Fiscal Year 2012-13.

Soledad Unified School District Assessed Valuation and Parcels by Land Use

2012-13 % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural $384,809,731 34.52% 372 9.10% Commercial 57,376,272 5.15 105 2.57 Vacant Commercial 4,785,540 0.43 33 0.81 Industrial 132,014,219 11.84 30 0.73 Vacant Industrial 6,708,986 0.60 21 0.51 Recreational 719,947 0.06 3 0.07 Government/Social/Institutional 1,840,925 0.17 44 1.08 Miscellaneous 64,507 0.01 21 0.51 Subtotal Non-Residential $588,320,127 52.78% 629 15.39%

Residential: Single Family Residence $473,268,106 42.46% 2,914 71.28% Condominium/Townhouse 14,635,587 1.31 139 3.40 Mobile Home 2,552,566 0.23 94 2.30 Mobile Home Park 4,648,976 0.42 4 0.10 2-4 Residential Units 9,557,366 0.86 60 1.47 5+ Residential Units/Apartments 13,327,935 1.20 29 0.71 Vacant Residential 8,354,773 0.75 219 5.36 Subtotal Residential $526,345,309 47.22% 3,459 84.61%

Total $1,114,665,436 100.00% 4,088 100.00%

______(1) Local Secured Assessed Valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.

Assessed Valuation Per Parcel of Single Family Homes

The following table shows the information relating to the assessed valuation of single family residences within the District for Fiscal Year 2012-13.

Assessed Valuation per Parcel of Single Family Homes Fiscal Year 2012-13 Soledad Unified School District

2012-13 Assessed Average Assessed Median Assessed No. of Parcels Valuation Valuation Valuation 2,914 $473,268,106 $162,412 $160,000

2012-13 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24,999 36 1.235% 1.235% $ 659,959 0.139% 0.139% $25,000 - $49,999 162 5.559 6.795 6,023,635 1.273 1.412 $50,000 - $74,999 173 5.937 12.732 10,909,309 2.305 3.717 $75,000 - $99,999 190 6.520 19.252 16,928,375 3.577 7.294 $100,000 - $124,999 120 4.118 23.370 13,629,745 2.880 10.174 $125,000 - $149,999 410 14.070 37.440 55,381,777 11.702 21.876 $150,000 - $174,999 620 21.277 58.717 99,591,053 21.043 42.919 $175,000 - $199,999 343 11.771 70.487 62,610,068 13.229 56.149 $200,000 - $224,999 275 9.437 79.925 57,703,725 12.193 68.341 $225,000 - $249,999 424 14.550 94.475 97,854,460 20.676 89.018 $250,000 - $274,999 63 2.162 96.637 15,962,357 3.373 92.390 $275,000 - $299,999 42 1.441 98.078 11,987,839 2.533 94.923 $300,000 - $324,999 9 0.309 98.387 2,805,947 0.593 95.516 $325,000 - $349,999 13 0.446 98.833 4,387,728 0.927 96.443 $350,000 - $374,999 5 0.172 99.005 1,767,998 0.374 96.817 $375,000 - $399,999 4 0.137 99.142 1,527,266 0.323 97.140 $400,000 - $424,999 4 0.137 99.279 1,629,574 0.344 97.484 $425,000 - $449,999 7 0.240 99.520 3,045,457 0.643 98.128 $450,000 - $474,999 1 0.034 99.554 459,000 0.097 98.225 $475,000 - $499,999 1 0.034 99.588 491,229 0.104 98.328 $500,000 and greater 12 0.412 100.000 7,911,605 1.672 100.000 Total 2,914 100.000% $473,268,106 100.000%

______(1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.

Tax Rates

The following table summarizes the total ad valorem tax rates levied by all taxing entities in a typical tax rate area within the District from 2008-09 to 2012-13:

Summary of Ad Valorem Tax Rates Fiscal Years 2008-09 through 2012-13 Soledad Unified School District Typical Total Tax Rates per $100 of Assessed Valuation

TRA 126-004 (2012-13 Assessed Valuation: $282,823,530)

2008-09 2009-10 2010-11 2011-12 2012-13 General 1.000000 1.000000 1.000000 1.000000 1.000000 Soledad Community Health District .011440 .015090 .015480 .014780 .011790 Soledad Unified School District .060320 .067610 .084650 .083030 .071165 Hartnell Community College District .018520 .021040 .021420 .023150 .022245 Total 1.090280 1.103740 1.121550 1.120960 1.105200 ______Source: California Municipal Statistics, Inc.

The Teeter Plan

The County operates under provision of Revenue and Taxation Code Section 4701-4716 (commonly referred to as the “Teeter Plan”) pursuant to which public agencies in the County may receive their total secured tax levies and special assessments irrespective of actual collections and delinquencies. Pursuant to said provisions, the County establishes a delinquency reserve and assumes responsibility for all secured delinquencies.

Because of the method of tax collection, the District is assured of 100% collection of it total secured tax and leasing tax levies. However, the District is no longer entitled to share in any penalties due to delinquent payments. This method of tax collection and distribution is, however, subject to future discontinuance if demanded by the participating entities or by the County if the delinquency rate for all ad valorem property taxes levied within the District in any year exceeds 3%. In the event that the Teeter Plan were terminated, the amount of the levy of ad valorem property taxes in the District would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District.

SOLEDAD UNIFIED SCHOOL DISTRICT Secured Tax Charges and Delinquencies

Secured Tax Amount Del. % Delinquent Fiscal Year Charge * June 30 June 30 2007-08 $5,494,867.00 $277,732.64 5.05 2008-09 5,225,660.00 207,402.54 3.97 2009-10 4,236,250.00 130,843.61 3.09 2010-11 3,724,432.00 76,529.00 2.05 2011-12 3,915,019.00 66,050.08 1.69

______*1% General Fund apportionment. Source: California Municipal Statistics, Inc.

Largest Taxpayers

The District does not maintain records of specific taxpayers and the amounts of taxes paid by them. California Municipal Statistics, Inc. estimates the following are the largest secured taxpayers in the District for Fiscal Year 2012-13.

Each taxpayer listed below is a unique name listed on the tax rolls. The District cannot determine from County assessment records whether individual persons, corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table below. A large concentration of ownership in a single individual or entity results in a greater amount of tax collections which are dependent upon that property owner’s ability or willingness to pay property taxes.

SOLEDAD UNIFIED SCHOOL DISTRICT Largest 2012-13 Local Secured Taxpayers

2012-13 % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Dole Fresh Vegetables Inc. Food Processing $ 66,612,422 5.98% 2. Jackson Family Estates II LLC Vineyards 47,491,762 4.26 3. SCV-EPI Vineyards Inc. Food Processing 38,286,539 3.43 4. Marten A. Clark Vineyards 21,897,377 1.96 5. G3 Enterprises Inc. Vineyards 21,763,568 1.95 6. Diageo North America Inc. Vineyards 18,600,648 1.67 7. Huntington Farms Inc. & Steinbeck Country Agricultural 15,887,690 1.43 8. Golden State Vintners Food Processing 15,336,710 1.38 9. HMBY LP Vineyards 12,949,668 1.16 10. Kendall Jackson Wine Estates Ltd. Vineyards 12,644,193 1.13 11. Zabala J. Luis Vineyards 12,257,186 1.10 12. Ventana Property Holdings LLC Vineyards 11,152,023 1.00 13. Ralph’s Grocery Company Shopping Center 9,135,026 0.82 14. KVL Holdings Inc. Vineyards 8,342,197 0.75 15. Scheid Vineyards California Inc. Vineyards 7,784,234 0.70 16. Numira Vineyard LLC Vineyards 7,455,831 0.67 17. Silverado Monterey Vineyards LLC Vineyards 7,278,231 0.65 18. Donald H. Hambey Vineyards 7,198,697 0.65 19. Stanley Braga Agricultural 7,110,236 0.64 20. Gallo Vineyards Inc. Vineyards 6,900,521 0.62 $356,084,759 31.95% ______(1) 2012-13 Local Secured Assessed Valuation: $1,114,665,436 Source: California Municipal Statistics, Inc.

Direct and Overlapping Debt

Set forth on the following page is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. dated as of June 1, 2013 for debt issued by February 22, 2013. The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith.

The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long- term obligations generally are not payable from revenues of the District (except as indicated) nor are they

necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

The table shows the percentage of each overlapping entity’s assessed value located within the boundaries of the District. The table also shows the corresponding portion of the overlapping entity’s existing debt payable from property taxes levied within the District. The total amount of debt for each overlapping entity is not given in the table.

The first column in the table names each public agency which has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency’s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency’s outstanding debt to taxable property in the District.

Soledad Unified School District Statement of Direct and Overlapping Debt

2012-13 Assessed Valuation: $1,170,101,371

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 6/1/13 (1) Hartnell Joint Community College District 5.451% $ 6,545,294 SOLEDAD UNIFIED SCHOOL DISTRICT 100. 2,640,494 (2) Soledad Community Hospital District 88.325 1,104,063 Monterey Cnty Water Resources Agency Benefit Assessment District, Zone 2C 5.0951,586,583 City of Soledad 1915 Act Bonds 100. 6,980,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $18,856,434

DIRECT AND OVERLAPPING GENERAL FUND DEBT: Monterey County General Fund Obligations 2.382% $4,346,316 Monterey County Judgment Obligation 2.382 20,723 Monterey County Board of Education Certificates of Participation 2.382 44,782 Hartnell Joint Community College District Certificates of Participation 5.451 89,396 Soledad Unified School District Certificates of Participation 100. 4,500,000 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $9,001,217

OVERLAPPING TAX INCREMENT DEBT: $17,720,000

COMBINED TOTAL DEBT $45,577,651 (3) (1) Excludes any bonds sold between preparation date of this report (2/22/13) and the dated date (6/1/13). (2) Excludes issue to be sold. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.

Ratios to 2012-13 Assessed Valuation: Direct Debt ($2,640,494) ...... 0.23% Total Direct and Overlapping Tax and Assessment Debt...... 1.61% Combined Direct Debt ($7,140,494)...... 0.61% Combined Total Debt ...... 3.90%

Ratios to Redevelopment Incremental Valuation ($156,547,600): Overlapping Tax Increment Debt...... 11.32% ______Source: California Municipal Statistics, Inc.

THE DISTRICT

The following section provides a brief description of the District. For certain information concerning its local economy, see “APPENDIX A—GENERAL INFORMATION CONCERNING CITY OF SOLEDAD AND COUNTY OF MONTEREY” herein.

General Information

The District is a unified school district located in Monterey County in the heart of the Salinas Valley. The District serves approximately 4,500 students in grades K-12. Currently, the District operates five elementary schools, one middle school, three high schools, and one adult school.

The District is governed by a five member Board of Trustees, each member of which is elected to a four-year term. The management and policies of the District are administered at present by a Superintendent and a staff that provides business, pupil, personnel, administrative and instructional support services.

Following are the members of the Board and the expiration dates of their terms in office:

Name Office Term Expiration Fabien Barrera President November 2015 Edward Lopez Vice President November 2013 Gloria Ledesma Clerk November 2015 Marie Berlanga Trustee November 2015 Lucio Rios Trustee November 2013

Following are certain members of the senior management of the District:

• Jorge Guzmán Interim Superintendent • Cresta McIntosh Chief Academic Officer • Holly Schudder Chief Business Officer • Leigh Butler Chief Human Resources Officer

The District is currently interviewing candidates for the Superintendent position.

Employment

The District currently has approximately 237 full-time equivalent and part-time certificated employees and 251 classified, management, and supervisory employees. The Soledad Teacher’s Association (“STA”) is the bargaining agent for certificated employees and their contract expires on June 30, 2013. The California School Employees Association (“CSEA”) and the Soledad Clerical Employees Association (“SCEA”) are the bargaining agents for classified employees, and their contracts expire on June 30, 2015 and June 30, 2013, respectively.

Retirement Programs

The information set forth below regarding the STRS and PERS programs, other than the information provided by the District regarding its annual contributions thereto, has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to accuracy or completeness, and should not to be construed as a representation by either the District or the Purchaser of the Bonds.

STRS. All full-time certificated employees, as well as certain classified employees, are members of the State Teachers’ Retirement System (“STRS”). STRS provides retirement, disability and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers’ Retirement Law. The District is currently required by such statutes to contribute 8.25% of eligible salary expenditures, while participants contribute 8% of their respective salaries. The State also contributes to STRS, currently in an amount equal to 2.541% of teacher payroll.

The District’s contribution to STRS was $1,299,435 for fiscal year 2009-10, $1,339,670 for fiscal year 2010-11, and is estimated to be $1,444,184 for fiscal year 2011-12. The District’s projected contribution to STRS for fiscal year 2012-13 is $1,067,744.

PERS. Classified employees working four or more hours per day are members of the Public Employees’ Retirement System (“PERS”). PERS provides retirement and disability benefits, annual cost- of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provision are established by the State statutes, as legislatively amended, with the Public Employees’ Retirement Laws. The District is currently required to contribute to PERS at an actuarially determined rate, which is 10.923% of eligible salary expenditures for fiscal year 2012-13, while participants contribute 7% of their respective salaries.

The District’s contribution to PERS was $873,247 for fiscal year 2009-10, $938,864 for fiscal year 2010-11, and is estimated to be $1,044,574 for fiscal year 2011-12. The District’s projected contribution to PERS for fiscal year 2012-13 is $483,832.

State Pension Trusts. Each of STRS and PERS issues a separate comprehensive financial report that includes financial statements and required supplemental information. Copies of such financial reports may be obtained from each of STRS and PERS as follows: (i) STRS, P.O. Box 15275, Sacramento, California 95851-0275; (ii) PERS, P.O. Box 942703, Sacramento, California 94229-2703. Moreover, each of STRS and PERS maintains a website, as follows: (i) STRS: www.calstrs.com; (ii) PERS: www.calpers.ca.gov. However, the information presented in such financial reports or on such websites is not incorporated into this Official Statement by any reference.

Both STRS and PERS have substantial statewide unfunded liabilities. The amount of these unfunded liabilities will vary depending on actuarial assumptions, returns on investments, salary scales and participant contributions. Unlike PERS, STRS contribution rates for participant employers, employees and the State are set by statute and do not currently vary from year-to-year based on actuarial valuations. In recent years, the combined employer, employee and State contributions to STRS have been significantly less than actuarially required amounts. As a result, and due in part to investment losses, the unfunded liability of STRS has increased significantly. This unfunded liability is expected to continue to increase in the absence of legislation requiring additional or increased contributions. The District can make no representations regarding the future program liabilities of STRS, or whether the District will be required to make larger contributions to STRS in the future. The District can also provide no assurances that the District’s required contributions to PERS will not increase in the future.

Pension Reform Act of 2013 (Assembly Bill 340). On September 12, 2012, Governor Brown signed AB 340, a bill that will enact the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”) and that will also amend various sections of the California Education and Government Codes. AB 340 (i) increases the retirement age for new State, school, and city and local agency employees depending on job function, (ii) caps the annual PERS and STRS pension benefit payouts, (iii) addresses numerous abuses of the system, and (iv) requires State, school, and certain city and local agency employees to pay at least half of the costs of their PERS pension benefits. PEPRA will apply to all public employers except the University of California, charter cities and charter counties (except to the extent they contract with PERS.)

The provisions of AB 340 will go into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on that date and after; existing employees who are members of employee associations, including employee associations of the District, will have a five-year window to negotiate compliance with AB 340 through collective bargaining. If no deal is reached by January 1, 2018, a city, public agency or school district could force employees to pay their half of the costs of PERS pension benefits, up to 8 percent of pay for civil workers and 11 percent or 12 percent for public safety workers.

PERS has predicted that the impact of AB 340 on employers, including the District and other employers in the STRS system, and employees will vary, based on each employer’s current level of benefits. To the extent that the new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. Additionally, PERS has noted that changes arising from AB 340 could ultimately have an adverse impact on public sector recruitment in areas that have historically experienced recruitment challenges due to higher pay for similar jobs in the private sector.

The District is unable to predict what the amount of PERS or STRS liabilities will be in the future or the amount of the PERS and STRS contributions which the District may be required to make, all as a result of the implementation of AB 340, and as a result of negotiations with its employee associations.

More information about AB 340 can be accessed through the PERS’s web site at www.calpers.ca.gov/index.jsp?bc=/member/retirement/pension-reform-impacts.xml&pst=ACT&pca=ST and through the STRS web site at http://www.calstrs.com/Newsroom/whats_new/AB340 _detailed_impact_analysis.pdf. The references to these internet websites are shown for reference and convenience only; the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference.

Other Post-Employment Benefits

In June 2004, the Governmental Accounting Standards Board (“GASB”) issued Statement No. 45, Accounting and Financia1 Reporting by Emp1oyers for Post Emp1oyment Benefits Other Than Pensions. The pronouncement requires public agency employers providing healthcare benefits to retirees to recognize and account for the costs for providing these benefits on an accrual basis and provide footnote disclosure on the progress toward funding the benefits. The implementation date for this pronouncement is staggered in three phases based upon the entity’s annual revenues, similar to the implementation for GASB Statement Nos. 34 and 35. GASB Statement No. 45 (“GASB 45”) became effective for the District for the Fiscal Year ending June 30, 2008.

The District’s annual other postemployment benefit (“OPEB”) cost (expense) is calculated based on the annual required contribution of the employer (“ARC”), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (“UAAL”) (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District’s annual OPEB cost for the Fiscal Year 2011-12, the amount actually contributed to the plan during Fiscal Year 2011-12, and changes in the District’s net OPEB obligation to the Plan:

Annual required contribution $1,370,346 Interest on net OPEB obligation $121,439 Adjustment to annual required contribution $(107,563) Annual OPEB cost (expense) $1,384,222 Contributions made $433,375 Increase in net OPEB obligation $950,847 Net OPEB obligation, beginning of year $2,428,763 Net OPEB obligation, end of year $3,379,610 ______Source: The District

The annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for 2010, 2011 and 2012 were as follows:

Year Ended Annual Required Percentage Net OPEB June 30 Contribution Contributed Obligation 2010 $1,135,493 37.61% 1,472,143 2011 1,378,748 30.62 2,428,763 2012 1,384,222 31.31 3,379,610 ______Source: The District

A schedule of funding progress as of the most recent actuarial valuation is as follows:

Actuarial UAAL as a Accrued Unfunded Percentage of Actuarial Actuarial Liability-(AAL) - AAL Funded Covered Valuation Value of Unprojected (UAAL) Ratio Covered Payroll Date Assets (a) Unit Credit (b) (b — a) (a / b) Payroll (c) ([b —a] / c) February 1, $ - $17, 465,058 $17,465,058 0% $21,049,348 82.97% 2010 ______Source: The District

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actual methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the February 1, 2011, actuarial valuation, the entry age normal actuarial method was used. The actuarial assumptions included a 5% investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer’s own investments calculated based on the funded level of the plan on the valuation date, and an annual healthcare cost trend rate of 7.0% initially, reduced by decrements to an ultimate rate of 4.5% after five years. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 2012 was 27 years.

Insurance

The District is a member of the Monterey County Schools Insurance Group (MCSIG), Monterey County Schools Workers’ Compensation JPA (MCSWC), and the Monterey and San Benito Property and Liability JPA (MSBCLPSA) public entity risk pools. The District pays an annual premium to each entity for its workers’ compensation and property and liability coverage. The relationships between the District and the pools are such that they are not component units of the District for financial reporting purposes.

DISTRICT FINANCES

The following is a description of the District’s budget procedure, its audited actual 2010-11 General Fund revenues and expenditures, its 2011-12 unaudited actual General Fund revenues and expenditures, its 2012-13 General Fund budget, its major revenues and expenditures, and certain other financial information.

The information in this section concerning the District’s finances is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Bonds is payable from any source other than the proceeds of ad valorem property taxes levied for that purpose. The Bonds are payable solely from the proceeds of an ad valorem tax which is required to be levied by the County in an amount sufficient for the payment thereof. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

Financial Statements

The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section 41010 of the California Education Code, is to be followed by all California school districts.

The District’s expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (measurable and/or available to finance operations). Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories.

The District’s accounting is organized on the basis of fund groups, with each group consisting of a separate set of self balancing accounts containing assets, liabilities, fund balances, revenues and expenditures. The major fund classification is the general fund which accounts for all financial resources not requiring a special type of fund. The District’s fiscal year begins on July 1 and ends on June 30.

The District’s general fund finances the legally authorized activities of the District for which restricted funds are not provided. General fund revenues are derived from such sources as State school fund apportionments, taxes, use of money and property, and aid from other governmental agencies. Audited financial statements for the District for the fiscal year ended June 30, 2012, and prior fiscal years are on file with the District and available for public inspection from the Assistant Superintendent, Business Services of the District, Soledad Unified School District, 1261 Metz Rd., Soledad, CA 93960, telephone: (831) 678-3987. The District may impose a charge for copying, mailing and handling.

The financial statements included herein were prepared using information from the Annual Financial Reports which are prepared and audited by independent certified public accountants each year. The District’s audited financial statements for the year ended June 30, 2012 are attached hereto as Appendix B. The following table reflects the District’s General Fund revenues, expenditures and charges in General Fund balance for fiscal years 2008-09 through 2011-12.

Soledad Unified School District General Fund Summary of Revenues, Expenditures and Changes in Fund Balances Fiscal Year Ended June 30

2009 2010 2011 2012 Revenues: Revenue Limit Sources $23,376,081 $21,186,776 $23,196,725 $23,458,999 Federal Revenues 5,516,117 4,307,694 6,027,898 6,329,201 Other State Revenues 7,161,580 8,170,750 7,426,472 7,713,981 Other Local Revenues 1,892,725 2,113,643 2,902,246 3,144,143 Total Revenues $37,946,503 $35,778,863 $39,553,341 $40,646,324 Expenditures: Current Expenditures Certificated Salaries 15,495,232 15,313,251 15,911,070 17,546,594 Classified Salaries 4,875,607 5,033,230 4,963,736 5,521,436 Employee Benefits 7,715,899 8,169,362 8,775,038 9,407,709 Books and Supplies 2,251,103 1,669,120 2,134,055 1,457,655 Services and Other Operating Expenditures 3,107,445 3,213,653 2,982,862 3,460,952 Other Outgo 2,979,513 2,694,390 1,875,679 1,412,930 Debt Service 458,678 712,189 522,219 484,522 Capital Outlay 81,625 14,856 7,012 75,115 Total Expenditures $36,965,102 $36,820,051 $37,171,671 $39,366,913 Excess of Revenues Over (Under) Expenditures 981,401 (1,041,188) 2,381,670 1,279,411 Other Financing Sources (Uses): Operating Transfers In 64,177 0 0 0 Operating Transfers Out (50,000) (6) (8,445) (2,815) Other Sources 0 0 0 0 Total Other Financing Sources (Uses)1 $14,177 (6) $(8,445) $(2,815) Fund Balance, Beginning of Year* 6,414,004 7,409,582 7,038,250 9,411,476 Fund Balance, End of Year $7,409,582 $6,368,388 $9,411,475 $10,688,072

* Beginning balances have been adjusted in auditing process in the year ending June 30, 2011.

Budget Procedure

The District is required by State law to adopt a final budget by July 1 in each year. The 2012-13 budget was adopted by the District on June 26, 2012 and is subject to future adjustment by the District during the 2012-13 fiscal year. Throughout the fiscal year, all revenues and appropriations are subject to review and since the budget must remain in balance, any shortfall in revenues could require a reduction in appropriations.

The District is under the jurisdiction of the County of Monterey Superintendent of Schools (the “County Superintendent”). The County Superintendent must review and approve or disapprove the budget no later than August 15. The County Superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the County Superintendent no later than September 8. Pursuant to State law, the County Superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria,

depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district’s administration may submit budget revisions for governing board approval.

Subsequent to approval, the County Superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the County Superintendent determines that a district cannot meet its current or subsequent year obligations, the County Superintendent will notify the district’s governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district’s budget and operations; (ii) after also consulting with the district’s board, develop and impose revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the County Superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority.

