$25,545,000 HEALDSBURG SCHOOL FACILITIES ...cdiacdocs.sto.ca.gov/2014-1550.pdfissued by the...

NEW ISSUE—BOOK-ENTRY ONLY RATINGS: Moody’s: “Aa3”

Standard & Poor’s: AA-” (See “MISCELLANEOUS--Ratings” herein)

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the Series 2014 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Series 2014 Bonds is exempt from State of California personal income tax. (See “TAX MATTERS” herein with respect to tax consequences relating to the Series 2014 Bonds.)

$25,545,000 HEALDSBURG SCHOOL FACILITIES FINANCING AUTHORITY

GENERAL OBLIGATION REVENUE BONDS, SERIES 2014 Dated: Date of Delivery Due: July 15, as shown herein

This cover page contains certain information for general reference only. It is not a summary of this issue. Investors must read the entire official statement to obtain information essential to the making of an informed investment decision. Capitalized terms used in this cover page and not otherwise defined shall have the meanings set forth herein.

The Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014 (the “Series 2014 Bonds”) are being issued by the Healdsburg School Facilities Financing Authority (the “Authority”) pursuant to the Marks-Roos Local Bond Pooling Act of 1985 and an Indenture, dated as of September 1, 2014 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), and will be secured as described herein.

The Series 2014 Bonds are being issued to (i) provide funds to purchase the Healdsburg Unified School District (Sonoma County, California) 2014 General Obligation Refunding Bonds, Series A (the “Series A Refunding Bonds”), (ii) provide funds to purchase the Healdsburg Unified School District (Sonoma County, California) 2014 General Obligation Refunding Bonds, Series B (the “Series B Refunding Bonds” and together with the Series A Refunding Bonds, the “Refunding Bonds”), (iii) provide funds to purchase the Healdsburg Unified School District (Sonoma County, California) Election of 2012 General Obligation Bonds, Series B (the “Series B Bonds” and, together with the Refunding Bonds, the “District Bonds”), and (iv) pay the costs incurred in connection with the issuance of the Series 2014 Bonds and the District Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein.

The Series 2014 Bonds are being issued as current interest bonds, such that interest thereon will accrue from the date of delivery and be payable semiannually on January 15 and July 15 of each year, commencing January 15, 2015. Principal of the Series 2014 Bonds is payable on July 15 in each of the years and in the amounts set forth on the inside front cover hereof. The Series 2014 Bonds are issuable as fully registered bonds in denominations of $5,000 principal amount or any integral multiple thereof. Payments of principal of and interest on the Series 2014 Bonds will be made by the Trustee to The Depository Trust Company, New York, New York (collectively referred to herein as “DTC”) for subsequent disbursement to DTC Participants (defined herein) who will remit such payments to the Beneficial Owners of the Series 2014 Bonds. Purchasers of the Series 2014 Bonds (the “Beneficial Owners”) will not receive physical certificates representing their interests in the Series 2014 Bonds. See APPENDIX F—“DTC BOOK-ENTRY ONLY SYSTEM” herein.

The Series 2014 Bonds shall be subject to redemption prior to maturity as described herein. See “THE SERIES 2014 BONDS—Redemption of the Series 2014 Bonds” herein.

The Series 2014 Bonds are special obligations of the Authority, payable solely from (i) Revenues of the Authority, consisting of debt service payments on the District Bonds, and (ii) any other amounts pledged therefor under the Indenture, all as more fully described herein. The Series A Refunding Bonds and Series B Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem property taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series A Refunding Bonds and Series B Bonds, respectively, when due. The Series B Refunding Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem property taxes upon all property subject to taxation by the District within the boundaries of School Facilities Improvement District No. 1 (Elementary Service Area) (“Improvement District No. 1”), without limitation as to rate or amount (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due. See “SECURITY FOR THE SERIES 2014 BONDS” and “SECURITY FOR THE DISTRICT BONDS” herein.

ALL OBLIGATIONS OF THE AUTHORITY UNDER THE SERIES 2014 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE DISTRICT, OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2014 BONDS. THE AUTHORITY HAS NO TAXING POWER.

The Series 2014 Bonds are offered when, as and if issued and delivered to the Underwriter, subject to the approval as to their validity by Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, Bond Counsel and Disclosure Counsel to the Authority, and subject to certain other conditions. It is anticipated that the Series 2014 Bonds will be available for delivery in book-entry form through the facilities of DTC on or about October 16 2014.

Dated: September 30, 2014

George K. Baum & Company

rbrown

Typewritten Text

2014-1472, 2014-1548, 2014-1549, 2014-1550

____________________________ (1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Services. Neither the Underwriter nor the District is responsible for the selection or correctness of the CUSIP numbers set forth herein.

MATURITY SCHEDULE

Base CUSIP(1): 42215T

$25,545,000

HEALDSBURG SCHOOL FACILITIES FINANCING AUTHORITY General Obligation Revenue Bonds, Series 2014

$16,045,000 Serial Bonds

Maturity (July 15)

Principal Amount

Interest Rate

Yield

CUSIP(1)

2015 $770,000 4.000% 0.200% AA7 2016 635,000 4.000 0.370 AB5 2017 1,030,000 5.000 0.550 AC3 2018 1,155,000 5.000 0.820 AD1 2019 450,000 4.000 1.220 AE9 2020 60,000 4.000 1.590 AX7 2021 105,000 4.000 1.870 AY5 2022 600,000 5.000 2.100 AF6 2023 725,000 5.000 2.300 AG4 2024 875,000 5.000 2.450 AH2 2025 1,075,000 5.000 2.610(2) AJ8 2026 1,050,000 5.000 2.760(2) AK5 2027 400,000 5.000 2.900(2) AL3 2028 275,000 5.000 3.000(2) AM1 2029 410,000 5.000 3.070(2) AN9 2030 525,000 5.000 3.140(2) AP4 2031 650,000 3.375 3.600 AQ2 2032 775,000 3.375 3.660 AR0 2033 900,000 3.500 3.750 AS8 2034 1,040,000 3.625 3.800 AT6 2035 1,200,000 3.625 3.860 AU3 2036 1,340,000 3.750 3.910 AV1

$9,500,000 –4.000% Term Bonds, due July 15, 2039, Yield 4.000%; CUSIP(1): AW9

_________________ (2) Yield to call at par on July 15, 2024

HEALDSBURG SCHOOL FACILITIES FINANCING AUTHORITY

BOARD OF DIRECTORS

Judy Velasquez, Chair Donna del Rey, Vice-Chair

Edward Crowell, Ph.D., Member Vince Dougherty, Member

Genevieve Llerena, Member

HEALDSBURG UNIFIED SCHOOL DISTRICT

BOARD OF TRUSTEES

Judy Velasquez, President Donna del Rey, Vice President

Edward Crowell, Ph.D., Member Vince Dougherty, Member

Genevieve Llerena, Member

DISTRICT AND AUTHORITY ADMINISTRATION

Jeff Harding, Ed.D District Superintendent and Authority Executive Director and Secretary

Steve Barekman District Director, Business Services and Authority Treasurer and Controller

PROFESSIONAL SERVICES

Bond and Disclosure Counsel Stradling Yocca Carlson & Rauth,

a Professional Corporation San Francisco, California

Financial Advisor Isom Advisors, a Division of Urban Futures, Inc.

Walnut Creek, California

Verification Agent Causey Demgen & Moore P.C.

Denver, Colorado

Trustee The Bank of New York Mellon Trust Company, N.A.

Los Angeles, California

This Official Statement does not constitute an offering of any security other than the original offering of the Series 2014 Bonds of the Authority. No dealer, broker, salesperson or other person has been authorized by the Authority to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the Authority.

The issuance and sale of the Series 2014 Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Section 3(a)2 and 3(a)12, respectively, for the issuance and sale of municipal securities. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

Certain information set forth herein has been obtained from sources outside the Authority which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Authority. 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 Authority or the District since the date hereof. This Official Statement is submitted in connection with the sale of the Series 2014 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

When used in this Official Statement and in any continuing disclosure by the Authority of the District in any press release and in any oral statement made with the approval of an authorized officer of the Authority or any other entity described or referenced in this Official Statement, 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 Underwriter has provided the following sentence for inclusion in this Official Statement:

“The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or the completeness of such information” herein.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SERIES 2014 BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE SERIES 2014 BONDS TO CERTAIN SECURITIES DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

The District maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2014 Bonds.

TABLE OF CONTENTS Page

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INTRODUCTION .............................................................................................................................................. 1 General ........................................................................................................................................................... 1 Purpose of the Series 2014 Bonds and District Bonds ................................................................................... 1 Sources of Payment for the Series 2014 Bonds and District Bonds .............................................................. 2 The District .................................................................................................................................................... 3 Improvement District No. 1 ........................................................................................................................... 3 Further Information ........................................................................................................................................ 3 Forward Looking Statements ......................................................................................................................... 3 Professionals Involved in the Offering .......................................................................................................... 4

PLAN OF FINANCE .......................................................................................................................................... 4

THE SERIES 2014 BONDS ............................................................................................................................... 7 Authority for Issuance .................................................................................................................................... 7 General ........................................................................................................................................................... 7 Redemption of the Series 2014 Bonds ........................................................................................................... 8

ESTIMATED SOURCES AND USES OF FUNDS FOR THE SERIES 2014 BONDS .............................. 11

ESTIMATED SOURCES AND USES OF FUNDS FOR THE DISTRICT BONDS .................................. 11 The Refunding Bonds .................................................................................................................................. 11 The Series B Bonds ...................................................................................................................................... 11