State law requires local governments to maintain a balanced budget and the District anticipates that it will have no difficulty in complying with the State requirement.

General Fund Budget

The table which follows shows the District’s adopted budget for the 2012-13 fiscal year and the 2nd Interim Report for the 2012-13 fiscal year.

Soledad Unified School District General Fund Audited Actuals and Adopted Budget Fiscal Year 2011-12 General Fund Adopted Budget for Fiscal Year 2012-13

Adopted Budget 2012-13 2nd Interim Report 2012-13 Fiscal Year Fiscal Year

Beginning Fund Balance $7,490,659 9,849,441 Revenues: Revenue Limit Sources 21,776,172 23,732,078 Federal Revenues 5,191,559 5,734,070 Other State Revenues 7,184,029 7,699,513 Other Local Revenues 3,189,530 3,477,945 Total Revenues $37,341,290 40,643,606 Expenditures: Certificated Salaries 18,878,714 19,245,986 Classified Salaries 5,842,520 5,999,243 Employee Benefits 9,197,674 9,269,984 Books and Supplies 1,302,362 1,833,256 Services/Operating Expenses 3,353,837 3,594,489 Capital Outlay 7,000 604,495 Other Outgo 1,991,215 1,882,933 Transfers of Indirect Costs (28,044) (30,843) Total Expenditures $40,545,278 42,399,543 Excess (Deficiency) of Revenues over Expenditures (3,203,988) (1,755,936) Other Financing Sources/(Uses) Operating Transfers In 0 659,212 Operating Transfers Out 0 0 Total Other Financing Sources/(Uses) 0 659,212 Net Increase (Decrease) in Fund Balance (3,203,988) (1,096,724) Ending Fund Balance* $4,286,671 8,752,716

* Ending balance reflects increased revenue limit due to the passage of Proposition 30.

Reports and Certifications

The Education Code of the State of California (Section 42133 et seq.) requires each school district to report and certify two times during the fiscal year whether it is able to meet its financial obligations for the remainder of such fiscal year and, based on current forecasts, for the subsequent fiscal year. The first report covers the period ending October 31 and the second report covers the period ending January 31. Such certifications are based on the governing board’s assessment based on standards and criteria for fiscal stability adopted by the State Board of Education and the State Superintendent of Public

Instruction. Each certification is required to be classified as positive, qualified, or negative on the basis of a review of the respective report against such criteria, but may include additional financial information known by the governing board to exist at the time of each certification. Such certifications are to be filed with the County Superintendent of Schools within 45 days after the close of the period being reported and, in the event of a negative or qualified certification, to the State Controller and the State Superintendent of Public Instruction. A negative certification is to be assigned to any school district that likely will be unable to meet its financial obligations for the remainder of the fiscal year or for which existing expenditure practices jeopardize the ability of the district to meet its multi-year financial commitments.

Any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next fiscal succeeding year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the district, unless the County Superintendent of Schools determines that the district’s repayment of indebtedness is probable.

The District has received a positive certification on its most recent interim report, being the Second Interim Report for fiscal year 2012-13, within the meaning of Section 42133 of the Education Code of the State of California.

Copies of the reports and certifications of the District may be obtained upon request from the District at the address set forth under the caption “INTRODUCTION—Other Information.”

State Funding of Education

The District’s principal revenues consist of a combination of ad valorem property taxes and State aid for general operation and in the form of categorical aid under ongoing programs of local assistance. All State aid is subject to the appropriation of funds in the State’s annual budget.

Under California Education Code Section 42238 and following, each school district is determined to have a target funding level: a “base revenue limit” per student multiplied by the district’s student enrollment measured in units of average daily attendance (“ADA”). The base revenue limit is calculated from the district’s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc.

Generally, the amount of State funding allocated to each school district is the amount needed to reach that district’s base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State “equalization aid.” To the extent local tax revenues increase due to growth in local property assessed valuation, the additional revenue is offset by a decline in the State’s contribution. Enrollment can fluctuate due to factors such as population growth, competition from private, parochial, and public charter schools, inter-district transfers in or out, and other causes. Losses in enrollment will cause a school district to lose operating revenues, without necessarily permitting the district to make adjustments in fixed operating costs. The principal component of local revenues is a school district’s property tax revenues, i.e., each district’s share of the local 1% property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. The California Education Code Section 42238(h) itemizes the local revenues that are counted towards the base revenue limit before calculating how much the State must provide in equalization aid. The more local property taxes a district receives, the less State equalization aid it is entitled to; ultimately, a school district whose local property tax revenues exceed its base revenue limit is entitled to receive no State equalization aid, and receives only its special categorical aid, which is deemed

to include the “basic aid” of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts are known colloquially as “basic aid districts.” Districts that receive some equalization aid are commonly referred to as “revenue limit districts.” The District is a “revenue limit district.”

The table below shows the ADA and deficited revenue limit per ADA for the District for each of the last seven fiscal years and the budgeted ADA and deficited revenue limit per ADA for the current fiscal year.

Soledad Unified School District Average Daily Attendance and Deficited Revenue Limit Fiscal Years 2006-07 through 2012-13

Total Base Revenue Fiscal Year Limit ADA 2006-07 $22,457,892 3,995 2007-08 24,143,755 4,083 2008-09 23,397,479 4,059 2009-10 22,347,882 4,210 2010-11 23,068,072 4,362 2011-12 23,233,530 4,447 2012-13* 23,710,204 4,512 ______*Budgeted. Source: The District

Revenue Sources

Major revenue sources of the District are described below.

Revenue Limit Sources. Since fiscal year 1973-74, California school districts have operated under general purpose revenue limits established by the State Legislature. In general, revenue limits are calculated for each school district by multiplying the ADA. for such district by a base revenue limit per unit of ADA. The revenue limit calculations are adjusted annually in accordance with a number of factors designated primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type.

Funding of the District’s revenue limit is provided by a mix of local property taxes and State apportionments of basic and equalization aid. Generally, the State apportionments will amount to the difference between the District’s revenue limit and its local property tax revenues. Such districts are known as “Revenue Limit” school districts and account for most school districts in California. The District is a Revenue Limit district.

Certain schools districts, known as “basic aid” districts, have local property tax collections of such a large magnitude that, when compared to the district’s total revenue limit, result in the receipt of the minimum State aid of $120 per pupil. This amount is defined in the State’s constitution as basic aid. The implication for basic aid districts is that the legislatively determined annual cost of living adjustment and other politically determined factors are less significant in determining their primary funding sources. Rather, property tax growth and the local economy are the primary determinants. The District is not a basic aid district.

Beginning in 1978-79, Proposition 13 and its implementing legislation provided for each county to levy (except for levies to support prior voter approved indebtedness) and collect all property taxes, and prescribed how levies on county wide property values are to be shared with local taxing entities within each county.

For the 2009-10 fiscal year, the District received $21,186,776 of revenue limit sources income, accounting for approximately 59.2% of its general fund revenues. For the 2010-11 fiscal year, the District received $23,196,725 from revenue limit sources, accounting for approximately 58.6% of its general fund revenues. For the 2011-12 fiscal year, the District received $23,458,999 from revenue limit sources income, accounting for approximately 57.7% of its projected general fund revenues. For fiscal year 2012-13, the District has budgeted $21,776,172 of revenue limit sources income, accounting for approximately 58.3% of budgeted general fund revenues.

Other State Revenues. As discussed above, the District receives State apportionment of basic and equalization aid in an amount equal to the difference between the District's revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives substantial other State revenues.

These other State revenues are primarily restricted revenues funding items such as the Community Day School Additional Funding, Home-to-School Transportation, Economic Impact Aid, and Special Education Transportation. Other State revenues comprised 19% of General Fund total revenues for Fiscal Year 2011-12. Other State revenues are projected to comprise approximately 19.2% of General Fund total revenues for Fiscal Year 2012-13.

The District receives State aid from the California State Lottery (the "Lottery"), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Moreover, State Proposition 20 approved in March 2000 requires that 50% of the increase in Lottery revenues over 1997- 98 levels must be restricted to use on instruction material.

Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as the leasing of property owned by the District and interest earnings. Other local revenues comprised 7.7% of General Fund total revenues for Fiscal Year 2011-12. Other local revenues are projected to comprise approximately 8.5% of General Fund total revenues in 2012-13.

Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under the Education Consolidation and Improvement Act, and specialized programs such as Drug Free Schools. The federal revenues, most of which are restricted, comprised approximately 15.6% of General Fund revenues in 2011-12 and are projected to equal approximately 13.9% of such revenues in 2012-13.

Developer Fees. Set forth below are the District’s collections of developer fees for the prior six fiscal years and projected collections for the current fiscal year.

Soledad Unified School District Developer Fees Developer Fees Fiscal Year for the District 2006-07 $973,680 2007-08 753,017 2008-09 8,434 2009-10 5,022 2010-11 68,941 2011-12 137,678 2012-13* 5,000 *Budgeted Source: The District

Dissolution of Redevelopment Agencies. Under California law, a city or county could, and did, prior to California legislation dissolving redevelopment agencies as described below, create a redevelopment agency in territory within one or more school districts. Upon formation of a “project area” of a redevelopment agency, most property tax revenues attributable to the growth in assessed value of taxable property within the project area (known as “tax increment”) belong to the redevelopment agency, causing a loss of general fund tax revenues (relating to the 1% countywide general fund levy) to other local taxing agencies, including school districts, from that time forward. However, special ad valorem property taxes (in excess of the 1% general fund levy) collected for payment of debt service on school bonds are based on assessed valuation before reduction for redevelopment increment and such special ad valorem property taxes are not affected or diverted by the operation of a redevelopment agency project area.

As to operating revenues, any loss of local property taxes that contribute to the revenue limit target of a revenue limit district is made up by an increase in State equalization aid, until the base revenue limit is reached. “Pass-through” payments of local tax revenues required by law to be paid to the school district by a local redevelopment agency will count toward the revenue limit, except for any portion dedicated to capital facilities or deferred maintenance.

Commencing February 1, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a “redevelopment property tax trust fund” created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in AB1X 26. AB1X 26 generally requires each county auditor-controller, on May 16, 2012 and June 1, 2012 and each January 16 and June 1 thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller’s administrative costs, in the following order of priority:

• To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditor-controller and State Controller verify such determination, pass-through payments that had previously been subordinated to debt service may be reduced;

• To the former redevelopment agency’s successor agency for payments listed on the successor agency’s recognized obligation payment schedule for the ensuing six-month period;

• To the former redevelopment agency’s successor agency for payment of administrative costs; and

• Any remaining balance to school entities and local taxing agencies.

The District previously received pass-through payments from the Monterey County Auditor- Controller with respect to project areas that include a portion of the District’s territory.

Effect of State Budget on Revenues. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts generally receive the majority of their operating revenues from various State sources. The primary source of funding for school districts is the revenue limit, which is a combination of State funds and local property taxes (as described above). State funds typically make up the majority of a district’s revenue limit. School districts also receive funding from the State for various categorical programs.

The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process.

The State is currently experiencing budgetary difficulties. No prediction can be made as to what measures will be taken by the State to balance the budget as required by law, nor as to how long the current budgetary crisis of the State will last. See “STATE FUNDING OF EDUCATION AND RECENT STATE BUDGETS” herein.

Expenditures

Since 1973-74, California school districts have operated under general purpose revenue limits established by the State legislature. Funding of the revenue limits is accomplished by a mix of local property taxes and State aid. Since the passage of Article XIIIA of the California Constitution in 1978, property taxes received by the District are limited to its share of the 1% of full cash value collected by the County. Annual State appropriations to school districts for general purposes are computed up to a revenue limit per unit of average daily attendance. Such apportionments will, generally speaking, amount to the difference between the District’s revenue limit and the District’s local property tax. Revenue limit calculations are adjusted annually in accordance with a number of factors.

As noted in the financial statement included herein, the District’s major expenditures each year are employee salaries and benefits.

Indebtedness

Long-term Debt. A schedule of changes in long-term debt for the year ended June 30, 2012 is shown below.

Soledad Unified School District Changes in Long-Term Debt

Balance Balance Due in one July 1, 2011 Additions Deductions June 30, 2012 year

General Obligation Bonds – 1997 $6,458,184 $380,287 $790,000 $6,048,471 $810,00 General Obligation Bonds – 1999 1,118,122 52,578 115,000 1,055,700 115,000 State preschool loans 90,571 - 38,857 51,714 25,857 Certificates of Participation 4,845,000 - 170,000 4,675,000 175,000 Capitalized Lease Obligations 527,329 - 81,746 445,583 - Other Postemployment Benefits 2,428,763 1,384,222 433,375 3,379,610 85,934 Compensated Absences 38,005 9,512 - 47,517 - Totals $15,505,974 $1,826,599 $1,628,978 $15,703,595 $1,211,791 ______Source: The District

Lease Obligations. The District has entered into agreements to lease relocateable classrooms, facilities, and an office. Such agreements are, in substance, purchases (capital leases) and are reported as capital lease obligations. The District’s liability on lease agreements with options to purchase is summarized below:

Soledad Unified School District Outstanding Capital Lease Obligations

Year Ending June 30, Payment 2013 $106,710 2014 106,710 2015 106,710 2016 74,672 2017 74,672 2018 37,336 Total 506,810 Less: Amount representing interest (61,227) Total $445,583 ______Source: The District

State Preschool Loans. During the years ended June 30, 2001 and 2002, the District received $130,000 and $150,000, respectively, in interest free loans for the construction of facilities for child care and development. The loans are repayable over ten years from the completion of the project. The following is a schedule of future payments on the State Preschool loans.

State preschool loans outstanding as of June 30, 2012, are as follows:

Soledad Unified School District State Preschool Loans

Year Ending June 30, Loan Payment 2013 $25,857 2014 25,857 Total $51,714 ______Source: The District

Long-term Borrowing. In January 1997, the District issued General Obligation Bonds, Election of 1995, Series 1997 in the amount of $9,000,000. The final maturity for the Bonds is August 1, 2021. As of June 1, 2013, the outstanding principal balance is $2,500,823.

In August 1998, the District issued General Obligation Bonds, Election of 1995, Series B, in the amount of $1,500,000. The final maturity for the Bonds is August 1, 2023. As of June 1, 2013, the outstanding principal balance is $460,473.

In May 2005, the District issued Certificates of Participation in the amount of $5,765,000, with a final maturity date of May 1, 2030. As of June 1, 2013, the outstanding principal balance is $4,500,000.

Short-term borrowing. The District issued $1,225,000 of Tax and Revenue Anticipation Notes dated February 26, 2013. The notes mature on October 1, 2013, and yield 0.223 percent interest, with a 2 percent coupon rate. The notes were sold to supplement cash flow.

Investment of District’s Funds

Education Code Section 41001 et. seq. provides that all school district funds, except as otherwise set forth below, shall be deposited into the County Treasury to the credit of the proper fund of the district. Education Code Section 41015 provides that funds held in a special reserve fund or any surplus moneys not required for the immediate necessities of the district may be invested in investments specified in Section 16430 or 53601 of the Government Code. Accordingly, all funds of the District not subject to the exception, including cash receipts and other moneys received by the District for deposit to the general fund of the District are deposited with the County Treasury. Currently, the District has not established special reserve funds or identified surplus moneys for investments subject to the exception set forth above. Such current practices, however, should not be construed to predict the future investment practices of the District in accordance with applicable law. See “APPENDIX F—MONTEREY COUNTY INVESTMENT POOL” herein.

STATE FUNDING OF EDUCATION AND RECENT STATE BUDGETS

General

The following information concerning the State’s budgets has been obtained from publicly available information which the District believes to be reliable; however, the District does not guaranty the accuracy or completeness of this information and has not independently verified such information. Furthermore, it should not be inferred from the inclusion of this information herein that the principal of or interest on the Bonds is payable from the General Fund. The Bonds are payable solely from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof.

State Funding of Education

General. The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55 percent of their operating revenues from various State sources. The primary source of funding for school districts is the revenue limit, which is a combination of State funds and local property taxes (see "DISTRICT FINANCES— State Funding of Education " above). State funds typically make up the majority of a district's revenue limit. School districts also receive substantial funding from the State for various categorical programs.

The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures (see "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS" below), the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. Decreases in State revenues may significantly affect appropriations made by the legislature to school districts.

The Budget Process. According to the State Constitution, the Governor of the State (the “Governor”) must propose a budget to the State Legislature no later than January 10 of each year. Under an initiative constitutional amendment approved by the State’s voters on November 2, 2010 as “Proposition 25”, a final budget must be adopted by a majority vote (rather than a supermajority, as was the case prior to the passage of Proposition 25) of each house of the Legislature no later than June 15, although this deadline has been breached in the past. Any tax increase provision of such final budget shall continue to require approval by a two-thirds majority vote of each house of the State Legislature. The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. The Governor signed the 2012-13 State Budget (as defined below) on June 27, 2012.

When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each district’s State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the Constitution (such as appropriations for salaries of elected state officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. The Controller has posted guidance as to what can and cannot be paid during a budget impasse at its website:

www.sco.ca.gov. Should the Legislature fail to pass the budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues.

Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted through various formulas and tests that take into account State proceeds of taxes, local property tax proceeds, school enrollment, per-capita personal income, and other factors. The State’s share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of the guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year’s budget, from the Governor’s initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as enrollment and per capita personal income grow.

If, at year-end, the guaranteed amount is calculated to be higher than the amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as “settle-up.” If the amount appropriated is higher than the guaranteed amount in any year, that higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to the guaranteed amount, the obligation to do so being referred to as “maintenance factor.”

In recent years, the State’s response to fiscal difficulties has had a significant impact on Proposition 98 funding and settle-up treatment. The State has sought to avoid or delay paying settle-up amounts when funding has lagged the guaranteed amount. In response, teachers’ unions, the State Superintendent, and others, sued the State or Governor in 1995, 2005, and 2009, to force them to fund schools in the full amount required. The settlement of the 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down the obligations through additional education funding over time, including the Quality Education Investment Act of 2006 (QEIA), have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of the settle-up amounts.

Recent State Budgets

Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to Internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated herein by reference.

(a) The California State Treasurer Internet home page at www.treasurer.ca.gov, under the heading "Bond Information,” posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State.

(b) The California State Treasurer's Office Internet home page at www.treasurer.ca.gov, under the heading "Financial Information", posts the State's audited financial statements. In addition, the Financial Information section includes the State's Rule 15c2-12 filings for State bond issues. The Financial Information section also

includes the Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation from the State's most current Official Statement, which discusses the State budget and its impact on school districts.

(c) The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget,” includes the text of proposed and adopted State Budgets.

(d) The State Legislative Analyst's Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Subject Area — Budget (State).”

State IOUs and Deferrals of Education Funding. In recent years, fiscal stress and difficulties in achieving a balanced State budget have resulted in actions which include the State issuing IOUs (defined below) to its creditors, and the deferral of school funding.

On July 2, 2009, as a result of declines in State revenues commencing in fiscal years 2008-09, the State Controller began to issue registered warrants (or "IOUs") for certain lower priority State obligations in lieu of warrants (checks) which could be immediately cashed. The registered warrants, the issuance of which did not require the consent of recipients, bore interest. With enactment of an amended budget in late July, 2009, the State was able to call all its outstanding registered warrants for redemption on September 4, 2009. The issuance of state registered warrants in 2009 was only the second time the State has issued state registered warrants to such types of state creditors since the 1930s.

Furthermore, commencing in fiscal year 2008-09, to better manage its cash flow in light of declining revenues, the State has enacted several statutes deferring amounts owed to public schools, until a later date in the fiscal year, or even into the following fiscal year, in order to more closely align the State's revenues with its expenditures. This technique has been used several times through the enactment of budget bills in fiscal years 2008-09 through 2012-13. Some of these statutory deferrals were made permanent, and others were implemented only for one fiscal year.

Fiscal stress and cash pressures currently facing the State may continue or become more difficult, and continuing declines in State tax receipts or other results of the current economic recession may materially adversely affect the financial condition of the State. The Department of Finance has projected that multi-billion dollar budget gaps will occur annually for several years in the future, although the 2012- 13 Budget described below includes measures which are intended to address these budgetary difficulties.

2012-13 State Budget. The State budget for Fiscal Year 2012-2013 was signed by Governor Brown on June 27, 2012 (the “2012-13 State Budget”), and assumed voters would approve the Governor’s tax initiative on the November 2012 ballot (the “November Tax Initiative” or “Proposition 30”). The 2012-13 State Budget includes a $92 billion State spending plan and includes significant welfare and social service cuts, restructuring the State’s welfare program, streamlining health insurance for low-income children, and reducing childcare coverage and aid to California community colleges. The 2012-13 State Budget reforms CalWORKs by establishing a two-year time limit for parents who are not meeting federal work requirements and merges the delivery of services for those who are eligible for both Medi-Cal and Medicare to reduce costs and improve the coordination of services. In addition, the 2012- 13 State Budget includes the following changes: (a) eliminates the Healthy Families Program and transitions children to Medi-Cal; (b) restructures funding for trial courts; (c) prohibits community colleges and universities that are unable to meet minimum performance standards from participating in the Cal Grant Program; (d) reforms the State process for K-14 education mandates by providing a block grant as an alternative to the existing, inefficient claiming process; (e) reduces the cost of State employee

compensation by 5%; (f) implements various reductions to hospital and nursing home funding to lower Medi-Cal costs; (g) reduces funding for child care programs and eliminates 14,000 child care slots; (h) creates a framework to transfer cash assets previously held by redevelopment agencies to cities, counties, and special districts to fund core public services; and (i) uses a Fiscal Year 2011-2012 overappropriation of the minimum guarantee to prepay Proposition 98 funding required by a court settlement. K-14 education funding would increase by approximately $17.2 billion, or 37%, and per pupil funding would increase by over $2,500 in the next four years.

If the Governor’s November Tax Initiative was not approved by voters, trigger cuts totaling $6 billion would go into effect on January 1, 2013 including funding for schools and community colleges which would be reduced by $5.4 billion and the State would reduce funding for a variety of public safety programs. However, the November Tax initiative was successful at the election and such trigger cuts were not implemented.

The 2012-13 State Budget includes total funding of $68.4 billion ($37.9 billion general fund contribution and $30.5 billion from other funds) for all K-12 education programs, including the following specific items:

(a) Redevelopment Agency Asset Liquidation. An increase of $1.3 billion in local property taxes for Fiscal Year 2012-2013 to reflect the distribution of cash assets previously held by redevelopment agencies. The increase in local revenue reduces Proposition 98 funding by an identical amount.

(b) Proposition 98 Adjustments. A decrease of approximately $630 million due to (i) eliminating the hold-harmless adjustment provided to schools from the elimination of the sales tax on gasoline in Fiscal Year 2010-2011; and (ii) using a consistent current value methodology to rebench the guarantee for the exclusion of child care programs, the inclusion of special education mental health services, as well as new and existing property tax shifts. Additionally, the 2012-13 State Budget reduces current year appropriations for a number of different programs by $220.1 million, backfilling those programs with available one-time funds.

(c) Quality Education Investment Act (“QEIA”). A decrease of $450 million from the general fund for Fiscal Year 2012-2013. The over-appropriation in Fiscal Year 2011- 2012 will be used to prepay the $450 million required to be provided on top of the minimum guarantee in Fiscal Year 2012-2013 pursuant to the California Teachers Association v. Schwarzenegger settlement agreement. The program will be funded within the guarantee to achieve one-time savings of $450 million for Fiscal Year 2012-2013. Additionally, savings of $181 million in Fiscal Year 2013-2014 and $40.8 million in Fiscal Year 2014-2015 are achieved by using the remainder of the current year over appropriation to prepay a portion of the Fiscal Years 2013-2014 and 2014-2015 QEIA obligations.

(d) K-12 Deferrals. An increase of $2.1 billion Proposition 98 funding to reduce K-12 inter-year budgetary deferrals from $9.5 billion to $7.4 billion.