THE SERIES 2014 BONDS DEBT SERVICE REQUIREMENTS ............................................................. 13

DEBT SERVICE COVERAGE ....................................................................................................................... 14

SECURITY FOR THE SERIES 2014 BONDS .............................................................................................. 15 General ......................................................................................................................................................... 15 Revenue Fund .............................................................................................................................................. 15 Payment of the District Bonds ..................................................................................................................... 15

THE AUTHORITY .......................................................................................................................................... 16

SECURITY FOR THE DISTRICT BONDS .................................................................................................. 17 General ......................................................................................................................................................... 17

TAX BASE FOR REPAYMENT OF DISTRICT BONDS ........................................................................... 18 Ad Valorem Property Taxation .................................................................................................................... 18 Assessed Valuations ..................................................................................................................................... 19 Assessed Valuation of the District ............................................................................................................... 20 Assessed Valuation of Improvement District No. 1 ..................................................................................... 23 Appeals and Adjustments of Assessed Valuations ...................................................................................... 26 Tax Levies, Collections and Delinquencies ................................................................................................. 27 Alternative Method of Tax Apportionment - “Teeter Plan” ........................................................................ 27 Tax Rates ..................................................................................................................................................... 28 Principal Taxpayers...................................................................................................................................... 29 Statement of Direct and Overlapping Debt .................................................................................................. 30

TAX MATTERS ............................................................................................................................................... 33

LEGAL MATTERS .......................................................................................................................................... 35 Continuing Disclosure.................................................................................................................................. 35 Absence of Material Litigation .................................................................................................................... 35 Information Reporting Requirements .......................................................................................................... 35 Legal Opinion .............................................................................................................................................. 36 Verification .................................................................................................................................................. 36

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TABLE OF CONTENTS (cont’d) Page

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MISCELLANEOUS ......................................................................................................................................... 36 Ratings ......................................................................................................................................................... 36 Financial Statements .................................................................................................................................... 36 Underwriting ................................................................................................................................................ 37 Additional Information ................................................................................................................................ 37

APPENDIX A INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET ............ A-1 APPENDIX B EXCERPTS FROM THE DISTRICT’S 2012-13 AUDITED FINANCIAL

STATEMENTS ............................................................................................................................. B-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL

DOCUMENTS .............................................................................................................................. C-1 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL ......................................................... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ....................................................... E-1 APPENDIX F DTC BOOK-ENTRY ONLY SYSTEM ....................................................................................... F-1 APPENDIX G SONOMA COUNTY INVESTMENT POOL .............................................................................. G-1 APPENDIX H ECONOMIC PROFILE OF SONOMA COUNTY AND THE CITY OF HEALDSBURG

...................................................................................................................................................... H-1 APPENDIX I LOCATION MAP OF THE DISTRICT AND IMPROVEMENT DISTRICT NO. 1 ................... I-1

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1

OFFICIAL STATEMENT

$25,545,000 HEALDSBURG SCHOOL FACILITIES FINANCING AUTHORITY

GENERAL OBLIGATION REVENUE BONDS, SERIES 2014

INTRODUCTION

General

This Official Statement, including the cover page and the Appendices, contains certain information in connection with the issuance and sale by the Healdsburg School Facilities Financing Authority (the “Authority”) of its Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014, issued in the aggregate initial principal amount of $25,545,000 (the “Series 2014 Bonds”). The Series 2014 Bonds are being issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985 (the “Bond Law”) and an Indenture, dated as of September 1, 2014 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Capitalized terms not defined elsewhere in this Official Statement have the meanings assigned to such terms in APPENDIX C—“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE—Definitions.”

This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and Appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of the Series 2014 Bonds to potential investors is made only by means of the entire Official Statement.

Purpose of the Series 2014 Bonds and District Bonds

The Series 2014 Bonds. The Series 2014 Bonds are being issued to (i) provide funds to purchase $6,915,000 aggregate initial principal amount of Healdsburg Unified School District (Sonoma County, California) 2014 General Obligation Refunding Bonds, Series A (the “Series A Refunding Bonds”) of the Healdsburg Unified School District (the “District”), (ii) provide funds to purchase $6,630,000 aggregate principal amount of Healdsburg Unified School District (Sonoma County, California) 2014 General Obligation Refunding Bonds, Series B (the “Series B Refunding Bonds”, and together with the Series A Refunding Bonds, the “Refunding Bonds”), (iii) provide funds to purchase $12,000,000 aggregate initial principal amount of Healdsburg Unified School District (Sonoma County, California) Election of 2012 General Obligation Bonds, Series B (the “Series B Bonds” and, together with the Refunding Bonds, the “District Bonds”) of the District, and (iv) pay the costs incurred in connection with the issuance of the Series 2014 Bonds and the District Bonds.

The Series A Refunding Bonds. The Series A Refunding Bonds are being issued by the District pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Government Code”) and pursuant to a Resolution dated as of September 17, 2014 (the “Series A Refunding Resolution”). The Series A Refunding Bonds are being issued to provide the funds necessary to refund a portion of the District’s outstanding (i) Healdsburg Unified School District 2007 General Obligation Refunding Bonds (the “2007 Refunding Bonds”) and (ii) Healdsburg Unified School District General Obligation Bonds, Election of 2002, Series 2003 (the “Election of 2002, Series 2003 Bonds”), as described herein.

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The Series B Refunding Bonds. The Series B Refunding Bonds are being issued by the District pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the “Government Code”) and pursuant to a Resolution dated as of September 17, 2014 (the “Series B Refunding Resolution”, and together with the Series A Refunding Resolution, the “Refunding Resolutions”). The Series B Refunding Bonds are being issued to provide the funds necessary to refund a portion of the District’s outstanding (i) Bonds of the School Facilities Improvement District No. 1 (Elementary Service Area) of the Healdsburg Unified School District (the “Improvement District No. 1”), Election of 2002, Series 2005 (the “Series 2005 SFID Bonds”), as described herein.

The 2007 Refunding Bonds, Election of 2002, Series 2003 Bonds and Series 2005 SFID Bonds to be refunded with proceeds of the Refunding Bonds are referred to herein as the “Refunded 2007 Refunding Bonds”, “Refunded Series 2003 Bonds”, the “Refunded Series 2005 SFID Bonds” and collectively as the “Refunded Bonds” as more particularly described under the section “PLAN OF FINANCE” herein.

The Series B Bonds. The Series B Bonds are issued pursuant to the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53506 et seq., as amended, Article XIIIA of the California Constitution and pursuant to a resolution adopted by the District Board on September 17, 2014 (the “Series B Resolution” and together with the Refunding Resolutions, the “Resolutions”). The Series B Bonds are being issued to finance the repair, upgrading, acquisition, construction and equipping of certain District property and facilities. See “PLAN OF FINANCE” herein.

Sources of Payment for the Series 2014 Bonds and District Bonds

Series 2014 Bonds. The Series 2014 Bonds are payable from and secured solely by the Revenues of the Authority. “Revenues” is defined under the Indenture to mean all amounts derived from or with respect to the District Bonds (which includes the Refunding Bonds and the Series B Bonds) including all payments of principal thereof, premium, if any, and interest thereon (including Principal Prepayments). The Series 2014 Bonds are special obligations of the Authority, payable solely from Revenues and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the District, or the State of California, or any political subdivision thereof, is pledged to the payment of the Series 2014 Bonds. The Authority has no taxing power. See “SECURITY FOR THE SERIES 2014 BONDS” herein.

Series A Refunding Bonds and Series B Bonds. The Series A Refunding Bonds and Series B Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem property taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series A Refunding Bonds and Series B Bonds, respectively, when due.

Series B Refunding Bonds. The Series B Refunding Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem property taxes upon all property subject to taxation by the District within the boundaries of Improvement District No. 1, without limitation as to rate or amount (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due. See “SECURITY FOR THE DISTRICT BONDS” herein.

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The District

The District is situated within Sonoma County and is located approximately 65 miles north of San Francisco and 115 miles west north-west of Sacramento. The District is a Basic Aid district. The District operates one high school, one middle school and two elementary schools, serving a population of approximately 1,637. The District’s average daily attendance (“ADA”) for fiscal year 2014-15 is budgeted to be approximately 1,599 students. The District has a 2014-15 total assessed valuation of $4,361,833,445.

The District is governed by a five-member Board of Trustees (the “District Board”), each member of which is elected to a four-year term. Elections for positions to the District Board are held every two years, alternating between two and three available positions. The management and policies of the District are administered by a Superintendent appointed by the Board who is responsible for day-to-day District operations as well as the supervision of the District’s other personnel. Dr. Jeff Harding is currently the District Superintendent.

For more complete information concerning the District, including certain financial information, see APPENDIX A—“INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET.” The District’s audited financial statement for the fiscal year ended June 30, 2013 are included as Appendix B, and should be read in its entirety.

Improvement District No. 1

Improvement District No. 1 encompasses the former boundaries of the Healdsburg Elementary School District, which unified with the former Healdsburg Union High School District in 1994. Improvement District No. 1 accounts for approximately 75% of the fiscal year 2014-15 assessed value of property within the District. Taxable property within Improvement District No. 1 has a fiscal year 2014-15 assessed valuation of $3,271,527,714. See “APPENDIX I – “LOCATION MAP OF THE DISTRICT AND IMPROVEMENT DISTRICT NO. 1” herein.

Further Information

Brief descriptions of the Series 2014 Bonds, the District Bonds, the Indenture, the Resolutions, the Continuing Disclosure Certificate, the security for the Series 2014 Bonds, the security for the District Bonds, the Authority, the District and certain other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive and are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Series 2014 Bonds, the District Bonds, the Indenture, the Resolutions, the Continuing Disclosure Certificate and other documents. Copies of such documents may be obtained from the Authority, 1028 Prince Street, Healdsburg, California 95448, telephone: (707) 431-3488, Attention: Executive Director of the Healdsburg School Facilities Financing Authority.