(e) Charter Schools. An increase of $53.7 million Proposition 98 funding for charter school categorical programs to fund growth in charter school enrollment. In addition to funding growth, legislation expands the ability of school districts to convey surplus property to charter schools, while also increasing financial assistance to charters by allowing county treasurers to provide them with short-term cash loans, and by

authorizing charter schools to participate in the temporary revenue anticipation note mechanism already available to schools and county offices of education.

(f) Mandates Block Grant. An increase of $86.2 million over the Fiscal Year 2011-2012 funding level to provide a total of $166.6 million for K-12 mandates through a new voluntary block grant. Participating school districts and county offices of education would receive $28 per student, while participating charter schools would receive $14 per student. Districts and county offices of education that choose not to participate in the block grant program would retain their right to submit claims for reimbursement, subject to audit by the State Controller.

(g) Reduce Child Care Costs. The 2012-13 State Budget reflects total child care savings of $294.3 million in non-Proposition 98 funding, resulting in the elimination of 14,000 child care slots.

(h) Funding for the State Preschool Program. An increase of $163.9 million in Proposition 98 funding to cover the cost of part-day preschool services for 44,100 three and four year olds.

(i) Reduce Provider Contracts. A decrease of $30 million in Proposition 98 funding to reflect the 8.7-percent across the board reduction to general child care programs. Both preschool and general child care programs are administered by centers that contract directly with the Department of Education.

(j) Suspend Statutory Cost-of-Living Adjustment. A decrease of $11.9 million in Proposition 98 funding associated with cost-of-living adjustments.

2013-14 Proposed State Budget. On January 10, 2013, Governor Brown presented his Proposed State Budget for the 2013-14 fiscal year (the “2013-14 Proposed State Budget”), the first balanced budget presented in many years. The 2013-14 Proposed State Budget proposes a multi-year plan that is balanced, maintains a $1 billion reserve, and pays down budgetary debt from past years. Overall State general fund spending is projected to grow by 5%, from $93 billion in fiscal year 2012-13 to $97.7 billion in fiscal year 2013-14. The majority of the spending growth is in education and health care. Under the 2013-14 Proposed State Budget, funding levels for K-12 schools are expected increase by almost $2,700 per student through 2016-17, including an increase of more than $1,100 per student in 2013-14 over 2011-12 levels, which increased funding is tied to new accountability measures. Funding is also increased for the University of California and California State University higher education systems. The 2013-14 Proposed State Budget includes a $350 million allocation from the State’s General Fund to begin to pay for the implementation of federally-required expansions of State health care coverage.

The 2013-14 Proposed State Budget includes a proposal known as the Local Control Funding Formula, which proposes changing the State funding system for school districts, charter schools and county offices of education. The proposal attempts to address what is characterized in the 2013-14 State Budget as inequities in the distribution of education funding, and includes, among other changes, consolidating most categorical programs with existing revenue limit structure to provide a new student formula phased in over seven years, and implements supplemental and concentration grants to English learners and economically disadvantaged students. The District cannot predict the direct impact such legislation would have on its finances, and the form it may, or may not take, in the final 2013-14 Adopted State Budget.

2013-14 May Revision. On May 14, 2013, Governor Brown released his 2013-14 May Revision to the 2013-14 State Budget (the “May Revision”). The May Revision continues to project a balanced budget with a $1.1 billion reserve (generated in a large part from temporary Proposition 30 revenues), and maintains the fundamentals of the 2013-14 Proposed Budget. The May Revision reflects changes in revenues from the 2013-14 Proposed State Budget primarily because of (i) a downward revision in the short-term economic outlook due to the elimination of the federal 2% payroll tax reduction; (ii) $2.9 billion in additional Proposition 98 funding in the current year driven by higher General Fund revenues; (iii) $467 million in higher Medicare costs; and (iv) reduced borrowing costs for the State.

The May Revision includes an additional $48 million in CalWorks funding to support job growth and an additional $72 million to county probation departments to fund reduction of prison populations. The May Revise includes total funding of $70 billion ($39.9 billion General Fund and $30.1 billion other funds) for K-12 education, and makes minor changes to the Local Control Funding Formula discussed above. The May Revise projects that the debts, deferrals, and budgetary obligations that amounted to $45 billion in 2011 would be reduced to $27 billion in 2013-14 and to below $5 billion by the end of 2016-17.

The execution of 2013-14 State Budget, when adopted, may be affected by numerous factors, including but not limited to: (i) shifts of costs from the federal government to the State, (ii) national, State and international economic conditions, (iii) litigation risk associated with spending reductions, including the elimination of redevelopment agencies, (iv) rising health care costs (v) large unfunded liabilities for retired State employee’s pensions and healthcare, (vi) deferred maintenance of State’s critical infrastructure and (vii) other factors, all or any of which could cause the revenue and spending projections made in 2013-14 State Budget and the May Revise to be unattainable. The District cannot predict the impact that the 2013-14 State Budget, or subsequent budgets, will have on its own finances and operations. Additionally, the District cannot predict the accuracy of any projections made in the State’s 2013-14 State Budget.

The complete 2013-14 Proposed State Budget and the May Revision are available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated in this Official Statement by such reference. The information referred to above should not be relied upon in making an investment decision with respect to the Bonds.

Periodic Reports

Periodic reports on revenues and/or expenditures during the fiscal year are issued by the Governor’s Office, the State Controller’s Office and the LAO. The Department of Finance issues a monthly Bulletin which reports the most recent revenue receipts as reported by state departments, comparing them to Budget projections. The Governor’s Office also formally updates its budget projections three times during each fiscal year, in January, May and at budget enactment. These bulletins and other reports are available on the Internet.

Future Budgets

The District cannot predict what actions will be taken in the future by the Legislature and the Governor to address changing State revenues and expenditures. The State budget will be affected by national and state economic conditions and other factors over which the District will have no control. Continued State budget shortfalls in future fiscal years could have an adverse financial impact on the District.

Legal Challenges to State Funding of Education

The application of Proposition 98 and other statutory regulations has been the subject of various legal challenges in recent years, and is likely to be further challenged in the future. For a discussion of how the provisions of Proposition 98 have been applied to school funding see “—State Funding of Education” and “—Recent State Budgets” above.

2010 Robles-Wong Litigation. On May 20, 2010, a plaintiff class of numerous current California public school students and several school districts, together with the California Congress of Parents, Teachers & Students, the Association of California School Administrators and the California School Boards Association filed suit in Alameda County Superior Court challenging the system of financing for public schools in California as unconstitutional. In Maya Robles-Wong, et al. v. State of California, plaintiffs seek declaratory and injunctive relief, including a permanent injunction compelling the State to abandon the existing system of public school finance. On July 16, 2010, the California Teachers’ Association filed a Complaint in intervention, making the same allegations and seeking the same declaratory and injunctive relief. On January 14, 2011, the court dismissed certain of the causes of action, including causes of action that alleged a constitutional right to a particular level of education funding and violations of equal protection of the law, based on certain State constitutional provisions. On July 26, 2011, the Superior Court rejected the plaintiffs amended complaint as not stating an equal protection claim. The District cannot predict the ultimate outcome of the Robles-Wong litigation. However, if successful, the lawsuit could result in changes to the implementation of school finance in the State of California.

2011 CSBA Litigation. The California School Boards Association, the Association of California School Administrators, the Los Angeles Unified School District, the San Francisco Unified School District and the Turlock Unified School District announced on August 28, 2011 that they were filing a lawsuit (the “CSBA Lawsuit”) in the Superior County of the City and County of San Francisco, seeking to restore more than $2 billion that had been designated to California public schools under Proposition 98, but was cut from the 2011-12 State Budget. The Superior Court has rejected the CSBA Lawsuit, however the plaintiffs appealed the decision and on February 26, 2013, the appeals court dismissed the appeal and affirmed the trial court’s ruling..

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

Principal of and interest on the Bonds are payable from the proceeds of an ad valorem tax required to be levied by the County in an amount sufficient for the payment thereof. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein. Articles XIIIA, XIIIB, XIIIC and XIIID of the California Constitution, Propositions 1A, 39, 55, 98, and 111 and certain other provisions of law are discussed in this Section to describe the potential effect of these constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the District to levy taxes for payment of the Bonds. The tax levied by the County for payment of the Bonds was approved by the District’s voters in compliance with Article XIIIA, Article XIIIC, and all applicable laws.

Article XIIIA of the California Constitution

Article XIIIA of the State Constitution limits the amount of ad valorem taxes on real property to 1% of “full cash value” as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the county assessor’s valuation of real property as shown on the 1975 76 bill under ‘full cash

value,’ or thereafter, the appraised value of real property when purchased, newly constructed or a change in ownership has occurred after the 1975 assessment,” subject to exemptions in certain circumstances of property transfer or reconstruction. The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors.

Article XIIIA requires a vote of two thirds of the qualified electorate of a city, county, special district or other public agency to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978; (b) on any bonded indebtedness approved by two thirds of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978; or (c) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% or more of the votes cast of the proposition, but only if certain accountability measurers are included in the proposition. The tax for payment of the Bonds falls within the exception described in clause (b) of the immediately preceding sentence. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State taxes for the purpose of increasing tax revenues.

Legislation Implementing Article XIIIA

Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979.

That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, subject to subject to changes in organizations, if any, of affected jurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to such jurisdictions.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

All taxable property is shown at 100% of assessed value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.

Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA.

Unitary Property

Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions (“unitary property”). Under the State Constitution, such property is assessed by the State Board of Equalization

(“SBE”) as part of a “going concern” rather than as individual pieces of real or personal property. State assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year.

The California electric utility industry has been undergoing significant changes in its structure and in the way in which components of the industry are regulated and owned. Sale of electric generation assets to largely unregulated, non-utility companies may affect how those assets are assessed, and which local agencies are to receive the property taxes. The District is unable to predict the impact of these changes on its utility property tax revenues, or whether legislation may be proposed or adopted in response to industry restructuring, or whether any future litigation may affect ownership of utility assets or the State’s methods of assessing utility property and the allocation of assessed value to local taxing agencies, including the District. So long as the District is not a basic aid district, taxes lost through any reduction in assessed valuation will be compensated by the State as equalization aid under the State’s school financing formula.

Article XIIIB of the California Constitution

Article XIIIB of the State Constitution (“Article XIIIB”), as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain declared emergencies. As amended, Article XIIIB defines:

(a) “change in the cost of living” with respect to school districts to mean the percentage change in California per capita income from the preceding year; and

(b) “change in population” with respect to school districts to mean the percentage change in the average daily attendance of a school district from the preceding fiscal year.

For fiscal years beginning on or after December 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the 1986-87 fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended.

The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain State subventions to that entity. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service); and (b) the investment of tax revenues.

Appropriations subject to limitation do not include (a) refunds of taxes; (b) appropriations for debt service; (c) appropriations required to comply with certain mandates of the courts or the federal government; (d) appropriations of certain special districts; (e) appropriations for all qualified capital outlay projects as defined by the legislature; (f) appropriations derived from certain fuel and vehicle taxes; and (g) appropriations derived from certain taxes on tobacco products.

Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount

permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years.

Article XIIIB also includes a requirement that 50% of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution. See “—Proposition 98 and Proposition 111” below.

Article XIIIC and Article XIIID of the California Constitution

On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the “Right to Vote on Taxes Act.” Proposition 218 added to the California Constitution Articles XIIIC and XIIID, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges.

According to the “Title and Summary” of Proposition 218 prepared by the California Attorney General, Proposition 218 limits “the authority of local governments to impose taxes and property related assessments, fees and charges.” Among other things, Article XIIIC establishes that every tax is either a “general tax” (imposed for general governmental purposes) or a “special tax” (imposed for specific purposes), prohibits special purpose government agencies such as community college districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development.

The District does not impose any taxes, assessments, or property related fees or charges which are subject to the provisions of Proposition 218. It does, however, receive a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District.

Proposition 26

On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations,

inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.

Proposition 98 and Proposition 111

On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (“Proposition 98”). In addition to adding certain provisions to the California Education Code, Proposition 98 also amended Article XIIIB and Section 8 of Article XVI of the State Constitution and added Section 8.5 of Article XVI to the State Constitution, the effects of which are to establish a minimum level of State funding for school districts, to allocate to school districts, within limits, State revenues in excess of the State’s appropriations limit and to exempt such excess funds from school district appropriations limits.

On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the “Traffic Congestion Relief and Spending Limit Act of 1990” (“Proposition 111”) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation.

Article XIIIB, as amended by both Proposition 98 and Proposition 111, is discussed above under “Article XIIIB of the California Constitution.”

The provisions of Sections 8 and 8.5 of Article XVI, as added and/or amended by Propositions 98 and 111, may be summarized as follows:

(a) State Funding of Schools (Section 8). Moneys to be applied by the State for the support of school districts must be at a level equal to the greater of the following “tests”

(i) the amount which, as a percentage of the State general fund (“General Fund”) revenues which may be appropriated pursuant to Article XIIIB, equals the percentage of General Fund revenues appropriated for school districts in Fiscal Year 1986-87;

(ii) the amount actually appropriated to school districts in the prior Fiscal Year from General Fund proceeds and from allocated local proceeds of taxes (excluding any excess State revenues allocated pursuant to Section 8.5), adjusted for changes in enrollment and for the change in the cost of living (operative only in a Fiscal Year in which the percentage growth in California per capita personal income is less than or equal to the percentage growth in per capita General Fund revenues plus one-half of one percent);

(iii) the amount actually appropriated to school districts in the prior Fiscal Year from General Fund proceeds and from allocated local proceeds of taxes (excluding any excess State revenues allocated pursuant to Section 8.5) adjusted for changes in

enrollment and for the change in per capita General Fund revenues, and, in addition, an amount equal to 0.5% times the prior year appropriations (excluding any excess State revenues) adjusted for changes in enrollment (operative only in a Fiscal Year in which the percentage growth in California per capita personal income is greater than the percentage growth in per capita General Fund revenues plus 0.5%).

If the third test is used in any year the difference between the third test and the second test will become a “credit” to schools which will be paid in future years when the General Fund revenue growth exceeds personal income growth. Legislation adopted prior to the end of the 1988-89 Fiscal Year implementing Proposition 98 determined the K-14 schools’ funding guarantee under Test 1 to be 40.3% of the General Fund tax revenues, based on 1986-87 appropriations. However, that percent has been adjusted to approximately 35% to account for a subsequent redirection of local property taxes since such redirection directly affects the share of State General Fund revenues to schools.

The State Legislature by a two-thirds vote of both houses, with the Governor’s concurrence, may suspend for one year the minimum funding provisions for school districts as provided for in Section 8.

(b) Allocations to the State School Fund (Section 8.5). In addition to the amounts applied to school districts under the tests discussed above, the State Controller is directed to allocate available excess State revenues (pursuant to Article XIIIB) to the State School Fund. However, no such allocation is required at any time that the Director of Finance and the Superintendent of Public Instruction mutually determine that current annual expenditures per student equal or exceed the average annual expenditures per student of the 10 states with the highest annual expenditures per student and the average class size equals or is less than the average class size of the 10 states with the lowest class size.

Such allocations do not constitute appropriations subject to Article XIIIB limitations and are to be made in an equal amount per enrollment.

Proposition 39

On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (a) allows school facilities bond measures to be approved by 55% (rather than two thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds, and (b) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this Proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1% of the value of property. Property taxes may only exceed this limit to pay for (i) any local government debts approved by the voters prior to July 1, 1978; or (ii) bonds to buy or improve real property that receive two thirds voter approval after July 1, 1978.

The 55% vote requirement applies only if the local bond measure presented to the voters includes: (a) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (b) a specific list of school projects to be funded and certification that the school board has evaluated safety,

class size reduction, and information technology needs in developing the list; and (c) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by 55% of the voters. These provisions require that the tax rate levied as the result of any single election be no more than $60 (for a unified school district), $30 (for a high school or elementary school district), or $25 (for a community college district), per $100,000 of taxable property value. These requirements are not part of this Proposition and can be changed with a majority vote of both houses of the Legislature and approval by the Governor.

Proposition 1A and Proposition 22

On November 2, 2004, California voters approved Proposition 1A, which amends the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State cannot (a) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (b) shift property taxes from local governments to schools or community colleges, (c) change how property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature, or (d) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Beginning in 2008-09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two- thirds vote of both houses. Under such a shift, the State must repay local governments for the property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights.

Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on February 5, 2008, prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies and eliminates the State’s authority to shift property taxes temporarily during a severe financial hardship of the State. In addition, Proposition 22 restricts the State’s authority to use State fuel tax revenues to pay debt service on state transportation bonds, to borrow or change the distribution of state fuel tax revenues, and to use vehicle license fee revenues to reimburse local governments for state mandated costs. Proposition 22 impacts resources in the State’s general fund and transportation funds, the State’s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the Legislative Analyst’s Office (the “LAO”) on July 15, 2010, the expected reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 will be approximately $1 billion in fiscal year 2010-11, with an estimated immediate fiscal effect equal to approximately 1 percent of the State’s total general fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State’s general fund costs by approximately $1 billion annually for several decades.

On December 30, 2011, the California Supreme Court issued its decision in the case of California Redevelopment Association v. Matosantos, finding ABx1 26, a trailer bill to the 2011-12 State budget, to be constitutional. As a result, all redevelopment agencies in California were dissolved as of February 1, 2012, and all net tax increment revenues, after payment of redevelopment bonds debt service and administrative costs, will be distributed to cities, counties, special districts and school districts. The Court

also found that ABx1 27, a companion bill to ABx1 26, violated the California Constitution, as amended by Proposition 22. ABx1 27 would have permitted redevelopment agencies to continue operations provided their establishing cities or counties agreed to make specified payments to school districts and county offices of education, totaling $1.7 billion statewide. The District can make no representations regarding what affect the implementation of ABx1 26 will have on the District’s future receipt of tax increment revenues.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 26, 98 and 111 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District.

TAX MATTERS

Tax Exemption

Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are “qualified tax-exempt obligations” within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the “Tax Code”) such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Tax Code), a deduction for federal income tax purposes is allowed for 80% of that portion of such financial institution's interest expense allocable to interest payable on the Bonds.

The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds.

Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium are disregarded.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate

compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes.

Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds.

California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

Form of Opinion. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C.

Other Tax Considerations

Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above.

Future legislation, if enacted into law, or clarification of the Tax Code may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent owners of the Bonds from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Tax Code may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion.

CERTAIN LEGAL MATTERS

Absence of Litigation

No litigation is pending or threatened concerning the validity of the Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District's ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District's ability to issue and retire the Bonds.

The District may be or may become a party to lawsuits and claims which are unrelated to the Bonds or actions taken with respect to the Bonds and which have arisen in the normal course of operating the District. The District maintains certain insurance policies which provide coverage under certain circumstances and with respect to certain types of incidents. There currently are no claims or actions pending which could have a material adverse affect on the financial position or operations of the District. The District cannot predict what types of claims may arise in the future.

Compensation of Certain Professionals

Payment of the fees and expenses of Jones Hall, A Professional Law Corporation, as Bond Counsel and Disclosure Counsel to the District, and Dale Scott & Company, Inc., as financial advisor to the District, is contingent upon issuance of the Bonds.

RATINGS

Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) is expected to assign a rating of “AA” to the Bonds, with the understanding that upon delivery of the Bonds, the Bond Insurer will deliver its Policy. In addition, S&P and Moody’s Rating Services (“Moody’s”) have assigned their underlying municipal bond ratings of “A+” and “A1”, respectively. Such ratings reflect only the views of such organization and any desired explanation of the significance of such ratings should be obtained from Standard & Poor’s, 55 Water Street, New York, New York 10041, and Moody’s, 60 State St., Suite 700, Boston, MA 02109. 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 such ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the rating agency concerned if, in the judgment of such rating agency, circumstances so warrant. The District undertakes no responsibility either to bring to the attention of the owners of the Bonds any downward revision or withdrawal of any ratings obtained or to oppose any such revision or withdrawal. Any such downward revision or withdrawal of the ratings obtained may have an adverse effect on the market price of the Bonds.

CONTINUING DISCLOSURE OBLIGATION

The District has covenanted to provide such annual financial statements and other information in the manner required by Rule 15c2-12. The District has entered into an undertaking (the “Undertaking”) for the benefit of the Owners of the Bonds to provide certain financial information and operating data to certain information repositories annually and to provide notice to the Municipal Securities Rulemaking Board or to certain information repositories of certain events, pursuant to the requirements of

Section (b)(5)(i) of Rule 15c2-12. See “APPENDIX D—PROPOSED FORM OF CONTINUING DISCLOSURE CERITIFCATE” herein for a description of the Undertaking. These covenants are being made in order to assist the successful Purchaser (as defined below) in complying with Rule 15c2-12.

In connection with the prior issues of general obligation bonds (1995 Election, Series 1997 and 1995 Election, Series B) as well as certificates of participation (2005 Certificates of Participation), which are described under “Indebtedness, Long-term borrowing,” the District has made prior undertakings pursuant to Rule 15c2-12. In the last five years, the District has not filed annual reports or other notices in a timely and complete manner. However, as of this date, the District has made each required filing. The District has retained Dale Scott & Co. to assist in complying with these obligations for future reports, and notices of certain events.

A failure by the District to comply with the Undertaking described herein will not constitute an Event of Default. Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price.

COMPETITIVE SALE OF THE BONDS

The Bonds were sold pursuant to a competitive bidding process on May 21, 2013 pursuant to the terms set forth in the Official Notice of Sale with respect to the Bonds.

The Bonds were awarded to Hutchinson, Shockey, Erley & Co. (the “Purchaser”), whose proposal represented the lowest true interest rate for the Bonds. The Purchaser has agreed to purchase the Bonds at a price of $5,000,000, which is equal to the initial principal amount of the Bonds of $5,000,000, plus original issue premium of $368,301.55, less the Purchaser’s discount of $94,801.55, less the Bond Insurance Premium of $23,500.00, and less the amount of $250,000.00 to be used by the Purchaser to fulfill its obligation to pay costs of issuance.

The Purchaser intends to offer the Bonds to the public at the offering prices set forth on the inside cover page of this Official Statement. The Purchaser may offer and sell to certain dealers and others at a price lower than the offering prices stated on the inside cover hereof. The offering price may be changed from time to time by the Purchaser.

The Purchaser may offer and sell Bonds to certain dealers and others at prices lower than the offering prices or yields stated on the cover page hereof. The offering prices or yields may be changed from time to time by the Purchaser.

ADDITIONAL INFORMATION

Brief descriptions or summaries of the District, the Bond Resolution, the Bonds, and other documents, agreements and statutes are included in this Official Statement. The summaries or references herein to the Bond Resolution, and other documents, agreements and statutes referred to herein, and the description of the Bonds included herein, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to such documents, and the description herein of the Bonds is qualified in its entirety by reference to the form thereof and the information with respect thereto included in the aforesaid documents. Copies of such documents may be obtained at the principal corporate trust office of the Paying Agent.

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Bonds.

All data contained herein has been taken or constructed from District records. Appropriate District officials, acting in their official capacities, have reviewed this Official Statement and have determined that, as of the date hereof, the information contained herein is, to the best of their knowledge and belief, true and correct in all material respects and does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading.

The execution and delivery of this Official Statement has been duly authorized by the Board of Trustees of the District.

SOLEDAD UNIFIED SCHOOL DISTRICT

By /s/ Jorge Guzmán______Interim Superintendent

APPENDIX A

GENERAL INFORMATION CONCERNING CITY OF SOLEDAD AND COUNTY OF MONTEREY

The following information concerning the City of Soledad (the “City”) and Monterey County (the “County”) is included only for the purpose of supplying general information regarding the area in which the District is located. The Bonds are not a debt of the City, the County, the State or any of its political subdivisions (other than the District), and none of the County, the State or any of its political subdivisions (other than the District) is liable therefore. The County, including its Board of Supervisors, officers, officials, agents and other employees, are required, only to the extent required by law, to: (a) levy and collect ad valorem taxes for payment of the Bonds in accordance with the law; and (b) transmit the proceeds of such taxes to the paying agent for the payment of the principal of and interest on Bonds at the time such payment is due.