Forward Looking Statements

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend,” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information regarding the District and the Authority herein.

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THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

Professionals Involved in the Offering

Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is acting as Bond Counsel and Disclosure Counsel to the Authority with respect to the Series 2014 Bonds. Isom Advisors, a Division of Urban Futures, Inc., Walnut Creek, California, is acting as financial advisor to the Authority with respect to the Series 2014 Bonds. The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, is acting as the Paying Agent with respect to the District Bonds (the “Paying Agent”) and Trustee for the Series 2014 Bonds.

PLAN OF FINANCE

The Series 2014 Bonds. The Series 2014 Bonds are being issued by the Authority to provide funds to (i) purchase the Refunding Bonds, (ii) purchase the Series B Bonds, and (iii) pay the costs incurred in connection with the issuance of the Series 2014 Bonds and the District Bonds.

Series B Bonds. The District received authorization at an election held on June 5, 2012 by the requisite fifty-five percent of the votes cast by eligible voters within the District to issue $35,000,000 aggregate principal amount of general obligation bonds (the “2012 Authorization”). On November 8, 2012, the District issued its first series of bonds under the 2012 Authorization in the aggregate principal amount of $11,998,868.70 (the “Election of 2012 Series A Bonds”). The Series B Bonds are the second series of bonds issued under the 2012 Authorization. Following the issuance of the Series B Bonds, 11,001,131.30 of the 2012 Authorization will remain.

The net proceeds of the sale of the Series B Bonds shall be deposited in the fund held by the County and designated as the “Healdsburg Unified District, Election of 2012 General Obligation Bonds, Series B Building Fund” (the “Building Fund”) and shall be applied only for the purposes approved by the voters of the District pursuant to the 2012 Authorization. Any interest earnings on moneys held in the Building Fund shall be retained therein.

The ad valorem property taxes levied by the County for the payment of the Series B Bonds, when collected, will be deposited into the fund designated as the “Healdsburg Unified School District, Election of 2012 General Obligation Bonds, Series B Debt Service Fund” (the “Series B Debt Service Fund”), which fund is held by the County for payment of principal of and interest on the Series B Bonds. Any accrued interest or premium received by the County on behalf of the District upon the sale of the Series B Bonds shall be deposited in the Series B Debt Service Fund. Any interest earnings on moneys held in the Series B Debt Service Fund shall be retained therein. If, after all of the Series B Bonds have been redeemed or paid and otherwise cancelled, there are moneys remaining in the Series B Debt Service Fund or otherwise held in trust for the payment of the redemption price of the Series B Bonds, any such excess amounts shall be transferred to the general fund of the District as provided and permitted by law.

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REFUNDED BONDS Healdsburg Unified School District

2007 General Obligation Refunding Bonds

Maturities to be Refunded (July 15)

CUSIP

Original Principal Amount

Principal Amount to be

Refunded

Redemption Date

Redemption Price

(% of Par Amount)

2015 422154CG7 $790,000 $790,000 10/31/2014 101% 2016 422154CH5 820,000 820,000 10/31/2014 101 2017 422154CJ1 1,120,000 1,120,000 10/31/2014 101 2018 422154CK8 1,195,000 1,195,000 10/31/2014 101 2019 422154CL6 450,000 450,000 10/31/2014 101

REFUNDED BONDS Healdsburg Unified School District

General Obligation Bonds Election of 2002, Series 2003


CUSIP


Principal Amount to be

Refunded

Redemption Date

Redemption Price

(% of Par Amount)

2016 422154BL7 $185,000 $185,000 7/15/2015 101% 2017 422154BM5 195,000 195,000 7/15/2015 101 2018 422154BN3 200,000 200,000 7/15/2015 101 2019 422154BP8 210,000 210,000 7/15/2015 101 2020 422154BQ6 220,000 220,000 7/15/2015 101 2021 422154BR4 230,000 230,000 7/15/2015 101 2022 422154BS2 240,000 240,000 7/15/2015 101 2023 422154BT0 250,000 250,000 7/15/2015 101 2024 422154BU7 260,000 260,000 7/15/2015 101 2025 422154BV5 270,000 270,000 7/15/2015 101 2026 422154BW3 285,000 285,000 7/15/2015 101 2027 422154BX1 295,000 295,000 7/15/2015 101

The net proceeds from the sale of the Series A Refunding Bonds shall be paid to The Bank of New York Mellon Trust Company, N.A., acting as the Escrow Agent, to the credit of the “Healdsburg Unified School District 2014 General Obligation Refunding Bonds Series A Escrow Fund” (the “Series A Escrow Fund”). Pursuant to an escrow agreement (the “Escrow Agreement”) by and between the District and the Escrow Agent, the amounts deposited in the Series A Escrow Fund will be used to purchase certain non-callable, direct and general obligations of the United States, the principal of and interest on which will be sufficient, together with any monies deposited in the Series A Escrow Fund and held as cash, to enable the Escrow Agent to pay the principal and redemption premium (if any) on the Refunded 2007 Refunding Bonds and Refunded Series 2003 Bonds on the respective first optional redemption dates therefor, as well as interest on the Refunded 2007 Refunding Bonds and the Refunded Series 2003 Bonds due on and before such respective dates. Amounts deposited under the Escrow Agreement are not available to pay debt service on the Series A Refunding Bonds.

The sufficiency of the amounts on deposit in the Series A Escrow Fund, together with earnings thereon, if any, to pay principal of and interest on the Refunded 2007 Refunding Bonds and the Refunded Series 2003 Bonds, as described above, will be verified by Causey Demgen & Moore P.C. (the “Verification Agent”). As a result of the deposit and application of funds so provided in the Escrow Agreement, and assuming the accuracy of the Underwriter’s and Verification Agent’s computations, the Refunded 2007 Refunding Bonds and Refunded Series 2003 Bonds will be defeased and the obligation of

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the County to levy ad valorem taxes for payment of the Refunded 2007 Refunding Bonds and Series 2003 Bonds will terminate.

The accrued interest received by the District from the sale of the Series A Refunding Bonds, if any, and surplus moneys remaining in the Series A Escrow Fund following the redemption of the Refunded 2007 Refunding Bonds and the Refunded Series 2003 Bonds, shall be kept separate and apart in the fund designated as the “Healdsburg Unified School District 2014 General Obligation Refunding Bonds, Series A Debt Service Fund” (the “Series A Refunding Debt Service Fund”) and used only for payment of principal of and interest on the Series A Refunding Bonds. Any excess proceeds of the Series A Refunding Bonds not needed for the authorized purposes for which the Series A Refunding Bonds are being issued shall be transferred to the Series A Refunding Debt Service Fund and applied to the payment of principal of and interest on the Series A Refunding Bonds. If, after payment in full of the Series A Refunding Bonds, there remain excess proceeds, any such excess amounts shall be transferred to the general fund of the District.

Series B Refunding Bonds. The proceeds of the Series B Refunding Bonds will be used to advance refund a portion of the Refunded Bonds consisting of those maturities of the District’s Series 2005 SFID Bonds listed in the following tables:

REFUNDED BONDS Bonds of the School Facilities Improvement District No. 1 (Elementary Service Area)

of the Healdsburg Unified School District Election of 2002, Series 2005


CUSIP


Accreted Value to be Refunded

Redemption Date

Redemption Price

(% of Accreted Value)

2015(1) 42215PBK2 $286,396 $510,000.00 n/a n/a 2016 42215PBL0 349,650 541,727.65 7/15/2015 100% 2017 42215PBM8 384,549 604,975.80 7/15/2015 100 2018 42215PBN6 388,145 616,889.10 7/15/2015 100 2019 42215PBP1 379,038 608,579.10 7/15/2015 100 2020 42215PBQ9 383,653 622,285.20 7/15/2015 100 2021 42215PBR7 381,070 624,417.30 7/15/2015 100 2022 42215PBS5 384,223 632,783.85 7/15/2015 100 2023 42215PBT3 385,522 638,166.00 7/15/2015 100 2024 42215PBU0 373,835 625,131.00 7/15/2015 100 2025 42215PBV8 373,977 628,555.50 7/15/2015 100 2026 42215PBW6 295,957 499,954.20 7/15/2015 100

_______________ (1) The July 15, 2015 maturity is being defeased to maturity.

The net proceeds from the sale of the Series B Refunding Bonds shall be paid to The Bank of New York Mellon Trust Company, N.A., acting as the Escrow Agent, to the credit of the “Healdsburg Unified School District 2014 General Obligation Refunding Bonds Series B Escrow Fund” (the “Series B Escrow Fund”). Pursuant to the Escrow Agreement, the amounts deposited in the Escrow Fund will be used to purchase certain non-callable, direct and general obligations of the United States, the principal of and interest on which will be sufficient, together with any monies deposited in the Series B Escrow Fund and held as cash, to enable the Escrow Agent to pay the principal and redemption premium (if any) on the Refunded Series 2005 SFID Bonds on the respective first optional redemption date therefor, as well as interest on the Refunded Series 2005 SFID Bonds due on and before such date. Amounts deposited under the Escrow Agreement are not available to pay debt service on the Series B Refunding Bonds.

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The sufficiency of the amounts on deposit in the Escrow Fund, together with earnings thereon, if any, to pay principal of and interest on the Refunded Series 2005 SFID Bonds, as described above, will be verified by Causey Demgen & Moore P.C. (the “Verification Agent”). As a result of the deposit and application of funds so provided in the Escrow Agreement, and assuming the accuracy of the Underwriter’s and Verification Agent’s computations, the Refunded Series 2005 SFID Bonds will be defeased and the obligation of the County to levy ad valorem taxes for payment of the Refunded Series 2005 SFID Bonds will terminate.