Population Characteristics

The following table shows population growth of the City, County, and State between 2008 and 2012.

City of Monterey, Monterey County and State of California Population Estimates 2008-2012

Monterey State of Year City of Soledad County California 2008 25,886 409,387 36,704,375 2009 25,863 413,590 36,966,713 2010 25,544 415,825 37,253,956 2011 26,285 416,968 37,427,946 2012 26,239 420,668 37,678,563 ______Source: State of California, Department of Finance

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Industry Description

The County’s economy has a strong agricultural base, as well as mainstays in tourism and the military. Local educational institutions are also a strong bulwark of the region. Areas of future economic growth may well include marine biology and environmental sciences.

The largest industries in the County, in terms of the percentage of employment in each respective industry, are as follows:

Monterey County Employment by Industry 2011 Annual Averages

Annual Percentage of Percentage of Average County County Total Industry Employment Employment* Labor Force*

Government 31,400 15.4% 13.7% Agriculture 48,700 23.9 21.2 Retail Trade 16,500 8.1 7.2 Health Care and Education Services 14,200 7.0 6.2 Professional and Business Services 12,500 6.1 5.5 Leisure and Hospitality 21,300 10.5 9.3 Manufacturing 5,700 2.8 2.5 Construction, Natural Resources and Mining 3,800 1.9 1.7 Finance, Insurance & Real Estate 4,400 2.2 2.4 Wholesale Trade 5,400 2.7 2.4 Transportation, Warehousing and Utilities 3,400 1.7 1.5 ______* Percentages based on data as of August 2012. Source: State of California Employment Development Department, March 2010 Benchmark

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Labor Force

In calendar year 2012, the County’s labor force was approximately 226,500, an increase of 2.1% from 2011. The unemployment rate in 2012 decreased to 11.4% from 12.5% in 2011. The following table shows employment by industry group and labor force figures for the County from 2008 to 2012, as well as employment and the unemployment rate in the County from 2008 to 2012.

Monterey County Employment and Unemployment Annual Averages, 2008-20121 (in thousands)

Industry Wage and Salary Employment 2008 2009 2010 2011 2012

Natural Resources and Mining 200 200 200 200 200 Total Farm 43,300 42,800 45,100 46,300 51,000 Construction 6,100 4,600 4,100 3,800 4,200 Manufacturing 6,100 5,700 5,600 5,600 5,200 Wholesale Trade 5,100 4,900 4,900 4,900 5,200 Retail Trade 16,700 15,100 15,200 15,700 15,700 Transportation, Warehousing and Utilities 3,600 3,400 3,300 3,400 3,800 Information 2,000 1,700 1,700 1,600 1,500 Finance and Insurance 5,500 4,700 4,300 4,100 4,200 Professional and Business Services 11,600 10,900 11,500 11,500 11,300 Educational and Health Services 13,100 13,600 13,400 13,500 13,800 Leisure and Hospitality 21,400 20,300 20,000 20,200 21,100 Other Services 4,600 4,600 4,600 4,600 4,700 Government 32,200 32,600 32,600 31,700 31,300 Total Wage and Salary Civilian Labor Force4 212,400 215,500 221,100 221,800 226,500 Civilian Employment 194,500 190,200 193,100 194,000 200,800 Unemployment 17,800 25,300 28,000 27,800 25,700 Unemployment Rate 8.4% 11.7% 12.7% 12.5% 11.4% 1 Totals may not equal sum of component parts due to rounding, and certain labor categories not included. All information updated per March 2010 Benchmark. 2 The State Employment Development Department has reported a seasonally adjusted unemployment rate within the County of 13.1% for September 2012. 3 Based on place of work. 4 Based on place of residence. Source: State of California Employment Development Department, March 2010 Benchmark

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The following table lists the largest employers within the County.

Monterey County Major Employers (Listed Alphabetically)

Employer Location Industry

Azcona Harvesting Greenfield Harvesting-Contract Breast Care Center Monterey Diagnostic Imaging Centers Bud of California Soledad Fruit and Vegetables – Growers and Shippers CTB MC GRAW-HILL LLC Monterey Educational Consultants D’Arrigo Brothers Co. Salinas Marketing Programs and Services Dole Fresh Vegetables Soledad Food Products and Manufacturers HSBC Card Svc Inc. Salinas Credit Card and Other Credit Plans Mann Packing Co. Salinas Fruits and Vegetables – Growers and Shippers MC GRAW-HILL LLC Monterey Publishers-Book (Mfrs) Misionero Vegetables Gonzales Fruits and Vegetables – Growers and Shippers Monterey County Social Service Cmmtt Salinas County Government – Social/Human Resources Monterey County Social Services Salinas County Government – Social/Human Resources Monterey Mushrooms Inc. Royal Oaks Mushrooms Monterey Peninsula College Monterey Schools – Universities and Colleges Academic Natividad Medical Center Salinas Hospitals Naval Postgraduate School Monterey Schools – Universities and Colleges Academic Pebble Beach Co. Pebble Beach Resorts Pebble Beach Resorts Pebble Beach Resorts Pebble Beach Resorts Pebble Beach Resorts Salinas Valley Memorial Healthcare Salinas Hospitals Social Services Department Salinas Senior Citizens Service Organizations Special Education School Div Salinas Schools Taylor Farms California Inc. Salinas Fruit and Vegetables – Growers and Shippers US Defense Dept Seaside Federal Government – National Security ______Source: State of California Employment Development Department, extracted from The America’s Labor Market Information System (“ALMIS”) Employer Database, 2013 2nd Edition

Effective Buying Income

“Effective Buying Income” is defined as personal income less personal tax and non-tax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner-occupants of non- farm dwellings), dividends paid by corporations, interest income from all sources and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), non-tax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.”

The following table summarizes the median household effective buying income for the County, the State and the Unites States from 2009 to 2013.

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City of Soledad and Monterey County Effective Buying Income 2009 through 2013

Total Effective Median Household Buying Income Effective Year Area (000’s Omitted) Buying Income 2009 City of Soledad $171,921 $45,529 Monterey County 7,883,583 48,203 California 844,823,319 49,736 United States 6,571,536,768 43,252

2010 City of Soledad 178,187 46,314 Monterey County 7,920,354 49,171 California 801,393,027 47,177 United States 6,365,020,076 41,368

2011 City of Soledad 162,515 42,852 Monterey County 7,637,341 46,950 California 814,578,458 47,062 United States 6,438,704,664 41,253

2012 City of Soledad 171,521 42,555 Monterey County 7,810,921 46,881 California 879,041,706 47,062 United States 6,438,677,694 41,253

2013 City of Soledad 182,435 40,366 Monterey County 8,215,141 45,519 California 922,868,344 47,307 United States 6,737,909,508 41,358

Source: The Nielsen Company, Inc.

A-5

Commercial Activity

In 2009, the State Board of Equalization converted the business codes of sales and use tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 and after is not comparable to that of prior years.

A summary of historic taxable sales within the County during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2011 in the County were reported to be $5,312,732,000 a 7.2% increase over the total taxable sales of $4,955,562,000 reported during calendar year 2010.

Monterey County Annual Taxable Transactions Number of Permits and Valuation of Taxable Transactions (dollars in thousands)

Retail Stores Total All Outlets Number of Taxable Number of Taxable Permits Transactions Permits Transactions

2007 4,857 $4,001,619 11,161 $5,680,652 2008 4,993 4,021,150 11,168 5,399,594 2009* 6,880 3,255,804 10,125 4,705,845 2010* 6,921 3,423,370 10,204 4,955,562 2011* 6,953 3,680,776 10,268 5,312,732 ______* Retail Stores data is not comparable to prior years. “Retail” category now includes “Food Services.” Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax)

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A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2011 in the City were reported to be $57,073,000, a 20.9% increase over the total taxable sales of $47,218,000 reported during calendar year 2010.

City of Soledad Taxable Transactions Number of Permits and Valuation of Taxable Transactions (dollars in thousands)

Retail Stores Total All Outlets Number Taxable Number Taxable of Permits Transactions of Permits Transactions

2007 108 45,213 191 49,135 2008 111 42,639 199 45,398 2009* 140 39,952 183 43,481 2010* 128 43,317 169 47,218 2011* 136 52,151 183 57,073 ______* Retail Stores data is not comparable to prior years. “Retail” category now includes “Food Services.” Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax)

Agricultural Production

The County’s economy is largely based on agriculture, and the County for many years has been a national leader in the value of annual agricultural production. Agriculture is a significant industry and a major employer in the County.

The County is the major agribusiness, crop processing and shipping center for the region. The following table sets forth the gross production value by category of various agricultural products from 2007 through 2011.

Monterey County Leading Crops and Total Agricultural Production 2007 through 2011

2007 2008 2009 2010 2011 Field Crops 14,442,000 14,456,000 14,972,000 15,230,000 16,824,000 Seed Crops 7,335,000 8,363,000 9,306,000 9,404,000 9,984,000 Vegetable Crops 2,516,405,000 2,530,876,000 2,631,763,000 2,677,072,000 2,596,683,000 Fruit and Nut Crops 900,595,000 906,717,000 1,042,685,000 987,693,000 914,685,000 Nursery Products 342,125,000 326,105,000 294,572,000 266,121,000 260,703,000 Livestock and Poultry 42,355,000 40,235,000 40,374,000 49,893,000 54,468,000 Apiary 30,300 38,600 46,200 242,000 228,000 Total 3,823,287,300 3,826,791 4,033,718,000 4,006,235,000 3,852,995,000 ______Source: Monterey County Department of Agriculture

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Construction Activity

Provided below are the building permits and valuations for the County for calendar years 2008 through April 2013, which is the last year for which such information is available.

Monterey County Total Building Permit Valuations (valuations in thousands)

Permit Valuation 2008 2009 2010 2011 2012

New Single-family $123,180,326 44,924,748 55,857,302 63,217,194 76,667,352 New Multi-family 24,070,288 11,632,669 28,302,048 5,859,680 19,151,017 Res. Alterations/Additions 69,131,262 60,181,340 58,784,807 61,111,034 55,293,026 Total Residential 216,381,876 116,738,757 142,944,157 130,187,908 151,111,395 New Commercial 28,180,820 13,202,255 16,132,249 3,800,000 18,363,006 New Industrial 13,950,002 0 0 1,494,409 4,403,590 New Other 29,952,507 18,541,839 11,384,452 14,321,642 1,376,000 Com. Alterations/Additions 61,468,112 64,578,434 57,074,829 44,505,941 46,115,255 Total Nonresidential 133,551,441 96,322,528 84,591,530 64,121,992 70,257,851 New Dwelling Units Single Family 239 118 118 130 106 Multiple Family 169 95 167 26 131 Total 408 213 285 156 237 ______Source: California Homebuilding Foundation, California Building Industry Association

City of Soledad Total Building Permit Valuations (Valuations in Thousands)

Permit Valuation 2008 2009 2010 2011 2012

New Single-family $127,775 $0 $0 $4,232,340 $5,916,128 New Multi-family 0 0 0 0 0 Res. Alterations/Additions 669,916 284,774 82,065 284,743 175,400 Total Residential 797,691 284,774 82,065 4,517,083 6,091,528 New Commercial 750,000 0 0 0 0 New Industrial 0 0 0 0 0 New Other 907,350 225,878 137,387 158,850 153,100 Com. Alterations/Additions 110,100 1,166,800 499,000 679,890 127,000 Total Nonresidential 1,767,450 1,392,678 636,387 838,740 280,100 New Dwelling Units Single Family 1 0 0 16 22 Multiple Family 0 0 0 0 0 Total 1 0 0 16 22 ______Source: California Homebuilding Foundation, California Building Industry Association

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APPENDIX B

AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDING JUNE 30, 2012

[THIS PAGE INTENTIONALLY LEFT BLANK] SOLEDAD UNIFIED SCHOOL DISTRICT

ANNUAL FINANCIAL REPORT

JUNE 30, 2012 SOLEDAD UNIFIED SCHOOL DISTRICT

TABLE OF CONTENTS JUNE 30, 2012

FINANCIAL SECTION Independent Auditors' Report 2 Management's Discussion and Analysis 4 Basic Financial Statements Government-Wide Financial Statements Statement of Net Assets 13 Statement of Activities 14 Fund Financial Statements Governmental Funds - Balance Sheet 15 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 16 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 17 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 18 Fiduciary Funds - Statement of Net Assets 19 Notes to Financial Statements 20

REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 48 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 49

SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 51 Local Education Agency Organization Structure 53 Schedule of Average Daily Attendance 54 Schedule of Instructional Time 55 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 56 Schedule of Financial Trends and Analysis 57 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 58 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 59 Note to Supplementary Information 60

INDEPENDENT AUDITORS' REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 63 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 0MB Circular A-133 65 Report on State Compliance 67

SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors' Results 70 Financial Statement Findings 71 Federal Awards Findings and Questioned Costs 72 State A wards Findings and Questioned Costs 73 Summary Schedule of Prior Audit Findings 74 FINANCIAL SECTION Vavrinek, Trine, Day &Co., LLP VALUE THE DIFFERENCE Di Certified Public Accountants

INDEPENDENT AUDITORS' REPORT

Governing Board Soledad Unified School District Soledad, California

We have audited the accompanying financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of the Soledad Unified School District (the District) as of and for the year ended June 30, 2012, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits ofCalifornia K-12 Local Educational Agencies 2011-12, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, the major fund, and the aggregate remaining fund information of the Soledad Unified School District, as of June 30, 2012, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in the Notes to the basic financial statements, the State of California continues to suffer the effects of a recessionary economy, which directly impacts the funding requirements of the State of California to the K-12 educational community.

In accordance with Government Auditing Standards, we have also issued our report dated December 4, 2012, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the 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 should be considered in assessing the results of our audit.

6051 N. Fresno Street, Suite 101 Fresno, CA 93710 Tel: 559.248.0871 Fax: 559.248.0875 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Accounting principles generally accepted in the United States of America require that the required supplementary information, such as management's discussion and analysis on pages 4 through 12, budgetary comparison information and other postemployment benefits information on pages 48 and 49, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's financial statements. The Schedule of Expenditures of Federal Awards, as required by Office ofManagement and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations (Circular A-133), and other supplementary information listed in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional 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 supplementary information is fairly stated in all material respects in relation to the financial statements as a whole. v~~I~ I ~-,t.~fJ Fresno, California December 4, 2012

3 SOLEDAD UNIFIED SCHOOL DISTRICT

Deneen Newman, District Superintendent

This section of Soledad Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2012. Please read it in conjunction with the District's financial statements, which immediately follow this section. Soledad High School 425 Gabilan Drive 1::Z1a~::0 OVERVIEW OF THE FINANCIAL STATEMENTS Comrriunit,y Education Center The Financial Statements

~!~~;/:;~o The financial statements presented herein include all of the activities of the District · ; ._ ;(831) .678-6300 . and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. Main Street Middle School 441 Main Street The Government-Wide Financial Statements present the financial picture of the ·· Soledad., CA 93960 District from the economic resources measurement focus using the accrual basis of (~1[67'8-6460 accounting. These statements include all assets of the District (including capital ::~·i1lR~· . assets), as well as all liabilities (including long-term obligations). Additionally, ELEME ...... SCHOOLS certain eliminations have occurred as prescribed by the statement in regards to ;;;:,&.bl . ~~f/;¥%; . ,,'. /·'.-, interfund activity, payables, and receivables. · i Gabilati School 330~tWalker Orlve • Sole'dad,:CA 93960' The Fund Financial Statements include statements for each of the two categories of (83i) 678-6440 ;:; activities: governmental and fiduciary.

R;~,Fe~ero Schooiillf[,:: The Governmental Activities are prepared using the current financial resources 400 Entrada.onve . '' · Soledad, CA 93960 measurement focus and modified accrual basis of accounting. (831) ~78-~ .. , :,~.,: ,\ -"':n,·, . , The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting.

Reconciliation ofthe Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. Frank Ledesma School 973 Vista de Soledad The Primary unit of the government is the Soledad Unified School District. Soledad, CA 93960 (831) 678-6320

Jack Franseioni SChool .. 779 Orchard Lane Soledad, CA 93960 (831) 678-6340 Fax: {831} 678-3442 4

DISTRICT OFFICE 1261 Metz Rd., P.O. Box 186, Soledad, California 93960 (831) 678-3987 Fax: (831) 678-2866 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

REPORTING THE DISTRICT AS A WHOLE

The Statement of Net Assets and the Statement of Activities

The Statement ofNet Assets and the Statement ofActivities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.

These two statements report the District's net assets and changes in them. Net assets are the difference between assets and liabilities, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities.

The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation.

In the Statement ofNet Assets and the Statement ofActivities, we separate the District activities as follows:

Governmental Activities - The District reports all of its services in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities.

REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS

Fund Financial Statements

The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education.

5 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement.

THE DISTRICT AS A TRUSTEE

Reporting the Districts Fiduciary Responsibilities

The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, scholarships, employee retiree benefits, and pensions. The District's fiduciary activities are reported in the Statements ofFiduciary Net Assets. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes.

FINANCIAL HIGHLIGHTS

The District ended the 2011-12 fiscal year with a positive General Fund balance of $9,849,441 of which $1,628,952 is restricted in nature and represents carry-over balances from various grants. The District was able to maintain a minimum reserve for economic uncertainties of3.93% which amounted to about $1.65 million dollars. Other components of the ending General Fund balance are set-asides for mid-year cuts in 2012-13 which are likely at the time of this writing, the elimination of the 2012-13 and 2013-14 funded COLA, and further reductions that are anticipated in the next two years due to the state of the economy as a whole and due to the continued deficits in the State of California.

THE DISTRICT AS A WHOLE

Net Assets

The District's net assets were $45.7 million for the fiscal year ended June 30, 2012. Of this amount, $6.1 million was unrestricted. Restricted net assets are reported separately to show legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use those net assets for day-to-day operations. Our analysis below, in summary form, focuses on the net assets (Table 1) and change in net assets (Table 2) of the District's governmental activities.

6 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

Table 1

(Amounts in millions) Governmental Activities 2012 2011 Current and other assets $ 17.5 $ 18.5 Capital assets 49.4 52.0 Total Assets 66.9 70.5 Current liabilities 5.5 9.3 Long-term liabilities 15.7 14.3 Total Liabilities 21.2 23.6 Net assets Invested in capital assets, net of related debt 37.1 39.0 Restricted 2.5 2.5 Unrestricted 6.1 5.4 Total Net Assets $ 45.7 $ 46.9

The $6.1 million in unrestricted net assets of governmental activities represents the accumulated results of all past years' operations.

Changes in Net Assets

The results of this year's operations for the District as a whole are reported in the Statement ofActivities. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year.

7 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

Table 2

(Amounts in millions) Governmental Activities 2012 2011 Revenues Program revenues: Charges for services $ 0.3 $ 0.2 Operating grants and contributions 15.2 14.6 General revenues: Federal and State aid not restricted 24.7 24.0 Property taxes 5.3 5.1 Other general revenues 0.7 1.3 Total Revenues 46.2 45.2 Expenses Instruction-related 32.4 30.6 Student support services 6.9 6.4 Administration 2.5 2.4 Plant services 3.4 3.1 Other 2.2 2.7 Total Expenses 47.4 45.2 Change in Net Assets $ (1.2) $

Governmental Activities

As reported in the Statement ofActivities, the cost of all of our governmental activities this year was $47.4 million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $5.3 million because the cost was paid by those who benefited from the programs ($0.3 million) or by other governments and organizations who subsidized certain programs with grants and contributions ($15.2 million). We paid for the remaining "public benefit" portion of our governmental activities with $24.7 million in Federal and State funds and with $0.7 million other revenues like interest and general entitlements.

In Table 3, we have presented the cost and net cost of each of the District's largest functions: regular program instruction, instruction related programs, pupil services, general administration, plant services, and other services. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function.

8 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

Table 3

(Amounts in millions) Total Cost of Services Net Cost of Services 2012 2011 2012 2011 Instruction $ 27.2 $ 26.2 $ 18.8 $ 18.1 Instruction related 5.2 4.4 4.1 3.5 Pupil services 6.9 6.4 2.3 2.4 General administration 2.5 2.4 2.1 1.9 Plant services 3.4 3.1 3.2 2.8 Other 2.2 2.7 1.4 1.8 Total $ 47.4 $ 45.2 $ 31.9 $ 30.5

THE DISTRICT'S FUNDS

As the District completed this year, our governmental funds reported a combined fund balance of$12.0 million, which is an increase of$1.6 million from last year (Table 4).

Table 4

(Amounts in millions) Balances June 30, 2012 June 30, 2011 General 1 $ 10.7 $ 9.4 Adult Education 0.2 0.2 Cafeteria 0.4 0.2 Deferred Maintenance 0.3 0.3 Capital Facilities 0.2 0.1 Bond Interest and Redemption 0.2 0.2 Total $ 12.0 $ 10.4

1 Fund 17, Special Reserve Non-Capital and Fund 20, Special Reserve Postemployment Benefits Fund were consolidated with the General Fund for reporting purposes due to implementation ofGASB 54 in the prior year.

The primary reasons for these increases are:

a. Our General Fund is our principal operating fund. The fund balance in the General Fund increased $1.3 million to $10. 7 million. This increase is primarily due to increased revenue limit and federal revenues. b. Our special revenue funds remained fairly stable from the prior year showing a net increase of approximately $0.2 million. c. The capital projects fund and the debt service fund each had increases of less than $100 thousand.

9 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

General Fund Budgetary Highlights

Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on September 12, 2012. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report.)

• Revenue revisions made to the 2011-12 Budget were due to revenue limit and state sources. • Budgeted expenditures increased by $2.7 million due to certificated salaries, classified salaries, and related benefits.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

At June 30, 2012, the District had $49.4 million in a broad range of capital assets (net of depreciation), including land, buildings, furniture, and equipment. This amount represents a net decrease (including additions, deductions, and depreciation) of $2.6 million from last year (Table 5).

Table 5

(Amounts in millions) Governmental Activities 2012 2011 Land and construction in progress $ 8.2 $ 8.2 Buildings and improvements 40.8 43.3 Equipment 0.4 0.5 Total $ 49.4 $ 52.0

We present more detailed information about our capital assets in Notes to Financial Statements.

IO SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

Long-Term Obligations

At the end of this year, the District had $15.7 million in long term obligations versus $15.5 million last year, an increase of $0.2 million. Those obligations consisted of:

Table 6

(Amounts in millions) Governmental Activities 2012 2011 General obligation bonds (financed with property taxes) $ 7.1 $ 7.6 Certificates of participation 4.7 4.8 State preschool loan 0.1 0.1 Capital leases 0.4 0.5 OPEB obligation 3.3 2.4 Other 0.1 0.1 Total $ 15.7 $ 15.5

The District's general obligation bond Moody's rating at the time of their last issuance was "Aaa". In addition, the District's certificates of participation S&P rating at the time of their last issuance was "AAA".

We present more detailed information regarding our long-term obligations in the Notes to Financial Statements.

FINANCIAL ISSUES

Per Pupil Funding and Revenue Limit Deficit

Proposition 98, the constitutional provision that sets the minimum funding level for K-12 education and community colleges was fully funded in 2007-08. This will most likely be the last time for several years to come that school districts are fully funded. In 2011-12 the deficit amounted to $ I ,348 per ADA which is over six times the unfunded COLA amount, in other words, the district not only did not receive any funds for the cost of living adjustment, but continues to receive less funds per student than it did in 2005-06.

11 SOLEDAD UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2012

ENROLLMENT AND AVERAGE DAILY ATTENDANCE

The District's enrollment and average daily attendance (ADA) has been experiencing a steady increase over the past ten years. Enrollment is projected to increase in 2012-13 again which will add to the financial stability of the District.

Enrollment and Attendance Trends

4,800 4,600 4,400 4,200 4,000 •-----+------CBEDS

3,800 I •-P-2ADA1 3,600 3,400 3,200 3,000 02- 03- 04- 05- 06- 07- 08- 09- 10- 11- 12- 03 04 05 06 07 08 09 10 11 12 13

ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES

1. Revenue limit deficit factors are projected to increase in 2012-13 and remain that way for the next two years at a minimum. 2. The multi-year projections assume an ongoing trigger cut in 2012-13 of approximately $440 per ADA. 3. Federal revenue will decrease in the next two years due to three grants ending in 2012-13. 4. The Federal Jobs Act grant ended in 2011-12, resulting in several positions being charged to the General Fund in 2012-13 and beyond. 5. Enrollment is projected to increase steadily over the next two years. The District has used a conservative estimate of one percent in the multi-year projections.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Chief Business Officer at (831) 678-3987, ext. 131.

12 SOLEDAD UNIFIED SCHOOL DISTRICT

STATEMENT OF NET ASSETS JUNE 30, 2012

Governmental Activities ASSETS Deposits and investments $ 4,523,842 Receivables 12,982,949 Stores inventories 26,511 Nondepreciable capital assets 8,284,285 Capital assets being depreciated 72,214,582 Accumulated depreciation (31,073,406) Total Assets 66,958,763

LIABILITIES Overdrafts 145,558 Accounts payable 2,553,689 Deferred revenue 1,190,404 Current loans 1,644,534 Current portion of long-term obligations 1,211,791 Noncurrent portion of long-term obligations 14,491,804 Total Liabilities 21,237,780

NET ASSETS Invested in capital assets, net of related debt 37,148,993 Restricted for: Debt service 242,553 Capital projects 177,937 Educational programs 1,633,261 Other activities 393,809 Umestricted 6,124,430 Total Net Assets $ 45,720,983

The accompanying notes are an integral part of these financial statements.

13 SOLEDAD UNIFIED SCHOOL DISTRICT

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012

Program Revenues Charges for Operating Services and Grants and Functions/Programs Expenses Sales Contributions Governmental Activities: Instruction $ 27,212,882 $ 94,340 $ 8,335,981 Instruction-related activities: Supervision of instruction 1,413,440 773,971 Instructional library, media, and technology 525,052 107,425 School site administration 3,278,278 192,051 Pupil services: Home-to-school transportation 1,326,661 374,966 Food services 2,775,219 102,809 2,599,625 All other pupil services 2,819,265 62,123 1,489,776 Administration: Data processing 53,499 All other administration 2,459,587 52,057 354,442 Plant services 3,384,013 7,260 234,033 Ancillary services 142,448 Interest on long-term obligations 664,120 Other outgo 1,425,362 800,809 Total Governmental Activities $ 47,479,826 $ 318,589 $ 15,263,079 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Miscellaneous Subtotal, General Revenues Change in Net Assets Net Assets - Beginning Net Assets - Ending

The accompanying notes are an integral part of these financial statements.

14 Net (Expenses) Revenues and Changes in Net Assets Governmental Activities

$ (18,782,561)

(639,469) (417,627) (3,086,227)

(951,695) (72,785) (1,267,366)

(53,499) (2,053,088) (3,142,720) (142,448) (664,120) (624,553) (31,898,158)

4,312,196 978,858 109 24,687,621 67,709 698,528 30,745,021 (1,153,137) 46,874,120 $ 45,720,983

14 SOLEDAD UNIFIED SCHOOL DISTRICT

GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2012

Non-Major Total General Governmental Governmental Fund Funds Funds ASSETS Deposits and investments $ 3,835,396 $ 688,446 $ 4,523,842 Receivables 12,363,560 619,389 12,982,949 Due from other funds 16,166 230,904 247,070 Stores inventories 26,511 26,511 Total Assets $ 16,215,122 $ 1,565,250 $ 17,780,372 LIABILITIES AND FUND BALANCES Liabilities: Overdrafts $ $ 145,558 $ 145,558 Accounts payable 2,484,656 69,033 2,553,689 Due to other funds 230,904 16,166 247,070 Current loans 1,644,534 1,644,534 Deferred revenue 1,166,956 23,448 1,190,404 Total Liabilities 5,527,050 254,205 5,781,255 Fund Balances: Nonspendable 1,500 26,511 28,011 Restricted 1,629,101 791,948 2,421,049 Committed 492,586 492,586 Assigned 5,089,638 5,089,638 Unassigned 3,967,833 3,967,833 Total Fund Balances 10,688,072 1,311,045 11,999,117 Total Liabilities and Fund Balances $ 16,215,122 $ 1,565,250 $ 17,780,372

The accompanying notes are an integral part of these financial statements.

15 SOLEDAD UNIFIED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2012

Total Fund Balance - Governmental Funds $ 11,999,117 Amounts Reported for Governmental Activities in the Statement of Net Assets are Different Because:

Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is $ 80,498,867 Accumulated depreciation is (31,073,406) Net Capital Assets 49,425,461 Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term obligations at year-end consist of: General obligation bonds 7,104,171 State preschool loan 51,714 Certificates of participation 4,675,000 Compensated absences 47,517 Capital leases payable 445,583 Other postemployment benefits 3,379,610 Total Long-Term Obligations (15,703,595) Total Net Assets - Governmental Activities $ 45,720,983

The accompanying notes are an integral part of these financial statements.

16 SOLEDAD UNIFIED SCHOOL DISTRICT

GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2012

Non-Major General Governmental Fund Funds REVENUES Revenue limit sources $ 23,458,999 $ Federal sources 6,329,201 2,609,948 Other State sources 8,453,535 1,007,718 Other local sources 3,144,143 1,323,145 Total Revenues 41,385,878 4,940,811 EXPENDITURES Current Instruction 24,693,115 699,472 Instruction-related activities: Supervision of instruction 1,312,741 82,400 Instructional library, media and technology 511,450 School site administration 2,995,737 104,055 Pupil services: Home-to-school transportation 588,197 Food services 36,512 2,524,469 All other pupil services 2,823,293 370 Administration: All other administration 2,257,101 12,432 Plant services 2,780,402 210,356 Facility acquisition and construction 55,587 4,227 Ancillary services 142,448 Other outgo 1,425,362 Debt service Principal 262,910 932,693 Interest and other 221,612 9,643 Total Expenditures 40,106,467 4,580,117 Excess (Deficiency) of Revenues Over Expenditures 1,279,411 360,694 Other Financing Sources (Uses) Transfers in 2,815 Transfers out (2,815) Net Financing Sources (Uses) (2,815) 2,815 NET CHANGE IN FUND BALANCES 1,276,596 363,509 Fund Balance - Beginning 9,411,476 947,536 Fund Balance - Ending $ 10,688,072 $ 1,311,045

The accompanying notes are an integral part of these financial statements.

17 Total Governmental Funds

$ 23,458,999 8,939,149 9,461,253 4,467,288 46,326,689

25,392,587

1,395,141 511,450 3,099,792

588,197 2,560,981 2,823,663

2,269,533 2,990,758 59,814 142,448 1,425,362

1,195,603 231,255 44,686,584 1,640,105

2,815 (2,815)

1,640,105 10,359,012 $ 11,999,117

17 SOLEDAD UNIFIED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012

Total Net Change in Fund Balances - Governmental Funds $ 1,640,105 Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; however, for governmental activities, those costs are shown in the Statement of Net Assets and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which depreciation exceeds capital outlays in the period. Depreciation expense $ (2,674,963) Capital outlays 79,342 Net Expense Adjustment (2,595,621) In the Statement of Activities, compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used ( essentially, the amounts actually paid). Vacation earned was more than the amounts paid by $9,512. (9,512) Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB costs are recognized when employer contributions are made. In the Statement of Activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: (950,847) Payment of principal on long-term obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Assets and does not affect the Statement of Activities: General obligation bonds 905,000 State preschool loan 38,857 Certificates of participation 170,000 Capital lease obligations 81,746 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities includes additional accumulated interest that was accreted on the District's capital appreciation general obligation bonds. (432,865) Change in Net Assets of Governmental Activities $ (1,153,137)

The accompanying notes are an integral part of these financial statements.

18 SOLEDAD UNIFIED SCHOOL DISTRICT

FIDUCIARY FUNDS STATEMENT OF NET ASSETS JUNE 30, 2012

Agency Funds ASSETS Deposits and investments $ 208,713 Total Assets $ 208,713

LIABILITIES Due to student groups $ 208,713 Total Liabilities $ 208,713

The accompanying notes are an integral part of these financial statements.

19 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The Soledad Unified School District (the District) was established in 1908 under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. The District operates five elementary schools, one middle school, one high school, and a community education center providing instruction from kindergarten through grade twelve, and special preschool and community education programs.

A reporting entity is comprised of the primary government and other organizations that are included to ensure the financial statements are not misleading. The primary government of the Di strict consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Soledad Unified School District, this includes general operations, food service, and student related activities of the District.

Basis of Presentation - Fund Accounting

The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into two broad fund categories: governmental and fiduciary.

Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds:

Major Governmental Funds

General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund.

Two funds currently defined as special revenue funds in the California State Accounting Manual (CSAM) do not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 17, Special Reserve Non Capital Fund, and Fund 20, Special Reserve Postemployment Benefits Fund, are not substantially composed of restricted or committed revenue sources. While these funds are authorized by statute and will remain open for internal reporting purposes, these funds function effectively as extensions of the General Fund, and accordingly have been combined with the General Fund for presentation in these audited financial statements.

As a result, the General Fund reflects an increase in assets, fund balance, and revenues of$838,632, $838,632, and $4,791, respectively.

20 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Non-Major Governmental Funds

Special Revenue Funds The Special Revenue funds are established to account for the proceeds from specific revenue sources ( other than trusts, major capital projects, or debt service) that are restricted or committed to the financing of particular activities and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund.

Adult Education Fund The Adult Education Fund is used to account separately for Federal, State, and local revenues for adult education programs and is to be expended for adult education purposes only.

Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs.

Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections 38090-38093) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections 38091 and 38100).

Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for State apportionments and the District's contributions for deferred maintenance purposes (Education Code Sections 17582-17587) and for items of maintenance approved by the State Allocation Board.

Capital Project Funds The Capital Project funds are used to account for and report financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds).

Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in Government Code Sections 65970-65981 or to the items specified in agreements with the developer (Government Code Section 66006).

State School Building Lease-Purchase Fund The State School Building Lease Purchase Fund is used primarily to account separately for State apportionments for the reconstruction, remodeling, or replacing of existing school buildings or the acquisition of new school sites and buildings, as provided in the Leroy F. Greene State School Building Lease-Purchase Law of 1976 (Education Code Section 17000 et seq.).

Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for and the payment of principal and interest on general long-term obligations.

Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections 15125-15262).

21 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Fiduciary Funds Fiduciary funds are used to account for assets held in agent capacity for others that cannot be used to support the district's own programs. The fiduciary fund category is agency funds. Agency funds are custodial in nature ( assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for student body activities (ASB).

Basis of Accounting - Measurement Focus

Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting.

The government-wide statement of activities presents a comparison between expenses, both direct and indirect, of the District and for each governmental function, and exclude fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement ofActivities, except for depreciation. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities.

Net assets should be reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net assets restricted for other activities result from special revenue funds and the restrictions on their net asset use.

Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. The major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column.

Governmental Funds All governmental funds are accounted for using the flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (revenues and other financing sources) and uses ( expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include reconciliations with brief explanations to better identify the relationship between the government-wide financial statements, prepared using the economic resources measurement focus and the accrual basis of accounting, and the governmental fund financial statements, prepared using the flow of current financial resources measurement focus and the modified accrual basis of accounting.

Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting.

22 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Revenues- Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 60 days. However to achieve comparability ofreporting among California LEAs and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for LEAs as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources.

Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.

Deferred Revenue Deferred revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized.

Certain grants received before the eligibility requirements are met are recorded as deferred revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as deferred revenue.

Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 60 days. Principal and interest on long term obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation, are not recognized in the governmental funds but are recognized in the entity-wide statements.

Investments

Investments held at June 30, 2012, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in the county pool are determined by the program sponsor.

23 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Stores Inventories

Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the first-in, first-out basis. The costs of inventory items are recorded as expenditures in the governmental type funds.

Capital Assets and Depreciation

The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of$5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred.

When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide statement of net assets. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated.

Depreciation of capital assets is computed and recorded by the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements/infrastructure, 5 to 50 years; equipment, 2 to 15 years.

Interfund Balances

On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as "interfund receivables/payables." These amounts are eliminated in the governmental activities column of the Statement ofNet Assets.

Compensated Absences

Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net assets as long-term obligations.

Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, 1999. At retirement, each member will receive .004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time.

24 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Accrued Liabilities and Long-Term Obligations

All payables, accrued liabilities, and long-term obligations are reported in the government-wide financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds.

Current Loans

Current loans consist of amounts outstanding at June 30, 2012, for Tax Revenue and Anticipation Notes. The notes were issued as short-term obligations to provide cash flow needs. This liability is offset with cash deposits in the County Treasurer, which have been set aside to repay the notes.

Fund Balances - Governmental Funds

As of June 30, 2012, fund balances of the governmental funds are classified as follows:

Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact.

Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments.

Committed - amounts that can be used only for specific purposes determined by a formal action of the governing board. The governing board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through resolutions or other action as approved by the governing board.

Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the chief business officer may assign amounts for specific purposes.

Unassigned - all other spendable amounts.

Spending Order Policy

When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions.

25 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Net Assets

Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. The government-wide financial statements report $2,447,560 of restricted net assets.

Interfund Activity

Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. lnterfund transfers are eliminated in the governmental activities column of the Statement ofActivities.

Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Budgetary Data

The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July I of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.

26 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Property Tax

Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Monterey bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received.

New Accounting Pronouncements

In November 2010, the GASB issued GASB Statement No. 61, The Financial Reporting Entity: Omnibus-an amendment ofGASE Statements No. 14 and No. 34. The objective of this Statement is to improve financial reporting for a governmental financial reporting entity. The requirements ofGASB Statement No. 14, The Financial Reporting Entity, and the related financial reporting requirements of GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, were amended to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements.

This Statement modifies certain requirements for inclusion of component units in the financial reporting entity. For organizations that previously were required to be included as component units by meeting the fiscal dependency criterion, a financial benefit or burden relationship also would need to be present between the primary government and that organization for it to be included in the reporting entity as a component unit. Further, for organizations that do not meet the financial accountability criteria for inclusion as component units but that, nevertheless, should be included because the primary government's management determines that it would be misleading to exclude them, this Statement clarifies the manner in which that determination should be made and the types of relationships that generally should be considered in making the determination.

This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. For component units that currently are blended based on the "substantively the same governing body" criterion, it additionally requires that (1) the primary government and the component unit have a financial benefit or burden relationship or (2) management (below the level of the elected officials) of the primary government have operational responsibility (as defined in paragraph 8a) for the activities of the component unit. New criteria also are added to require blending of component units whose total debt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government. The blending provisions are amended to clarify that funds of a blended component unit have the same financial reporting requirements as a fund of the primary government. Lastly, additional reporting guidance is provided for blending a component unit if the primary government is a business-type activity that uses a single column presentation for financial reporting.

This Statement also clarifies the reporting of equity interests in legally separate organizations. It requires a primary government to report its equity interest in a component unit as an asset. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2012. Early implementation is encouraged.

27 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by State and local governmental employers about financial support for pensions that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency.

This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements No. 27 and No. 50 remain applicable for pensions that are not covered by the scope of this Statement.

Statement No. 67, Financial Reporting for Pension Plans, revises existing standards of financial reporting for most pension plans. This Statement and Statement No. 67 establish a definition of a pension plan that reflects the primary activities associated with the pension arrangement--determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due.

The scope of this Statement addresses accounting and financial reporting for pensions that are provided to the employees of State and local governmental employers through pension plans that are administered through trusts that have the following characteristics:

Contributions from employers and nonemployer contributing entities to the pension plan and earnings on those contributions are irrevocable.

Pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms.

Pension plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members.

This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service.

This Statement is effective for fiscal years beginning after June 15, 2014. Earlier implementation is encouraged.

28 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 2 - DEPOSITS AND INVESTMENTS

Summary of Deposits and Investments

Deposits and investments as of June 30, 2012, are classified in the accompanying financial statements as follows:

Governmental activities $ 4,523,842 Less overdrafts 145,558 Net governmental activities 4,378,284 Fiduciary funds 208,713 Total Deposits and Investments $ 4,586,997

Deposits and investments as of June 30, 2012, consist of the following:

Cash on hand and in banks $ 208,713 Cash in revolving 1,500 Investments with fiscal agent 7,516 Pooled investments 4,369,268 Total Deposits and Investments $ 4,586,997

The Adult Education Fund, Child Development Fund, and Cafeteria Fund ended the year with deficit cash in County Treasury balances of$103,557, $34,512, and $7,489, respectively.

Policies and Practices

The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations.

Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001 ). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis.

29 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

General Authorizations

Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below:

Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds NIA 20% 10% Money Market Mutual Funds NIA 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds NIA None None Local Agency Investment Fund (LAIF) NIA None None Joint Powers Authority Pools NIA None None

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Pool and having the Pool purchase a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.

Segmented Time Distribution

Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuations is provided by the following schedule that shows the distribution of the District's investments by maturity:

Fair 12 Months 13 - 24 25 - 60 More Than Investment Type Value or Less Months Months 60 Months U.S. Treasury Obligations $ 7,516 $ 7,516 $ $ $ County Pool 4,369,268 4,369,268 Total $ 4,376,784 $ 7,516 $4,369,268 $ $

30 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Credit Risk

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The District's investments in the County Pool are not required to be rated, nor have they been rated as of June 30, 2012.

Fair Minimum Rating as of Year End Investment Type Value Legal Rating AAA Aa Unrated U.S. Treasury Obligations $ 7,516 NIA $ $ $ 7,516 County Pool 4,369,268 NIA 4,369,268 Total $ 4,376,784 $ $ $ 4,376,784

NIA - Not applicable

Concentration of Credit Risk

The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond the amount stipulated by the California Government code. There were no investments in any one issuer that represent five percent or more of the total investments.

Custodial Credit Risk - Deposits

This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2012, the District's bank balance was not exposed to custodial credit risk because it was insured and collateralized with securities held by the pledging financial institution's trust department or agent.

31 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 3 - RECEIVABLES

Receivables at June 30, 2012, consisted of intergovernmental grants, entitlements, state apportionments, and local sources. All receivables are considered collectible in full.

Non-Major General Governmental Fund Funds Total Federal Government Categorical aid $ 1,078,988 $ 484,286 $ 1,563,274 State Government Apportionment 8,904,682 8,904,682 Other state 1,877,169 67,336 1,944,505 Local sources 502,721 67,767 570,488 Total $ 12,363,560 $ 619,389 $ 12,982,949

NOTE 4 - CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2012, was as follows:

Balance Balance July 1, 2011 Additions June 30, 2012 Governmental Activities Capital Assets not being depreciated Construction in progress $ $ 59,814 $ 59,814 Land 8,224,471 8,224,471 Total Capital Assets Not Being Depreciated 8,224,471 59,814 8,284,285 Capital Assets being depreciated Land improvements 12,055,537 12,055,537 Buildings and improvements 58,365,879 58,365,879 Furniture and equipment 1,773,638 19,528 1,793,166 Total Capital Assets Being Depreciated 72,195,054 19,528 72,214,582 Less Accumulated Depreciation Land improvements 7,883,094 598,005 8,481,099 Buildings and improvements 19,205,671 1,981,951 21,187,622 Furniture and equipment 1,309,678 95,007 1,404,685 Total Accumulated Depreciation 28,398,443 2,674,963 31,073,406 Governmental Activities Capital Assets, Net $ 52,021,082 $ (2,595,621) $ 49,425,461

32 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Depreciation expense was charged to governmental functions as follows:

Governmental Activities Instruction $ 1,203,733 School site administration 80,250 Home-to-school transportation 641,991 Food services 213,997 All other general administration 133,748 Data processing 53,499 Plant services 347,745 Total Depreciation Expenses, Governmental Activities $ 2,674,963

NOTE 5 - INTERFUND TRANSACTIONS lnterfund Receivables/Payables (Due To/Due From) lnterfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivable and payable balances at June 30, 2012, are as follows:

lnterfund Interfund Receivables Payables Major Governmental Fund General $ 16,166 $ 230,904 Total Major Governmental Fund 16,166 230,904 Non-Major Governmental Funds 230,904 16,166 Total All Governmental Funds $ 247,070 $ 247,070

The General Fund owes the Adult Education Fund for payroll adjustments and Adult Education funding. $ 204,872 The General Fund owes the Child Development Fund for payroll adjustments. 25,728 The General Fund owes the Cafeteria Fund for school snacks. 304 The Adult Education Fund owes the General Fund for indirect costs. 5,256 The Cafeteria Fund owes the General Fund for indirect costs. 809 The Child Development Fund owes the General Fund for indirect costs. 10,101 Total $ 247,070

33 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Operating Transfers

Interfund transfers for the year ended June 30, 2012, consisted of the following:

The General Fund transferred to the Adult Education Fund to allocate lottery funds earned by the program. $ 2,815 lnterfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations.

NOTE6-ACCOUNTSPAYABLE

Accounts payable at June 30, 2012, consisted of the following:

Non-Major General Governmental Fund Funds Total Vendor payables $ 1,381,928 $ 69,033 $ 1,450,961 Deferred payroll 1,102,728 1,102,728 Total $ 2,484,656 $ 69,033 $ 2,553,689

NOTE 7 - DEFERRED REVENUE

Deferred revenue at June 30, 2012, consists of the following:

Non-Major General Governmental Fund Funds Total Federal financial assistance $ 117,954 $ $ 117,954 State categorical aid 167,028 167,028 Local sources 881,974 23,448 905,422 Total $ 1,166,956 $ 23,448 $ 1,190,404

34 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 8 - TAX AND REVENUE ANTICIPATION NOTES (TRANS)

At July 1, 2011, the District had outstanding Tax and Revenue Anticipation Notes in the amount of$3,540,000, which matured on December 30, 2011. On July 1, 2011, the District issued $2,525,000 Tax and Revenue Anticipation Notes bearing interest at 2.0 percent. The notes were issued to supplement cash flows. Interest and principal were due and payable on March 1, 2012. By January 31, 2012, the District placed 100 percent of principal and interest in to a separate restricted account for the sole purpose of satisfying the notes. The District was not required to make any additional payments on the notes.

On February 24, 2012, the District issued $1,715,000 Tax and Revenue Anticipation Notes bearing interest at 2.0 percent. The notes were issued to supplement cash flow. Interest and principal are due and payable on October 31, 2012. By July 31, 2012, the District is required to deposit 55 percent of the principal due at maturity in to a separate restricted account for the sole purpose of satisfying the notes. By August 31, 2012, the District is required to deposit the remaining balance of principal and interest in to a separate restricted account for the sole purpose of satisfying the Note. The District has recorded the cash proceeds in Cash in County Treasury with the corresponding liability as a current loan.