The accrued interest received by the District from the sale of the Series B Refunding Bonds, if any, and surplus moneys remaining in the Escrow Fund following the redemption of the Refunded Series 2005 SFID Bonds, shall be kept separate and apart in the fund designated as the “Healdsburg Unified School District 2014 General Obligation Refunding Bonds, Series B Debt Service Fund” (the “Series B Refunding Debt Service Fund” and together with the Series A Refunding Bonds Debt Service Fund, and Series B Debt Service Fund, the “District Debt Service Funds”) and used only for payment of principal of and interest on the Series B Refunding Bonds. Any excess proceeds of the Series B Refunding Bonds not needed for the authorized purposes for which the Series B Refunding Bonds are being issued shall be transferred to the Series B Refunding Debt Service Fund and applied to the payment of principal of and interest on the Series B Refunding Bonds. If, after payment in full of the Series B Refunding Bonds, there remain excess proceeds, any such excess amounts shall be transferred to the general fund of the District.

County Invested Funds. Moneys in the Building Fund and District Debt Service Funds are expected to be invested through the County’s commingled investment pool. See “APPENDIX G - SONOMA COUNTY INVESTMENT POOL.”

THE SERIES 2014 BONDS

Authority for Issuance

The Series 2014 Bonds are authorized to be issued by the Authority under and subject to the terms of the Marks-Roos Local Bond Pooling Act of 1985, constituting Sections 6584 et seq. of the Government Code (the “Bond Law”) and the Indenture.

General

The Series 2014 Bonds are being issued as current interest bonds. The Series 2014 Bonds will be issued in fully registered form only, without coupons, in denominations of $5,000 Principal Amount and integral multiples thereof. The Series 2014 Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depository of the Series 2014 Bonds. Purchases of Series 2014 Bonds under the DTC book-entry system must be made by or through a DTC participant, and ownership interests in Series 2014 Bonds will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Series 2014 Bonds, beneficial owners (“Beneficial Owners”) will not receive physical certificates representing their ownership interests. See APPENDIX F—“DTC BOOK-ENTRY ONLY SYSTEM.”

The Series 2014 Bonds will be dated as of their date of delivery, and bear interest at the rates set forth on the inside front cover page of this Official Statement, payable on January 15 and July 15 of each year (each, an “Interest Payment Date”), commencing on January 15, 2015, calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Series 2014 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2014 Bond is authenticated on or before an Interest Payment Date and after the close of business on the 15th

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calendar day of the month preceding such Interest Payment Date (a “Record Date”), in which event it shall bear interest from such Interest Payment Date, or (ii) a Series 2014 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from its date of original delivery. Interest on the Series 2014 Bonds shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2014 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date.

The principal of the Series 2014 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. So long as all outstanding Series 2014 Bonds are held in book-entry form and registered in the name of a securities depository or its nominee, all payments of principal of, premium, if any, and interest on the Series 2014 Bonds and all notices with respect to such Series 2014 Bonds shall be made and given to such securities depository or its nominee and not to Beneficial Owners. So long as the Series 2014 Bonds are held by Cede & Co., as nominee of DTC, payment shall be made by wire transfer. See APPENDIX F—“DTC BOOK-ENTRY ONLY SYSTEM.”

Redemption of the Series 2014 Bonds

Optional Redemption The Series 2014 Bonds shall be subject to optional redemption on or after July 15, 2024, in whole on any date or in part on any Interest Payment Date, from any source of available funds (other than Principal Prepayments), at a Redemption Price equal to the Principal Amount of the Series 2014 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption.

Mandatory Redemption from Principal Prepayments The Series 2014 Bonds shall be subject to mandatory redemption on or after July 15, 2024, in whole on any date or in part on any Interest Payment Date, from and to the extent of any Principal Prepayments with respect to the District Bonds, at a Redemption Price equal to the Principal Amount of the Series 2014 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption.

The Authority shall give the Trustee written notice of the mandatory redemption of Series 2014 Bonds from Principal Prepayments not less than 45 days prior to the applicable redemption date, unless a later date is agreed to by the Trustee. Such written notice shall be accompanied by the Written Certificate of the District required to be delivered to, and the report of an Independent Consultant required to be filed with, the Paying Agent pursuant to the Resolution, and no such redemption of Series 2014 Bonds shall occur unless such written notice is so accompanied by such Written Certificate of the District and such report of an Independent Consultant. In the event that the Paying Agent shall mail notice of the redemption of any District Bonds that will produce Principal Prepayments with respect to District Bonds, the Trustee shall concurrently mail notice of the mandatory redemption of Series 2014 Bonds from Principal Prepayments, such redemption to occur on the date fixed for such redemption of such District Bonds. On the date of such redemption of the District Bonds, the proceeds of such redemption shall be applied by the Trustee to pay the Redemption Price of Series 2014 Bonds pursuant to the Indenture.