Changes in the outstanding liabilities for the Tax and Revenue Anticipation Notes is as follows:

Outstanding Outstanding Issue Date Rate Maturi~ Date Jul~l,2011 Additions Pa~ments June 30, 2012 3/29/11 2.5% 12/30/11 $ 3,540,000 $ $ 3,540,000 $ 7/1/11 2.0% 3/1/12 2,525,000 2,525,000 2/24/12 2.0% 10/31/12 1,715,000 1,715,000 Total $ 3,540,000 $ 4,240,000 $ 6,065,000 $ 1,715,000

NOTE 9 - LONG-TERM OBLIGATIONS

Summary

The changes in the District's long-term obligations during the year consisted of the following:

Balance Balance Due in Jul~ 1, 2011 Additions Deductions June 30, 2012 One Year General obligation bonds-1997 $ 6,458,184 $ 380,287 $ 790,000 $ 6,048,471 $ 810,000 General obligation bonds-1999 1,118,122 52,578 115,000 1,055,700 115,000 State preschool loans 90,571 38,857 51,714 25,857 Certificates of participation 4,845,000 170,000 4,675,000 175,000 Compensated absences 38,005 9,512 47,517 Capital leases 527,329 81,746 445,583 85,934 Other postemployment benefits 2,428,763 1,384,222 433,375 3,379,610 Total $ 15,505,974 $1,826,599 $1,628,978 $15,703,595 $1,211,791

35 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

The general obligation bonds will be paid by the Bond Interest and Redemption Fund utilizing local property tax revenue. The State preschool loans will be paid by the Child Development Fund. The certificates of participation are funded by the Capital Facilities Fund utilizing developer fee revenues. The compensated absences and other postemployment benefits obligations are funded by the fund that the employee worked. The lease purchase agreement is paid by the General Fund.

Bonded Debt

The outstanding general obligation bonded debt is as follows:

Bonds Interest Bonds Issue Maturity Interest Original Outstanding Accreted/ Outstanding Date Date Rate% Issue Julyl,2011 Debt Issued Redeemed June 30, 2012 1/9/1997 6/1/21 4.15-5.88 $9,000,000 $ 6,458,184 $ 380,287 $790,000 $ 6,048,471 8/28/1999 8/1/23 4.00-5.25 1,500,000 1,118,122 52,578 115,000 1,055,700 Total $ 7,576,306 $ 432,865 $905,000 $ 7,104,171

Debt Service Requirements to Maturity

1995, Series 1997

The bonds mature through 2021 as follows:

Final Accreted Unaccreted Fiscal Year Maturity Obligation Interest 2013 $ 810,000 $ 765,495 $ 44,505 2014 830,000 740,601 89,399 2015 850,000 716,433 133,567 2016 870,000 691,318 178,682 2017 895,000 671,468 223,532 2018-2021 3,800,000 2,463,156 1,336,844 Total $ 8,055,000 $ 6,048,471 $ 2,006,529

36 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

1995, Series B (1999)

The bonds mature through 2024 as follows:

Final Accreted Unaccreted Fiscal Year Maturity Obligation Interest 2013 $ 115,000 $ 115,000 $ 2014 115,000 109,342 5,658 2015 115,000 103,868 11,132 2016 115,000 98,739 16,261 2017 115,000 93,656 21,344 2018-2022 575,000 401,580 173,420 2023-2024 230,000 133,515 96,485 Total $ 1,380,000 $ 1,055,700 $ 324,300

State Preschool Loans

During the years ended June 30, 2001 and 2002, the District received $130,000 and $150,000, respectively, in interest free loans for the construction of facilities for child care and development. The loans are repayable over ten years from the completion of the project. The following is a schedule of future payments on the State Preschool loans:

State preschool loans outstanding as of June 30, 2012, are as follows:

Year Ending Loan June 30, Payment 2013 $ 25,857 2014 25,857 Total $ 51,714

Certificates of Participation

On May 1, 2005, the District issued Certificates of Participation in the amount of$5,765,000, to provide funds for the purpose of paying for the acquisition and construction of the high school with support and office facilities. As of June 30, 2012, the principal balance outstanding was $4,675,000.

37 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

The certificates mature through 2030 as follows:

Interest to Fiscal Year Principal Maturity Total 2013 $ 175,000 $ 200,342 $ 375,342 2014 185,000 194,042 379,042 2015 190,000 186,642 376,642 2016 200,000 179,042 379,042 2017 205,000 171,042 376,042 2018-2022 1,175,000 722,024 1,897,024 2023-2027 1,485,000 442,554 1,927,554 2028-2030 1,060,000 96,976 1,156,976 Total $ 4,675,000 $ 2,192,664 $ 6,867,664

Compensated Absences

The long-term portion of compensated absences for the District at June 30, 2012, amounted to $47,517.

Capital Leases

The District has entered into agreements to lease relocatable classrooms, facilities and an office. Such agreements are, in substance, purchases (capital leases) and are reported as capital lease obligations. The District's liability on lease agreements with options to purchase is summarized below:

Municipal City National Total Balance, July 1, 2011 $ 112,566 $ 414,763 $ 527,329 Payments 25,717 56,029 81,746 Balance, June 30, 2012 $ 86,849 $ 358,734 $ 445,583

The capital leases have minimum lease payments as follows:

Year Ending Lease June 30, Payment 2013 $ 106,710 2014 106,710 2015 106,710 2016 74,672 2017 74,672 2018 37,336 Total 506,810 Less: Amount Representing Interest 61,227 Present Value of Minimum Lease Payments $ 445,583

38 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Other Postemployment Benefits (OPEB) Obligation

The District's annual required contribution for the year ended June 30, 2012, was $1,370,346, and contributions made by the District during the year were $433,375. Interest on the net OPEB obligation and adjustments to the annual required contribution were $121,439 and $(107,563), respectively, which resulted in an increase to the net OPEB obligation of$950,847. As of June 30, 2012, the net OPEB obligation was $3,379,610. See Note 12 for additional information regarding the OPEB obligation and the postemployment benefits plan.

NOTE 10 - FUND BALANCES

Fund balances are composed of the following elements:

Non-Major General Governmental Fund Funds Total Nonspendable Revolving cash $ 1,500 $ $ 1,500 Stores inventories 26,511 26,511 Total Nonspendable 1,500 26,511 28,011 Restricted Legally restricted programs 1,629,101 1 1,629,102 Capital projects 177,936 177,936 Debt services 242,553 242,553 Child Care Programs 4,160 4,160 Food Service 367,298 367,298 Total Restricted 1,629,101 791,948 2,421,049 Committed Adult education program 226,234 226,234 Deferred maintenance program 266,352 266,352 Total Committed 492,586 492,586 Assigned 2012-13 ADA reduction $441 1,861,127 1,861,127 2011-12 ADA reduction $441 1,861,127 1,861,127 Unfunded COLA 2012-13 528,751 528,751 Other various assignments 838,633 838,633 Total Assigned 5,089,638 5,089,638 Unassigned Reserve for economic uncertainties 1,658,280 1,658,280 Remaining unassigned 2,309,553 2,309,553 Total Unassigned 3,967,833 3,967,833 Total $ 10,688,072 $ 1,311,045 $11,999,117

39 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 11 - EXPENDITURES (BUDGET VERSUS ACTUAL)

At June 30, 2012, the following District major fund exceeded the budgeted amounts as follows:

ExEenditures and Other Uses Fund Budget Actual Excess General Debt service - principal $ 235,340 $ 262,910 $ 27,570 Debt service - interest $ 211,847 $ 221,612 $ 9,765

NOTE 12 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION

Plan Description

The Postemployment Benefits Plan (the "Plan") is a single-employer defined benefit healthcare plan administered by the Soledad Unified School District. The Plan provides medical and dental insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of approximately 55 retirees and beneficiaries currently receiving benefits and approximately 360 active plan members.

Contribution Information

The contribution requirements of plan members and the District are established and may be amended by the District and the Soledad Teachers Association (ST A), the local Classified School Employees Association (CSEA), Soledad Clerical Employees Association, and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year 2011-12, the District contributed $433,375 to the plan, all of which was used for current premiums.

Annual OPEB Cost and Net OPEB Obligation

The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the Plan:

40 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Annual required contribution $ 1,370,346 Interest on net OPEB obligation 121,439 Adjustment to annual required contribution (107,563) Annual OPEB cost (expense) 1,384,222 Contributions made (433,375) Increase in net OPEB obligation 950,847 Net OPEB obligation, beginning of year 2,428,763 Net OPEB obligation, end of year $ 3,379,610

Trend Information

Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows:

Year Ended Annual OPEB Actual Percentage NetOPEB June 30, Cost Contribution Contributed Obligation 2012 $ 1,384,222 $ 433,375 31.31 % $ 3,379,610 2011 $ 1,378,748 $ 422,128 30.62% $ 2,428,763 2010 $ 1,135,493 $ 416,843 37.61% $ 1,472,143

Funded Status and Funding Progress

A schedule of funding progress as of the most recent actuarial valuation is as follows:

Actuarial Accrued Liability UAAL asa (AAL)- Unfunded Percentage Actuarial Actuarial Entry Age AAL Funded of Covered Valuation Value of Normal Cost (UAAL) Ratio Covered Payroll Date Assets (a) Method (b) (b - a) (a/ b) Payroll (c) ([b - a]/ c) February 1, 2010 $ $ 17,465,058 $ 17,465,058 0% $ 21,049,348 82.97%

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

41 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the February I, 2011, actuarial valuation, the entry age normal cost method was used. The actuarial assumptions included a five percent investment rate ofreturn (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a combined equity and fixed income portfolio. Healthcare cost trend rates were four percent. The cost trend rate used for the Dental and Vision programs was also four percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at June 30, 2012, was 27 years.

NOTE 13 - RISK MANAGEMENT

Property and Liability

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. During fiscal year ending June 30, 2012, the District contracted with Monterey and San Benito County Property and Liability JPA for property and liability insurance coverage. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year.

Workers' Compensation

For fiscal year 2012, the District participated in the Monterey County Schools Workers' Compensation JPA (MCSWC), an insurance purchasing pool. The intent ofMCSWC is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in MCSWC. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in MCSWC. Each participant pays its workers' compensation premium based on its individual rate. Total savings are then calculated and each participant's individual performance is compared to the overall savings percentage. A participant will then either receive money from or be required to contribute to the "equity-pooling fund". This "equity pooling" arrangement insures that each participant shares equally in the overall performance ofMCSWC. Participation in MCSWC is limited to districts that can meet MCSWC selection criteria.

42 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

Employee Medical Benefits

The District has contracted with the Monterey County Schools Insurance Group (MCSIG) to provide employee health benefits. MCSIG is a shared risk pool. Rates are set through an annual calculation process. The District pays a monthly contribution, which is placed in a common fund from which claim payments are made for all participating districts. Claims are paid for all participants regardless of claims flow. The Board of Directors has a right to return monies to a district subsequent to the settlement of all expenses and claims if a district withdraws from the pool.

NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are covered under multiple-employer retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS).

CalSTRS

Plan Description

The District contributes to the CalSTRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, 7919 Folsom Blvd., Sacramento, California 95826.

Funding Policy

Active plan members are required to contribute 8.0 percent of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2011-12 was 8.25 percent of annual payroll. The contribution requirements of the plan members are established by State statute. The District's contribution to CalSTRS for the fiscal years ending June 30, 2012, 2011, and 2010, were $1,444,184, $1,339,670, and $1,299,435, respectively, and equaled 100 percent of the required contributions for each year.

43 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

CalPERS

Plan Description

The District contributes to the School Employer Pool under the CalPERS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95811.

Funding Policy

Active plan members are required to contribute 7.0 percent of their salary and the District is required to contribute an actuarially determined rate. However, based on the Bargaining Unit Agreement, the District pays the employee portion of the CalPERS rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2011-12 was 10.923 percent ofcovered payroll. The contribution requirements of the plan members are established by State statute. The District's contribution to Cal PERS for the fiscal years ending June 30, 2012, 2011, and 2010, were $1,044,574, $938,864, and $873,247, respectively, and equaled 100 percent ofthe required contributions for each year.

Social Security

As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by Social Security or an alternative plan. The District has elected to use Social Security. Contributions made by the District and an employee vest immediately. The District contributes 6.0 percent of an employee's gross earnings. An employee is required to contribute 6.0 percent of his or her gross earnings to Social Security.

On Behalf Payments

The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $739,554 ( 4.855 percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budgeted and actual amounts reported in the General Fund - Budgetary Comparison Schedule.

44 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Grants

The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, 2012.

Litigation

The District is currently dealing with one claim regarding the potential refunding of tuition paid by students to attend the Nursing Program, which lost its accreditation during the year. It is too early to estimate the outcome of this approximately $700,000 claim or any final settlement amount.

Operating Leases

The District has entered into various operating leases for buildings and equipment with lease terms in excess of one year. None of these agreements contain purchase options. All agreements contain a termination clause providing for cancellation after a specified number of days written notice to lessors, but it is unlikely that the District will cancel any of the agreements prior to the expiration date.

Construction Commitments

As of June 30, 2012, the District had the following commitments with respect to the unfinished capital projects:

Remaining Expected Construction Date of Capital Project Commitment Completion American Modular Systems $ 256,417 September 2012 Monterey Peninsula Engineering 252,000 September 2012 IBI Group 12,550 September 2012 Chris Blair 10,476 September 2012 Total Estimated Construction Commitments $ 531,443

45 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2012

NOTE 16 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS AND JOINT POWER AUTHORITIES

The District is a member of the Monterey County Schools Insurance Group (MCSIG), Monterey County Schools Workers' Compensation JPA (MCSWC), and the Monterey and San Benito Property and Liability JPA (MSBCLPSA) public entity risk pools. The District pays annual premiums to each entity for its health, workers' compensation, and property liability coverage. The relationships between the District and the JPA's are such that they are not component units of the District for financial reporting purposes.

These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are available from the respective entities.

The District has appointed one member to the governing board ofMCSIG.

During the year ended June 30, 2012, the District made payment of$5,097,100 to MCSIG for health coverage.

The District has appointed one member to the governing board of MCSWC.

During the year ended June 30, 2012, the District made payment of$794,137 to MCSWC for workers' compensation coverage.

The District has appointed one member to the governing board ofMSBPLSA.

During the year ended June 30, 2012, the District made payment of$203,984 to MSBCLPSA for property and liability insurance.

NOTE 17 - SUBSEQUENT EVENTS

The District issued $3,285,000 of Tax and Revenue Anticipation Notes dated July 2, 2012. The notes mature on March 1, 2013, and yield 0.274 percent interest. The notes were sold to supplement cash flow. Repayment requirements are that by January 31, 2013, the District place 100 percent of principal and interest due in a separate account for the sole purpose of satisfying the note.

NOTE 18- FISCAL ISSUES RELATING TO BUDGET REDUCTIONS

The State of California continues to suffer the effects of a recessionary economy. California school districts are reliant on the State of California to appropriate the funding necessary to continue the level of educational services expected by the State constituency. With the implementation of education trailer bill Senate Bill 70 (Chapter 7, Statutes of 2011 ), 39 percent of current year funding has now been deferred to a subsequent period, creating significant cash flow management issues for districts in addition to requiring substantial budget reductions, ultimately impacting the ability of California school districts to meet their goals for educational services.

46 REQUIRED SUPPLEMENTARY INFORMATION

47 SOLEDAD UNIFIED SCHOOL DISTRICT

GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2012

Variances - Favorable (Unfavorable) Budgeted Amounts Final Original Final Actual to Actual REVENUES Revenue limit sources $ 23,307,758 $ 23,524,221 $ 23,458,999 $ (65,222) Federal sources 6,027,668 6,610,314 6,329,201 (281,113) Other State sources 7,096,142 7,463,071 7,713,981 250,910 Other local sources 2,458,492 3,091,057 3,144,143 53,086 Total Revenues I 38,890,060 40,688,663 40,646,324 (42,339) EXPENDITURES Current Certificated salaries 17,511,050 17,747,770 17,546,594 201,176 Classified salaries 5,396,270 5,851,313 5,521,436 329,877 Employee benefits 9,953,296 10,008,235 9,407,709 600,526 Books and supplies 1,227,064 1,917,937 1,457,655 460,282 Services and operating expenditures 3,131,942 3,734,422 3,460,952 273,470 Other outgo 2,021,750 2,044,574 1,412,930 631,644 Capital outlay 7,000 683,412 75,115 608,297 Debt service - principal 235,340 235,340 262,910 (27,570) Debt service - interest 211,847 211,847 221,612 (9,765) Total Expenditures I 39,695,559 42,434,850 39,366,913 3,067,937 Excess (Deficiency) of Revenues Over Expenditures (805,499) (1,746,187) 1,279,411 3,025,598 Other Financing Sources (Uses) Transfers in 659,212 (659,212) Transfers out (2,815) (2,815) Net Financing Sources (Uses) 659,212 (2,815) (662,027) NET CHANGE IN FUND BALANCES (805,499) (1,086,975) 1,276,596 2,363,571 Fund Balance - Beginning 9,411,476 9,411,476 9,411,476 Fund Balance - Ending $ 8,605,977 $ 8,324,501 $10,688,072 $ 2,363,571

1 On behalf payments are not included in the actual or budgeted revenues and expenditures. In addition, due to the consolidation of Fund I 7, Special Reserve Non-Capital Fund, and Fund 20, Special Reserve Postemployment Benefits Fund for reporting purposes into the General Fund, additional revenues and expenditures pertaining to these other funds are included in the actual revenues and expenditures, however, are not included in the original and final General Fund budgets.

48 SOLEDAD UNIFIED SCHOOL DISTRICT

SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED JUNE 30, 2012

Actuarial Accrued Liability UAALasa (AAL)- Unfunded Percentage Actuarial Actuarial Entry Age AAL Funded of Covered Valuation Value of Normal Cost (UAAL) Ratio Covered Payroll Date Assets (a) Method (b) (b - a) (a/ b) Payroll (c) ([b - a]/ c) February 1, 2010 $ $ 17,465,058 $ 17,465,058 0% $ 21,049,348 82.97% November 7, 2008 $ $ 14,777,976 $ 14,777,976 0% $ 21,049,348 70.21%

49 SUPPLEMENTARY INFORMATION

50 SOLEDAD UNIFIED SCHOOL DISTRICT

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2012

Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Program or Cluster Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed Through California Department of Education: No Child Left Behind Title I - Part A, Basic 84.010 14329 $ 681,644 Title I, Part C, Migrant, Regular 84.011 14326 175,973 Title I, Part C, Migrant, Summer 84.011 10005 18,986 Title I - Part A, School Improvement Grant 84.377 14971 1,779,992 Title II - Part A, Teacher Quality 84.367 14341 253,779 Educational Technology State Grants Cluster Title II - Part D, Enhancing Education Through Technology, Formula Grants 84.318 14334 2,396 Title II - Part D, Enhancing Education Through Technology, Competitive Grants 84.318 14368 9,041 ARRA: Title II - Part D, Enhancing Education Through Technology, Competitive Grants 84.386 15126 25,505 Subtotal Educational Technology State Grants Cluster 36,942 Title III - LEP 84.365 14346 131,152 Title III - Immigrant Education Program 84.365 15146 12,074 Title IV-Part B, 21st CLC 84.287 14349 251,500 Title X - McKinney-Vento Homeless Children 84.196 14332 2,437 Adult Basic Education and ESL 84.002A 14508 21,541 English Literacy and Civics Education 84.002A 14109 11,287 Adult Secondary Education 84.002 13978 32,492 Fund for the Improvement of Education 84.215 [2] 733,057 Safe and Healthy Schools 84.184A 15164 354,889 IDEA, Part B, Section 611, Basic 84.027 13379 745,930 Education Jobs Fund 84.410 25152 866,148 Technology Secondary II C, Section 611 84.048 14894 25,543 Total U.S. Department of Education 6,135,366

[l] Catalog number not available [2] Pass-Through Entity Identifying Number not available

See accompanying note to supplementary information.

51 SOLEDAD UNIFIED SCHOOL DISTRICT

SCHEDULE OF EXPENDITURES OF FEDERAL AW ARDS, Continued FOR THE YEAR ENDED JUNE 30, 2012

Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identifying Federal Grantor/Pros;ram or Cluster Title Number Number Ex;eendi tures U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Passed Through California Department of Health Care Services: Child Development, Federal Child Care Center-Based 93.569 13609 $ 4,465 Adult Education, South County Collaberation 93.569 [2] 31,261 Medical Administration Activities 93.778 10060 72,159 Medi-Cal Billing 93.778 10013 148,773 Passed Through Monterey County Department of Social and Employment Services: Community Action Partnership 93.569 [2] 7,500 Total Department of Health and Human Services 264,158 U.S. DEPARTMENT OF DEFENSE Navy Junior Reserve Officers' Training Corps [1] [2] 30,724 U.S. DEPARTMENT OF AGRICULTURE Passed Through California Department of Education: Child Nutrition Cluster Especially Needy Breakfast 10.553 13526 630,496 National School Lunch 10.555 13391 1,779,878 Meals Supplements - Snack 10.555 13391 67,681 Seamless Summer 10.559 13004 30,846 Food Distribution 10.555 13391 35,700 Subtotal Child Nutrition Cluster 2,544,601 Total U.S. Department of Agriculture 2,544,601 Total Expenditures of Federal Awards $ 8,974,849

[1] Catalog number not available [2] Pass-Through Entity Identifying Number not available

See accompanying note to supplementary information.

52 SOLEDAD UNIFIED SCHOOL DISTRICT

LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE JUNE 30, 2012

ORGANIZATION

The Soledad Unified School District was unified on July 1, 1999, and consists of an area comprising approximately 100 square miles. The District operates five elementary schools, one middle school, one high school, and a community education center, providing instruction from kindergarten through grade twelve, and special preschool and community education programs. There were no boundary changes during the year.

GOVERNING BOARD

MEMBER OFFICE TERM EXPIRES

Mr. Edward Lopez President 2013 Mrs. Gloria Ledesma Vice-President 2015 Mr. Fabian M. Barrera Clerk 2015 Mrs. Marie Berlanga Member 2015 Mr. Lucio Rios Member 2013

ADMINISTRATION

Deneen Newman Superintendent Jorge Z. Guzman Director of Curriculum and Instruction Gary Johnson Director of Special Projects Holly Scudder Chief Business Officer Ellen Brusa Director of Human Resources Peter Antosik Director of Maintenance and Transportation/Director of Technology Dianne Witwer Principal (Frank Ledesma Elementary School) Tara Vikjord Principal (Gabilan Elementary School) Dr. Jeanne Hemandez-Tutop Principal (Jack Franscioni Elementary School) Terri Lambert Principal (Rose Ferrero Elementary School) Guillermo Jimenez Principal (San Vicente Elementary School) Lori Villanueva Principal (Main Street Middle School) Jeffrey Lopez Assistant Principal (Main Street Middle School) Jamie Mumau Principal (Soledad High School) Laura Eras Assistant Principal (Soledad High School) Larry Mendez Assistant Principal (Soledad High School) Denise Estrella Director/Principal (Community Education Center)

See accompanying note to supplementary information.

53 SOLEDAD UNIFIED SCHOOL DISTRICT

SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED JUNE 30, 2012

Second Period Annual Report Report ELEMENTARY Kindergarten 343.87 343.83 First through third 1,037.22 1,037.26 Fourth through sixth 1,067.94 1,067.34 Seventh and eighth 620.59 619.07 Home and hospital 0.65 0.93 Special education 77.61 78.27 Total Elementary 3,147.88 3,146.70 SECONDARY Regular classes 1,223.97 1,212.66 Continuation education 32.06 33.04 Home and hospital 1.60 1.34 Special education 41.59 40.56 Total Secondary 1,299.22 1,287.60 Grand Total 4,447.10 4,434.30

See accompanying note to supplementary information.

54 SOLEDAD UNIFIED SCHOOL DISTRICT

SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED JUNE 30, 2012

Reduced Reduced 1982-83 1982-83 1986-87 1986-87 2011-12 Number of Days Actual Actual Minutes Minutes Actual Traditional Multi track Grade Level Minutes Minutes Requirement Requirement Minutes Calendar Calendar Status Kindergarten 31,500 29,400 36,000 33,600 37,795 180 NIA Complied Grades 1 - 3 47,855 44,665 50,400 47,040 Grade 1 54,970 180 NIA Complied Grade 2 54,970 180 NIA Complied Grade 3 54,970 180 NIA Complied Grades 4 - 6 50,945 47,549 54,000 50,400 Grade 4 56,660 180 NIA Complied Grade 5 56,660 180 NIA Complied Grade 6 56,660 180 NIA Complied Grades 7 - 8 50,925 47,530 54,000 50,400 Grade 7 61,365 180 NIA Complied Grade 8 61,365 180 NIA Complied Grades 9 - 12 [l] [l] 64,800 60,480 Grade 9 65,142 180 NIA Complied Grade 10 65,142 180 NIA Complied Grade 11 65,142 180 NIA Complied Grade 12 65,142 180 NIA Complied

[l] The District did not have grades 9 through 12 in 1982-83.

See accompanying note to supplementary information.

55 SOLEDAD UNIFIED SCHOOL DISTRICT

RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2012

There were no adjustments to the Unaudited Actual Financial Report, which required reconciliation to the audited financial statements at June 30, 2012.

See accompanying note to supplementary information.

56 SOLEDAD UNIFIED SCHOOL DISTRICT

SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2012

(Budget) 1 4 4 4 2013 ' 2012 2011 2010 GENERAL FUND Revenues $ 37,485,558 $ 40,641,533 $ 39,550,207 $ 35,778,863 Total Revenues 3 37,485,558 40,641,533 39,550,207 35,778,863 Expenditures 40,597,984 39,366,913 37,171,671 36,820,051 Other uses and transfers out 2,815 169,289 6 Total Expenditures and Other Uses 3 40,597,984 39,369,728 37,340,960 36,820,057 INCREASE/(DECREASE) IN FUND BALANCE $ (3,112,426) $ 1,271,805 $ 2,209,247 $ (1,041,194) ENDING FUND BALANCE $ 6,737,014 $ 9,849,440 $ 8,577,635 $ 6,368,388 AVAILABLE RESERVES 2 $ 5,122,658 $ 3,967,833 $ 2,085,525 $ 2,010,187 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO 12.6% 10.1% 5.6% 5.5% LONG-TERM OBLIGATIONS Not Available $ 15,703,595 $ 15,505,974 $ 15,272,553 AVERAGE DAILY ATTENDANCE AT P-2 3 4,478 4,447 4,362 4,210

The General Fund balance has increased by $3,481,052 over the past two years. The fiscal year 2012-13 budget projects a decrease of $3,112,426 (31.6 percent). For a district this size, the State recommends available reserves of at least 3.0 percent of total General Fund expenditures, transfers out, and other uses (total outgo).

The District has incurred operating surpluses in two of the past three years, but anticipates incurring an operating deficit during the 2012-13 fiscal year. Total long-term obligations have increased by $431,042 over the past two years.

Average daily attendance has increased by 238 over the past two years. Additional growth of 31 ADA is anticipated during fiscal year 2012-13.

1 Budget 2013 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. 3 On behalf payments have been excluded from the calculation of available reserves for the fiscal years ending June 30, 2012, 2011, and 2010. 4 General Fund amounts do not include activity related to the consolidation of the Special Reserve Non-Capital Fund and the Special Reserve Fund for Retiree Benefits as required by GASB Statement No. 54.

See accompanying note to supplementary information.

57 SOLEDAD UNIFIED SCHOOL DISTRICT

NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2012

Adult Child Education Development Cafeteria Fund Fund Fund ASSETS Deposits and investments $ $ $ Receivables 153,684 28,967 437,114 Due from other funds 204,872 25,728 304 Stores inventories 26,511 Total Assets $ 358,556 $ 54,695 $ 463,929

LIABILITIES AND FUND BALANCES Liabilities: Overdrafts $ 103,557 $ 34,512 $ 7,489 Accounts payable 3,402 2,581 61,822 Due to other funds 5,256 10,101 809 Deferred revenue 20,107 3,341 Total Liabilities 132,322 50,535 70,120 Fund Balances: Nonspendable 26,511 Restricted 4,160 367,298 Committed 226,234 Total Fund Balances 226,234 4,160 393,809 Total Liabilities and Fund Balances $ 358,556 $ 54,695 $ 463,929

See accompanying note to supplementary information.

58 Bond Total Deferred Capital State School Interest and Non-Major Maintenance Facilities Building Redemption Governmental Fund Fund Fund Fund Funds

$ 267,878 $ 178,014 $ 1 $ 242,553 $ 688,446 (298) (78) 619,389 230,904 26,511 $ 267,580 $ 177,936 $ 1 $ 242,553 $ 1,565,250

$ $ $ $ $ 145,558 1,228 69,033 16,166 23,448 1,228 254,205

26,511 177,936 1 242,553 791,948 266,352 492,586 266,352 177,936 1 242,553 1,311,045

$ 267,580 $ 177,936 $ 1 $ 242,553 $ 1,565,250

58 SOLEDAD UNIFIED SCHOOL DISTRICT

NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2012

Adult Child Education Development Cafeteria Fund Fund Fund REVENUES Federal sources $ 96,581 $ 4,465 $ 2,508,902 Other State sources 241,521 538,621 219,886 Other local sources 82,428 8,975 118,581 Total Revenues 420,530 552,061 2,847,369 EXPENDITURES Current Instruction 235,370 464,102 Instruction-related activities: Supervision of instruction 30,311 52,089 School site administration 104,055 Pupil services: Food services 11,548 2,512,921 All other pupil services 370 Administration: All other administration 3,855 8,577 Plant services 17,117 15,796 177,443 Facility acquisition and construction Debt service Principal Interest and other Total Expenditures 391,078 552,112 2,690,364 Excess (Deficiency) of Revenues Over Expenditures 29,452 (51) 157,005 Other Financing Sources (Uses) Transfers in 2,815 Net Financing Sources (Uses) 2,815 NET CHANGE IN FUND BALANCES 32,267 (51) 157,005 Fund Balance - Beginning 193,967 4,211 236,804 Fund Balance - Ending $ 226,234 $ 4,160 $ 393,809

See accompanying note to supplementary information.

59 Bond Total Deferred Capital State School Interest and Non-Major Maintenance Facilities Building Redemption Governmental Fund Fund Fund Fund Funds

$ $ $ $ $ 2,609,948 7,690 1,007,718 2,312 138,034 1 972,814 1,323,145 2,312 138,034 980,504 4,940,811

699,472

82,400 104,055

2,524,469 370

12,432 210,356 4,227 4,227

27,693 905,000 932,693 9,643 9,643 4,227 37,336 905,000 4,580,117

(1,915) 100,698 1 75,504 360,694

2,815 2,815 (1,915) 100,698 1 75,504 363,509 268,267 77,238 167,049 947,536 $ 266,352 $ 177,936 $ 1 $ 242,553 $ 1,311,045

59 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2012

NOTE 1 - PURPOSE OF SCHEDULES

Schedule of Expenditures of Federal Awards

The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements.

The following schedule provides reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances, and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amount consists of fair market value of commodities which are not reported as revenues and expenditures in the financial statements.

CFDA Number Amount Total Federal Revenues From the Statement of Revenues, Expenditures, and Changes in Fund Balances: $ 8,939,149 Reconciling items: Food Distribution 10.555 35,700 Total Schedule of Expenditures of Federal Awards $ 8,974,849

Local Education Agency Organization Structure

This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration.

Schedule of Average Daily Attendance (ADA)

Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs.

Schedule of Instructional Time

The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46200 through 46206.

Districts must maintain their instructional minutes at either the 1982-83 actual minutes or the 1986-87 requirement, whichever is greater, as required by Education Code Section 46201.

60 SOLEDAD UNIFIED SCHOOL DISTRICT

NOTE TO SUPPLEMENTARY INFORMATION JUNE 30, 2012

Reconciliation of Annual Financial and Budget Report With Audited Financial Statements

This schedule provides the infonnation necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements.

Schedule of Financial Trends and Analysis

This schedule discloses the District's financial trends by displaying past years' data along with current year budget infonnation. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time.

Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances

The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide infonnation regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances.

61 INDEPENDENT AUDITORS' REPORTS

62 Vavrinek, Trine, Day & Co., LLP VALUE THE DIFFERENCE ftl Certified Public Accountants

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Governing Board Soledad Unified School District Soledad, California

We have audited the financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of Soledad Unified School District as of and for the year ended June 30, 2012, which collectively comprise Soledad Unified School District's basic financial statements and have issued our report thereon dated December 4, 2012. 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 Soledad Unified School District is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Soledad Unified School District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Soledad Unified School District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Soledad Unified School District's internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the 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 entity's financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined previously.

6051 N. Fresno Street, Suite 101 Fresno, CA 93710 Tel: 559.248.0871 Fax: 559.248.0875 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Compliance and Other Matters

As part of obtaining reasonable assurance about whether Soledad Unified School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We noted certain matters that we reported to management of Soledad Unified School District in a separate letter dated December 4, 2012.

This report is intended solely for the information and use of the governing board, management, the California Department of Education, the State Controller's Office, and Federal awarding agencies, and is not intended to be and should not be used by anyone other than these specified parties.

I Ce,.,t.J.P v~~1 At Fresno, California December 4, 2012

64 Vavrinek, Trine, Day &Co., LLP VALUE THE DIFFERENCE ftl Certified Public Accountants

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH 0MB CIRCULAR A-133

Governing Board Soledad Unified School District Soledad, California

Compliance

We have audited Soledad Unified School District's compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of Soledad Unified School District's major Federal programs for the year ended June 30, 2012. Soledad Unified School District's major Federal programs are identified in the summary of auditors' results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of Soledad Unified School District's management. Our responsibility is to express an opinion on Soledad Unified School District's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 0MB Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations. Those standards and 0MB 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 Soledad Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Soledad Unified School District's compliance with those requirements.

In our opinion, Soledad Unified School District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012.

6051 N. Fresno Street, Suite 101 Fresno, CA 93710 Tel: 559.248.0871 Fax: 559.248.0875 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Internal Control Over Compliance

The management of Soledad Unified School District is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered Soledad Unified School District's internal control over compliance with the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 0MB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Soledad Unified School District's internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.

66 Vavrinek, Trine, Day &Co., LLP VALUE THE DIFFERENCE Certified Public Accountants

INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE

Governing Board Soledad Unified School District Soledad, California

We have audited Soledad Unified School District's compliance with the requirements as identified in the Standards and Procedures for Audits ofCalifornia K-12 Local Educational Agencies 2011-12, applicable to Soledad Unified School District's government programs as noted below for the year ended June 30, 2012. Compliance with the requirements referred to above is the responsibility of Soledad Unified School District's management. Our responsibility is to express an opinion on Soledad Unified School District's compliance based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Standards and Procedures for Audits of California K-12 Local Educational Agencies 2011-12 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Soledad Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of Soledad Unified School District's compliance with those requirements.

In our opinion, Soledad Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, 2012.

In connection with the audit referred to above, we selected and tested transactions and records to determine the Soledad Unified School District's compliance with the State laws and regulations applicable to the following items:

Procedures in Procedures Audit Guide Performed Attendance Accounting: Attendance reporting 6 Yes Teacher Certification and Misassignments 3 Yes Kindergarten continuance 3 Yes (see below) Independent study 23 No (see below) Continuation education 10 Yes Instructional Time: School districts 6 Yes County offices of education 3 Not Applicable

6051 N. Fresno Street, Suite 101 Fresno, CA 93710 Tel: 559.248.0871 Fax: 559.248.0875 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Procedures in Procedures Audit Guide Performed Instructional Materials: General requirements 8 Yes Ratios of Administrative Employees to Teachers 1 Yes Classroom Teacher Salaries 1 Yes Early Retirement Incentive 4 Not Applicable Gann Limit Calculation 1 Yes School Accountability Report Card 3 Yes Public Hearing Requirement - Receipt of Funds 1 Yes Juvenile Court Schools 8 Not Applicable Exclusion of Pupils - Pertussis Immunization 2 Yes Class Size Reduction Program (including in charter schools): General requirements 7 Yes Option one classes 3 Yes Option two classes 4 Not Applicable Districts or charter schools with only one school serving K-3 4 Not Applicable After School Education and Safety Program: General requirements 4 Yes After school 5 Yes Before school 6 Not Applicable Charter Schools: Contemporaneous records of attendance 3 Not Applicable Mode of instruction 1 Not Applicable Non classroom-based instruction/independent study 15 Not Applicable Determination of funding for non classroom-based instruction 3 Not Applicable Annual instruction minutes classroom based 4 Not Applicable

We did not perform testing procedures 2 and 3 for kindergarten continuance because there were no kindergarteners retained from the prior year. Additionally, we did not perform testing for independent study because the independent study ADA was under the level that requires testing.

This report is intended solely for the information and use of the governing board, management, the California Department of Education, the State Controller's Office, the California Department of Finance, and Federal awarding agencies, and is not intended to be and should not be used by anyone other than these specified parties. v~~1 ~ I ~.,lJ.P Fresno, California December 4, 2012

68 SCHEDULE OF FINDINGS AND QUESTIONED COSTS

69 SOLEDAD UNIFIED SCHOOL DISTRICT

SUMMARY OF AUDITORS' RESULTS FOR THE YEAR ENDED JUNE 30, 2012

FINANCIAL STATEMENTS Type of auditors' report issued: Unqualified Internal control over financial reporting: Material weakness( es) identified? No Significant deficiency(ies) identified? None reported Noncompliance material to financial statements noted? No

FEDERAL A WARDS Internal control over major programs: Material weakness(es) identified? No Significant deficiency(ies) identified? None reported Type of auditors' report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section .510(a) ofOMB Circular A-133? No Identification of major programs:

CFDA Number(s) Name of Federal Program or Cluster 84.010 Title I - Part A, Basic 84.215 Fund for the Improvement of Education 84.410 Education Jobs Fund 10.553, 10.555, 10.559 Child Nutrition Cluster

Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? Yes

STATE AWARDS Type of auditors' report issued on compliance for programs: Unqualified

70 SOLEDAD UNIFIED SCHOOL DISTRICT

FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED JUNE 30, 2012

None reported.

71 SOLEDAD UNIFIED SCHOOL DISTRICT

FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2012

None reported.

72 SOLEDAD UNIFIED SCHOOL DISTRICT

STATE A WARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2012

None reported.

73 SOLEDAD UNIFIED SCHOOL DISTRICT

SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2012

There were no audit findings in the prior year's schedule of financial statement findings.

74 Vavrinek, Trine, Day &Co., LLP VALUE THE DIFFERENCE Certified Public Accountants

December 4, 2012

Governing Board Soledad Unified School District Soledad, California

In planning and performing our audit of the financial statements of Soledad Unified 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.

However, during our audit we noted matters that are opportunities for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated December 4, 2012, on the financial statements of Soledad Unified School District.

DISTRICT OFFICE

Cash Disbursements

Finding

We noted during our audit of cash disbursements that duplicate invoices were not rejected. Additionally, mitigating procedures that reduce the risk of duplicate payment were not practiced district wide. This internal control weakness puts the District at risk for loss of revenues due to potential double payments of invoices.

Recommendation

The District can strengthen internal control over cash disbursements by including a procedure in the financial software that notifies the account payable technician of a payment being processed against a duplicate invoice. This procedure will alleviate the aforementioned control weakness and risk.

SOLEDAD HIGH SCHOOL -ASSOCIATED STUDENT BODY (ASB)

Revenue Potentials

Finding

Revenue potential forms are not used to document and control fundraising activities as they occur. These forms supply an element of internal control without which it is difficult to determine the success of a fundraiser and to track money as it is spent and received.

6051 N. Fresno Street, Suite 101 Fresno, CA 93710 Tel: 559.248.0871 Fax: 559.248.0875 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Governing Board Soledad Unified School District December 4, 2012

Recommendation

The site should complete a revenue potential form for every fundraiser the clubs/site participate in and keep this form on file for future reference.

Ticket Sales

Finding

During our audit of the ASB, we noted the site does not use prenumbered tickets, therefore, does not have a master ticket log or ticket sales recap sheet. There appears to be enough revenues generated from sporting events to warrant the use ofprenumbered tickets, a master ticket log, and ticket sales recap sheet. Without the use of prenumbered tickets, a master log, and ticket sales recap sheet, the site cannot determine if the money collected and deposited to the ASB bookkeeper is complete.

Recommendation

We recommend the use ofprenumbered tickets, printed independently of the club sponsoring the event. The tickets should be kept in a place where they can be locked up and inventory of the tickets should be monitored by the use of a master ticket log. The master log will monitor tickets on hand, when and to whom tickets were issued, and the number of tickets sold or voided. The ticket sales recap sheet will reconcile tickets issued to cash received for those tickets sold as well as the return of those tickets not sold.

Stale Dated Checks

Finding

In auditing the outstanding check listing for the November reconciliation, we noted that numerous checks were over six months old, making the probability of them clearing the account quite low. Specifically, there were 16 checks dating back to November 10, 2008 which totaled approximately$ 3,474.95.

Recommendation

Outstanding checks over six months old should be credited back to the appropriate account and taken off the subsequent bank reconciliation. Although the chances are low, the check may clear on a subsequent bank statement. In this case, the amount should be charged against the appropriate account and described as "outstanding check written off-cleared".

Student Store Inventory

Finding

During our audit of the cash receipts, we found that the student store sales are not being reconciled to the ending inventory on a regular basis. Student store sales should be reconciled everyday it is opened to ensure that all items purchased for resale have been sold or accounted for. Also, copies of student store sub-receipts or cash register tapes must be submitted with deposits to the ASB bookkeeper in order to determine timeliness of deposits.

2 Governing Board Soledad Unified School District December 4, 2012

Recommendation

According to the policies and procedures outlined in the "Accounting Procedures for Student Body Organizations", prepared by the California Department of Education, a physical inventory should be taken quarterly under supervision of the student store advisor. The inventory listing should contain a description, unit cost, quantity, and extended value. This information is necessary in order to analyze sales activity, profits, and to determine if merchandise has been lost or stolen. The June 30 inventory report would also be used in the preparation of the financial statements prepared for the ASB of the site.

MAIN STREET MIDDLE SCHOOL -ASSOCIATED STUDENT BODY (ASB)

Cash Receipts

Finding

During our audit of cash receipts, it was noted that a deposit did not match the corresponding sub-receipt total. Also, as a form of receipt, the ASB bookkeeper copied each submitted check but failed to notate the date the item was received. Because there was no date on the copied checks, deposit timeliness could not be determined.

Recommendation

To ensure each deposit is intact and complete, the ASB bookkeeper must reconcile the sub-receipts to the deposit total. Additionally, when copied checks are utilized as a form ofreceipt the date the item is received must be notated.

Stale Dated Checks

Finding

During the review of the October bank reconciliation, we noted an outstanding check that was dated February 18, 2011. Outstanding checks exceeding a six months time frame likely will not clear the ASB bank account.

Recommendation

3 Governing Board Soledad Unified School District December 4, 2012

JACK FRANSCIONI ELEMENTARY SCHOOL-ASSOCIATED STUDENT BODY (ASB)

Cash Receipts

Finding

We noted during our audit that cash receipts procedures did not include the use ofreceipts or logs. Without this step in the cash receipts process, it is impossible to determine when cash was received, from whom cash was received or how intact and timely deposits were. This internal control weakness puts the district at greater risk for loss of cash, reduces accountability over cash, and reduces the district's ability to know how much cash should be on hand.

Recommendation

The site can strengthen internal controls over cash by receipting or logging all cash received by the site as to when and from whom it was received. The cash receipt book, or log, should also be used as a reference as to the amount of cash that should be on hand in the event cash turns up missing or if a claim or challenge is made regarding payment received by the site.

We will review the status of the current year comments during our next audit engagement. v~~I~ I ~-,J..~{) Fresno, California December 4, 2012

APPENDIX C

FORM OF BOND COUNSEL OPINION

June 6, 2013

Board of Trustees Soledad Unified School District 1261 Metz Road Soledad, California 93960

OPINION: $5,000,000 Soledad Unified School District (Monterey County, California) General Obligation Bonds, 2012 Election, Series A

Members of the Board of Trustees:

We have acted as bond counsel to the Soledad Unified School District (the “District”) in connection with the issuance by the Board of Trustees of the District (the “Board”) of the $5,000,000 principal amount of Soledad Unified School District (Monterey County, California) General Obligation Bonds, 2012 Election, Series A (the “Bonds”) under the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, and a resolution of the Board adopted on April 17, 2013 (the “Bond Resolution”). We have examined the law and such certified proceedings and other papers as we deemed necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Board contained in the Bond Resolution and in the certified proceedings and other certifications furnished to us, without undertaking to verify such facts by independent investigation.

Based upon the foregoing, we are of the opinion, under existing law, as follows:

1. The District is duly created and validly existing as a school district with the power to cause the Board to issue the Bonds on its behalf and to perform its obligations under the Bond Resolution and the Bonds.

2. The Bond Resolution has been duly adopted by the Board and constitutes a valid and binding obligation of the Board enforceable against the Board in accordance with its terms.

3. The Bonds have been duly issued and sold by the District and are valid and binding general obligations of the District, and the County of Orange is obligated to levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the District subject to taxation by the District, without limitation as to rate or amount.

4. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum

tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction for federal income tax purposes is allowed for 80% of that portion of such financial institution's interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Tax Code which must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted in the documents relating to the Bonds to comply with each of such requirements; and the District has full legal authority to make and comply with such covenants. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.

Respectfully submitted,

Jones Hall, A Professional Law Corporation

APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE

$5,000,000 SOLEDAD UNIFIED SCHOOL DISTRICT (Monterey County, California) General Obligation Bonds 2012 Election, Series A

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the Soledad Unified School District (the “District”) in connection with the execution and delivery of the captioned bonds (the “Bonds”). The Bonds are being executed and delivered pursuant to a resolution adopted by the Board of Trustees of the District on April 17, 2013 (the “Resolution”).

The District hereby covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2- 12(b)(5).

Section 2. Definitions. In addition to the definitions set forth above and in the Bond Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms have the following meanings:

“Annual Report” means any Annual Report provided by the District under and as described in Sections 3 and 4.

“Annual Report Date” means the date not later than nine months after the end of each fiscal year of the District (currently June 30th), commencing March 31, 2014.

“Dissemination Agent” means, initially, Dale Scott & Company Inc., or any successor Dissemination Agent designated in writing by the District and which has filed with the District and the Paying Agent a written acceptance of such designation.

“Listed Events” means any of the events listed in Section 5(a).

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule.

“Official Statement” means the final official statement executed by the District in connection with the issuance of the Bonds.

“Paying Agent” means U.S. Bank National Association, San Francisco, California, or any successor thereto.

“Participating Underwriter” means the original purchaser of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

Section 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing not later than March 31, 2014 with the report for the 2012-13 fiscal year, provide to the MSRB in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the District) has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the District hereunder.

(b) If the District does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the District shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A, with a copy to the Paying Agent and Participating Underwriter.

(i) determine each year prior to the Annual Report Date the then- applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and

(ii) if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided under this Disclosure Certificate, and stating the date it was provided.

D-2

Section 4. Content of Annual Reports. The District’s Annual Report shall contain or incorporate by reference the following:

(a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the District for the fiscal year for which the Annual Report is submitted, substantially similar to that provided in the corresponding tables in the Official Statement:

(i) The District’s most recently adopted Budget;

(ii) Assessed value of taxable property in the jurisdiction of the District as shown on the most recent equalized assessment roll;

(iii) Property tax levy and collection delinquencies for the District, for the most recently completed Fiscal Year, if the District is no longer a participant in Monterey County’s Teeter Plan;

(iv) Changes, if any, in the operation of Monterey County Investment Pool which would affect the District’s access to property taxes used to pay debt service on the Bonds, or in the operation of the County’s Teeter Plan which would affect the District’s collection of tax revenues to pay debt service on the Bonds;

(v) In addition to any of the information expressly required to be provided under paragraphs (i) through (vi), of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the District shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB’s internet web site or filed with the Securities and Exchange Commission. The District shall clearly identify each such other document so included by reference.

D-3

Section 5. Reporting of Significant Events.

(a) The District shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities, if material. (11) Rating changes. (12) Bankruptcy, insolvency, receivership or similar event of the District. (13) The consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall, or shall cause the Dissemination Agent (if not the District) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Bond Resolution.

(c) The District acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier “if material” and that subparagraph (a)(6) also contains the qualifier "material" with

D-4

respect to certain notices, determinations or other events affecting the tax status of the Bonds. The District shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that it determines the event’s occurrence is material for purposes of U.S. federal securities law. Whenever the District obtains knowledge of the occurrence of any of these Listed Events, the District will as soon as possible determine if such event would be material under applicable federal securities law. If such event is determined to be material, the District will cause a notice to be filed as set forth in paragraph (b) above.

(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.

Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. Termination of Reporting Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Dale Scott and Co. Inc. Any Dissemination Agent may resign by providing 30 days’ written notice to the District and the Paying Agent.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into

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account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Bond Resolution for amendments to the Bond Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(c).

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. If the District fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Bond Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

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Section 12. Duties, Immunities and Liabilities of Dissemination Agent.

(a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent will have no duty or obligation to review any information provided to it by the District hereunder, and shall not be deemed to be acting in any fiduciary capacity for the District, the Bondholders or any other party. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

(b) The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Date: June 6, 2013 SOLEDAD UNIFIED SCHOOL DISTRICT

By Superintendent

ACCEPTANCE OF DUTIES AS DISSEMINATION AGENT

Dale Scott & Company, Inc.

By Name: Title:

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Soledad Unified School District (the “District”)

Name of Bond Issue: Soledad Unified School District General Obligation Bonds, 2012 Election, Series A

Date of Issuance: June 6, 2013

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate, dated as of June 6, 2013. The District anticipates that the Annual Report will be filed by ______.

Dated:

DISSEMINATION AGENT:

By: Its: cc: District and Paying Agent

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APPENDIX E

DTC AND THE BOOK-ENTRY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the District, the Purchaser nor the Paying Agent take any responsibility for the information contained in this Section.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) Bonds representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks,

trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on

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DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of 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 Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to the Paying 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 the Paying 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 the Paying Agent’s DTC account.

10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

11. 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.

12. 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.

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APPENDIX F

MONTEREY COUNTY INVESTMENT POOL

Exhibit G TREASURER-TAX COLLECTOR County of Monterey Investment Policy Updated 06/30/12

1.0 Policy.

It is the policy of the Treasurer-Tax Collector of Monterey County to invest public funds in a manner which provides for the safety of the funds on deposit, the cash flow demands, or liquidity needs of the treasury pool participants, and the highest possible yield after first considering the first two objectives of safety and liquidity. In addition, it is the Treasurer-Tax Collector's policy to invest all funds in strict conformance with all state statutes governing the investment of public monies.

2.0 Scope.

This investment policy applies to all financial assets of the treasury pool participants. These funds are accounted for in the annual Financial Reports of the County and each of the treasury pool's participating agencies.

2.1 Participating Agencies. Participants in the Treasurer's investment pool shall be limited to the County of Monterey, school districts within Monterey County and those special districts, which, by statute, maintain depository authority with the County Treasurer.

2.2 Outside Agency Participation. It is the Treasurer's policy to prohibit any voluntary agency participation in the treasury pool.

3.0 Prudence.

The county treasurer is a trustee and therefore a fiduciary subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing public funds, the county treasurer shall act with care, skill, prudence and diligence under the circumstances then prevailing, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the county and the other depositors. Within the limitations of this section and considering individual investments as part of an overall investment strategy, a trustee is authorized to acquire investments as authorized by law. Nothing in this Chapter is intended to grant investment authority to any person or governing body except as provided in Sections 53601 and 53607 of the Government Code.

4.0 Objectives.

The primary objectives, in priority order, of the County of Monterey's investment activities shall be:

4.1 Safety. Safety of principal. Investments of the County shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. To - 1 - attain this objective, diversification is required in order that potential losses do not exceed the income generated from the remainder of the portfolio.

4.2 Liquidity. The investment portfolio shall remain sufficiently liquid to enable all depositors to meet all expenditure requirements that might be reasonably anticipated. A minimum of 30% of the invested assets, including cash held in commercial bank accounts, shall be kept in overnight liquid assets. In the event that unforeseen cash-flow fluctuations temporarily cause the ratio of overnight liquid assets to decline below 30% of the portfolio balance, no new investments will be made until the minimum ratio is restored.

4.3 Return on Investment. The County's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the County's investment risk constraints and the cash flow characteristics of the portfolio.

5.0 Delegation of Authority.

Subject to amended delegation by the Board of Supervisors pursuant to Government Code Section 53607, the Treasurer-Tax Collector is authorized to manage the Monterey County investment program. The Treasurer- Tax Collector shall establish written procedures for the operation of the investment program consistent with this investment policy. Procedures should include reference to: safekeeping, master repurchase agreements, funds transfer agreements, collateral/ depository agreements and banking service contracts. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer-Tax Collector. The Treasurer- Tax Collector shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

6.0 Conflict of Interest.

Pursuant to Article 2 (commencing with Section 87200) of Chapter 7 of Title 9 of the Government Code and the regulations of the Fair Political Practices Commission enacted pursuant thereto, the Treasurer-Tax Collector shall disclose his investments, interests in real properties, and any income received during the immediately preceding 12 months. Such disclosure shall be in writing, and shall be filed with the officer designated by law within the time periods specified by law.

6.1 Acceptance of Gifts. The Treasurer-Tax Collector and all deputized departmental staff are prohibited from accepting any monetary or in-kind gift from any broker, dealer, or firm doing business or seeking to do business with the Monterey County Treasurer.

7.0 Authorized Dealers and Institutions.

The Treasurer-Tax Collector will maintain a list of broker/dealers and institutions authorized to provide investment services. Repurchase agreements and reverse repurchase agreements shall only be made with primary dealers designated by the Federal - 2 - Reserve Bank. The Treasurer-Tax Collector may impose additional qualifications of brokers and their firms in order to ensure professionalism and suitability. At a minimum, all broker/dealers and/or financial institutions authorized to provide investment services to Monterey County shall meet the following criteria:

1. For commercial banks and saving institutions, must be authorized as insured with the FDIC, SIPC, or NCUA (credit unions), as applicable. 2. Must hold an active corporate registered status with the Secretary of State (California), or an out-of-state counterpart agency. 3. For commercial banks and savings institutions, must be nationally or state chartered, or be a state licensed branch of a foreign bank. 4. Must be an active member of the Financial Industry Regulatory Authority.

7.1 Limitations on Political Contributions. Pursuant to Government Code Section 27133 (c), the Treasurer-Tax Collector shall not select for business any broker, brokerage, dealer, or securities firm that has, within any consecutive 48-month period following January 1, 1996, made a political contribution in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to the county treasurer, any member of the Monterey County Board of Supervisors, or any candidate for those offices.

8.0 Authorized and Suitable Investments.

The Treasurer-Tax Collector of Monterey County may invest in any security within the limits authorized by Section 53601 of the Government Code of the State of California, and within the limits of any other Government Code Statute that permits public agency investment in various securities or participation in investment trading techniques or strategies. Permissible investments are detailed in Appendix A.

8.1 Limitations. The Treasurer shall not invest in any security not previously purchased prior to January 1, 1995, which, by its structure, term or other characteristics, has the possibility of returning a zero or negative yield or could be subject to a loss of principal at the time such security has attained its maturity date. Investments shall not be made in inverse floaters, range notes, and interest- only strips.

8.2 Reverse Repurchase Agreements. Any reverse repurchase agreement where securities were not purchased previous to January 1, 1995, shall have a maximum maturity of 92 days, and the proceeds shall not be invested beyond the expiration of the reverse repurchase agreement. The maximum amount of Reverse Repurchase Agreements shall be limited to 20% of the portfolio’s book value on the date of the transaction.

8.3 Securities Lending. The Treasurer may engage in securities lending programs through nationally recognized counter parties, with a 20% restriction based on the portfolio’s book value on the date of the transaction. Instruments involved in a securities lending program are restricted to those securities provided in Government Code Section 53635 and the County Investment Policy.

- 3 - 8.4 Maximum Credit Exposure. The Treasurer shall limit the investments in any single issuer, regardless of the combination of asset class, to no more than 10% of the portfolio’s twelve month projected minimum size. Obligations of the United States Treasury and its Agencies are exempted from this restriction.

8.5 Maximum Dollar Limits. The Treasurer shall limit investments to specific maximum dollar limits by issuer as detailed in Appendix A. In the case of investments outside the core portfolio, maximum dollar limits shall apply to each separate investment.

9.0 Safekeeping and Custody.

All security transactions, including collateral for repurchase agreements, shall be conducted on a delivery-versus-payment basis. Securities shall be held by a third-party custodian designated by the Treasurer-Tax Collector and evidenced by safekeeping receipts and tri-party master repurchase agreements. Securities acquired through reverse repurchase agreement transactions may be held as collateral by primary dealers acting as counter-parties.

9.5 Investments Outside Core Portfolio

The Treasurer will accept funds for investment outside of the core pooled portfolio (custom invested funds) from depository agencies who also deposit their operating fund in the core portfolio under the following criteria:

a) the funds represent proceeds of bonds, other forms of indebtedness, or special purpose funds not required for normal operating expenses, and

b) the funds represent new or additional assets of the agency that were not previously invested in the Monterey County Investment Pool, or under other conditions approved by the Treasurer, and

c) the funds may be transferred to the core portfolio upon mutual agreement between the depository agency and the Monterey County Treasurer. Any such transfer will reflect the market value of any securities sold prior to their maturity, where the underlying funds cannot be transferred back to a custom investment outside the core portfolio unless approved by the Treasurer, and

d) funds may be transferred to the Monterey County Treasurer’s operating (checking) account for further disbursement provided the funds originate from: maturing securities; overnight liquid funds; sold securities subject to section 9.5(c) above, and associated earned income on those funds, and

e) within 7 business days prior to the maturity of any security the depository agency shall inform the Monterey County Treasurer of the desired disposition of such maturing assets to include, rollover to a new asset, transfer to the core portfolio, or transfer to the Monterey County Treasurer’s operating account subject to the conditions 9.5 (a) through (f) inclusive, and

- 4 - f) any earned income on “custom invested funds” will be segregated from the core portfolio and deposited to an overnight liquid fund designated specifically for such income. Any liquidation or transfer of the underlying asset will invoke a corresponding transfer of the associated earned income.

10.0 Criteria for Withdrawal of Funds from the Treasury Investment Pool – Section 27136 and Section 27133 (h) - Government Code.

An agency with funds on deposit in the county treasury where such funds may statutorily be invested outside of the county treasury may apply for a withdrawal of those funds. Pursuant to Government Code Sections 27133 (h) and 27136, the County Treasurer shall evaluate each proposal for withdrawal of funds. The Treasurer’s evaluation shall assess the effect of a proposed withdrawal on the stability and predictability of the investments in the county treasury pool. In addition, and prior to any withdrawal, the Treasurer shall find that the proposed withdrawal will not adversely affect the interests of the other depositors in the treasury pool.

All applications for withdrawal must be submitted by a Resolution of the depository agency at least 30 days in advance of the anticipated date of withdrawal. Resolutions for withdrawal shall include:

a. a statement of the purpose for withdrawal b. the date(s) and amount(s) of funds to be withdrawn c. a certification that funds withdrawn from the county pool shall be managed by the applicant agency and that withdrawn funds shall not be returned for future investment by the County Treasurer for a term of one year, and d. an acknowledgement that the value of any funds withdrawn from the county treasury shall reflect their most recent quarterly asset valuation as reported by the Treasurer.

The Treasurer shall provide an applicant agency a written response within 15 days from receipt of the application. The Treasurer’s determination shall be final.

11.0 Maximum Maturities.

Any non-marketable investments, such as time deposits, should not exceed a two-year maturity. In addition, no specific investment shall have a term remaining to maturity in excess of five years except under the following circumstances, and subject to specific approval of the Board of Supervisors:

Bond proceeds where the maturity term is not integral to short term cash flow needs.

Other special purpose investments where the maturity term is not integral to short term cash flow needs.

11.1 Weighted Average Maturity. The weighted average maturity of the overall portfolio shall not exceed two years.

11.2 Money Market Fund. The maximum maturity of investments in a money market - 5 - fund shall not exceed 397 days, and the weighted average maturity of the fund shall not exceed 90 days. A Money Market Fund shall not comprise more than 10% of the portfolio’s book value on the date investments are made; maximum investment in all Money Market Funds, as described in Government Code Section 53635(k) shall not exceed 20% of the portfolio’s book value on the date that investments are made.

12.0 Audits.

The Monterey County investment portfolio shall be subject to a process of independent review by the Auditor-Controller's internal auditor. The County's external auditors shall review the investment portfolio in connection with the annual county audit and requirements of the Governmental Accounting Standards Board.

12.1 Compliance Audit Pursuant to Government Code Section 27134, the County Treasury Oversight Committee shall cause an annual audit to be conducted to determine the County Treasurer’s compliance with Article 6, Chapter 5 of Division 2 of Title 3 of the Government Code.

13.0 Performance Standards.

The investment portfolio will be designed to obtain a market average rate of return during budgetary and economic cycles, taking into account the County's investment risk constraints and cash flow needs.

14.0 Investment Policy Adoption.

The Treasurer-Tax Collector of Monterey County shall submit the Investment Policy to the Board of Supervisors for adoption at least annually.

14.1 Policy Amendments. As the California Government Code pertaining to investments is amended, this policy shall likewise become amended and adopted by the Board of Supervisors. Other amendments may be recommended periodically by the Treasurer-Tax Collector.

15.0 Reporting.

Pursuant to Government Code Section 53686 (b) the Treasurer-Tax Collector may provide quarterly investment reports to the Board of Supervisors, Treasury Oversight Committee, and all pool participants. The report shall include a listing of all securities held in the portfolio. Such listing shall include investment description, maturity date, par, amortized book value and market values, and a risk measurement standard such as duration, along with a certification concerning the portfolio's available liquidity to meet expenditure requirements for the next succeeding reporting period, and disclosure of the method used to apportion investment interest.

16.0 Allocation of Investment Cost.

- 6 - The costs of investing, banking, and cash management as budgeted annually and applied quarterly shall be assessed to depositing agencies at the time of quarterly interest apportionment by the County Auditor-Controller, and in accordance with Government Code statutes. Depositing agencies will receive net revenue after pro rata application of costs that correspond to a basis point reduction to earned interest rates.

When actual annual costs of investing are determined, any differences from budgeted amounts shall be included in an adjusting interest allocation by the Auditor-Controller.

17.0 Treasury Oversight Committee A Treasury Oversight Committee nominated by the County Treasurer and confirmed by the Board of Supervisors shall provide oversight through periodic review of the Investment Policy and compliance with such policy. The Treasury Oversight Committee, pursuant to Government Code Section 27130 et seq; shall consist of 6 members including: the Treasurer-Tax Collector, the County Administrative Officer or his/her designee: the County Superintendent of Schools, or his/her designee, a representative of the governing bodies of county school districts, a representative of the legislative bodies of county special districts that are authorized depositors in the county treasury, and a member of the public. The committee shall meet at least quarterly, or as needed, and shall review investment policy and report on compliance with such policy.

17.1 Establishment of Treasury Oversight Committee. Pursuant to Section 27130 et seq; of the Government Code, the Monterey County Treasury Oversight Committee is established. The committee shall be subject to the provisions of the Political Reform Act of 1974, as amended (Government Code Sections 8100 et seq).

17.2 Brown Act Pursuant to Government Code Section 27132.4, Committee meetings shall be open to the public and subject to the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of part 1 of Division 2 of Title 5).

17.3 Membership Prohibitions Pursuant to Government Code Section 27132.2, No member of the committee shall directly or indirectly raise money for a candidate for local treasurer or a member of the governing board of any local agency that has deposited funds in the county treasury while a member of the committee.

Pursuant to Government Code Section 27132.3, a member of the Treasury Oversight Committee may not secure employment with, or be employed by, bond underwriters, bond covered security brokers or dealers or financial services firms, with whom the Treasurer is doing business during the period that the person is a member of the Committee or for one year after leaving the Committee.

- 7 - APPENDIX A Authorized Investments County General Pool Instrument Maximum Maturity County Restriction Max %/ Dollar Limit

California State Treasurer’s Local Agency Investment Fund N/A N/A $50,000,000 (per account or as approved by the State Treasurer for bond/note proceeds.)

California Asset Management Program N/A N/A 20%

CalTRUST N/A N/A 20%

Bonds, including revenue bonds, issued by 5 years N/A 10% limit issuer (*) The County, its Agencies, or authorities

U.S. Treasury notes, bonds, bills, or 5 years N/A N/A Certificates of indebtedness bearing a full faith and credit pledge

Registered warrants, notes, and bonds, 5 years N/A 10% limit issuer (*) including revenue bonds, of the State of California and all other 49 States

Bonds, notes, warrants, and other 5 years N/A 10% limit issuer (*) evidences of indebtedness issued by any local agency within California, including revenue bonds

Obligations of federal agencies and United 5 years N/A N/A States government-sponsored enterprises

Bankers acceptances 180 days N/A 40% (*)

Prime commercial paper of domestic issuers 270 days N/A 40% (*) with assets in excess of $500 million

Negotiable certificates of deposit issued 5 years N/A 30% (*) by domestic banks, associations, and state- chartered branches of foreign banks.

Reverse repurchase agreements 92 days N/A N/A and Securities Lending matched maturities 20%

Repurchase agreements 1 year 20% N/A

Medium term notes issued by domestic 5 years No inverse floating 30% (*) corporations and depository institutions rate instruments rated “A” or higher at time of purchase Money market mutual funds N/A N/A 20% Total all funds 10% any one fund Collateralized deposits and investment contracts 5 years N/A 10% limit issuer (*)

Securitized pass through instruments rated 5 years N/A 20% (*) at least “A” or higher at time of purchase

Overall portfolio weighted average maturity 2 years(*) *Total exposure of all asset classes to any single issuer shall not exceed 10% of the 12-mo projected minimum size of the portfolio.

- 8 - 01 -29-2013 Monterey County 168 WestAlisal Street, 1st Floor Salinas, CA 93901 831.755.5066 Board Report Legistar File Number: 13-0041

Introduced: 1/14/2013 Current Status: Agenda Ready Version: Matter Type: General Agenda Item

Receive and accept the Treasurer's Report oflnvestments for the quarter ending December 31, 2012.

RECOMMENDATION: It is recommended that the Board of Supervisors: Receive and accept the Treasurer's Report of Investments for the quarter ending December 31, 2012.

SUMMARY: Government Code Section 53646 (b )(I) states the Treasurer may submit a quarterly report of investments. The attached Exhibit A provides a narrative portfolio review of economic and market conditions that support the investment activity during the September - December period. Exhibit B describes the investment portfolio position by investment type as of December 31, 2012. Exhibit C is a listing of historical Monterey County Treasury Pool yields versus benchmarks. Exhibit D describes the investment portfolio by maturity range, and Exhibit E is an overview of the short term funds that the Treasurer invests in overnight, liquid assets.

DISCUSSION: During the October to December quarter the Treasury bond curve changed very little in the O - 5 year term. Yields in maturities of a year or less were down slightly, while longer maturities were slightly higher. The Federal Reserve continued their Quantitative Easing program, and for the first time announced targets for unemployment and inflation that would influence their decision to raise interest rates. The Fed continued their assurances that they will keep the Fed Funds Rate at or below 0.25 percent but added that it would stay at that level until unemployment falls below 6.5% and inflation tops 2.5%. Congress continued to be unable to pass a bill to avoid the fiscal cliff until New Years day when they passed a bill that included increased revenues, but no cuts to spending. All of these factors helped contribute to many institution's continued investment in fixed income securities. On December 31 , 2012 the Monterey County investment portfolio contained an amortized cost basis of$1,033,515,337 spread among 78 separate securities and funds. The par value of those funds was $1,032,228,054, with a market value of $1,034,828,004 or l 00.13% of amortized book value. The portfolio' s net earned income yield for the period was 0.49%. The portfolio produced estimated income of $1,211,697 for the quarter which will be distributed proportionally to all agencies participating in the investment pool. The investment portfolio had

Monterey County Page 1 Printed on 1/16/2013 Legistar File Number: 13-0041

a weighted average maturity of 425 days. The investment portfolio was in compliance with all applicable provisions of state law and the adopted investment policy, and contained sufficient liquidity to meet all projected outflows over the next six months. Market value pricings were obtained through Bloomberg LLP, Union Bank of California and included live-bid pricing of corporate securities.

OTHER AGENCY TNVOL VEMENT: A copy of this report will be distributed to all agencies participating in the County investment pool and the Treasury Oversight Committee. In addition, the report will be published on the County Treasurer's web site. A monthly report of investment transactions is provided to the Board of Supervisors as required by GC 53607.

FINANCING: The investment portfolio contains sufficient liquidity to meet all projected expenditures over the next six months. We estimate that the investment earnings in the General Fund will be consistent with budgeted revenue, but at historically low levels, as the Federal Reserve is expected to continue keeping short term interest rates at the current rate of 0.00 - 0.25%.

Prepared by: Eamonn M. Mahar, Investment Officer, x5490 c~/7/.~ tY//1/¼~' Approved by: Mary A. Zeeb, Treasurer-Tax Collector, x5474

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~:~nty Ad~jmtive ~ce County Counsel Auditor-Controller - Internal Audit Section All depositors Treasury Oversight Committee

Attachments: Exhibit A - Investment Portfolio Review - 12.3 1.12 Exhibit B - Portfolio Management Report - 12.31.12 Exhibit C - Monterey County Historical Yields vs. Benchmarks Exhibit D - Aging Report - 01.01 .13 Exhibit E - Overnight (Liquid) Asset Distribution

Monterey County Page 2 Printed on 1/16/2013

APPENDIX G

SPECIMEN MUNICIPAL BOND INSURANCE POLICY

[THIS PAGE INTENTIONALLY LEFT BLANK]

MUNICIPAL BOND BAM INSURANCE POLICY f!-

ISSUER: [NAME OF ISSUER] Policy No: _____

MEMBER: [NAME OF MEMBER]

BONDS: $______in aggregate principal Effective Date: ______amount of [NAME OF TRANSACTION] [and maturing on] Risk Premium: $______Member Surplus Contribution: $ ______Total Insurance Payment: $______

BUILD AMERICA MUTUAL ASSURANCE COMPANY (“BAM”), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the “Trustee”) or paying agent (the “Paying Agent”) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner’s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner’s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner’s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment.

Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer’s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. “Due for Payment” means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. “Nonpayment” means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. “Nonpayment” shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. “Notice” means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. “Owner” means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that “Owner” shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

BAM may appoint a fiscal agent (the “Insurer’s Fiscal Agent”) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer’s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer’s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer’s Fiscal Agent on behalf of BAM. The Insurer’s Fiscal Agent is the agent of BAM only, and the Insurer’s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer’s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked.

This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. This Policy is being issued under and pursuant to, and shall be construed under and governed by, the laws of the State of New York, without regard to conflict of law provisions. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT.

In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer.

BUILD AMERICA MUTUAL ASSURANCE COMPANY

By ______Authorized Officer

Notices (Unless Otherwise Specified by BAM)

Email: [email protected] Address: 1 World Financial Center, 27th floor 200 Liberty Street New York, New York 10281 Telecopy: 212-235-5214 (attention: Claims)

! BAM ! ! ! ! ! CALIFORNIA

ENDORSEMENT TO

MUNICIPAL BOND INSURANCE POLICY

NO.

This Policy is not covered by the California Insurance Guaranty Association established pursuant to Article 15.2 of Chapter 1 of Part 2 of Division 1 of the California Law.

Nothing herein shall be construed to waive, alter, reduce or amend coverage in any other section of the Policy. If found contrary to the Policy language, the terms of this Endorsement supersede the Policy language

IN WITNESS WHEREOF, BUILDAMERICA MUTUAL ASSURANCE COMPANY has caused this policy to be executed on its behalf by its Authorized Officer.

BUILD AMERICA MUTUAL ASSURANCE COMPANY

By ______Authorized Officer !