Mandatory Sinking Fund Redemption. The Series 2014 Bonds maturing July 15, 2039 shall be subject to mandatory sinking fund redemption, in part, on July 15 in each year, commencing July 15, 2037, at a redemption price equal to the principal amount of the Series 2014 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows:

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Sinking Fund Redemption Date (July 15)

Principal Amount to be Redeemed

2037 $1,495,000 2038 3,840,000 2039* 4,165,000

Total: 9,500,000 * (Maturity)

If some but not all of the Series 2014 Bonds maturing on July 15, 2039 are redeemed pursuant to the optional redemption provisions of the Indenture, the principal amount of Series 2014 Bonds maturing on July 15, 2039 to be redeemed on any subsequent July 15 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the Authority in a written certificate of the Authority filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series 2014 Bonds maturing on July 15, 2039 redeemed. If some but not all of the Series 2014 Bonds maturing on July 15, 2039 are redeemed pursuant to the mandatory redemption from Principal Prepayments provisions of the Indenture, the principal amount of Series 2014 Bonds maturing on July 15, 2039 to be redeemed on any subsequent July 15 shall be reduced by the aggregate principal amount of the Series 2014 Bonds maturing on July 15, 2039 so redeemed from Principal Prepayments, such reduction to be allocated among redemption dates such that the remaining payments of principal of and interest on the District Bonds will be sufficient on a timely basis to redeem on each such redemption date the Series 2014 Bonds maturing on July 15, 2039 to be so redeemed and to pay interest thereon through the maturity date thereof, as shall be demonstrated in a written report of an Independent Consultant, which, together with a written request of the Authority specifying such reduction in the Principal Amount of Series 2014 Bonds to be redeemed on each subsequent July 15 based on such written report, shall be delivered to the Trustee at the time the written report of an Independent Consultant and the written request of the Authority are delivered to the Trustee.

Selection of Series 2014 Bonds for Redemption. If less than all of the Series 2014 Bonds outstanding are to be redeemed, the Trustee will select the Series 2014 Bonds to be redeemed from all Series 2014 Bonds not previously called for redemption (a) with respect to any optional redemption, among maturities of Series 2014 Bonds as directed in a written request of the Authority and (b) with respect to any mandatory redemption from Principal Prepayments, as provided in the mandatory redemption from Principal Prepayments provisions of the Indenture, described above, and by lot among Series 2014 Bonds with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Series 2014 Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Series 2014 Bonds which may be separately redeemed.

Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 45 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Series 2014 Bond numbers and the maturity or maturities of the Series 2014 Bonds to be redeemed (except in the event of redemption of all of Series 2014 Bonds of such maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of Series 2014 Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any

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notice of (a) any optional redemption of Bonds of a Series, unless at the time such notice is given Series 2014 Bonds to be redeemed shall be deemed to have been paid, or (b) any mandatory redemption of Bonds of a Series resulting from the optional redemption of District Bonds, unless at the time such notice is given such District Bonds shall be deemed to have been paid, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, Series 2014 Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption.

Partial Redemption of Series 2014 Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in Authorized Denominations in an aggregate principal amount equal to the unredeemed portion of Series 2014 Bonds surrendered.

Effect of Notice of Redemption. Notice having been mailed as described above, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, Series 2014 Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date.

If, on said date fixed for redemption, moneys for the Redemption Price of all Series 2014 Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as described above and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of Series 2014 Bonds so to be redeemed without liability to such Owners for interest thereon.

All Bonds paid at maturity or redeemed prior to maturity shall be canceled upon surrender thereof and destroyed.

[REMAINDER OF PAGE LEFT BLANK]

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ESTIMATED SOURCES AND USES OF FUNDS FOR THE SERIES 2014 BONDS

The sources and uses of funds with respect to the Series 2014 Bonds are set forth in the following table:

Sources of Funds

Principal Amount of Series 2014 Bonds $25,545,000.00 Plus Net Original Issue Premium 1,425,065.85 Total Sources $26,970,065.85 Uses of Funds

Deposit to Program Fund(1) $26,784,864.60 Underwriter’s Discount $185,201.25 Total Uses $26,970,065.85

(1) Amounts on deposit in the Program Fund will be used to purchase the District Bonds.

ESTIMATED SOURCES AND USES OF FUNDS FOR THE DISTRICT BONDS

The Refunding Bonds

The sources and uses of funds with respect to the Refunding Bonds are set forth in the following table:

Sources of Funds Series A Refunding Bonds Series B Refunding Bonds

Initial Principal Amount of Refunding Bonds $6,915,000.00 $6,630,000.00 Original Issue Premium 631,134.77 608,729.83 Total Sources $7,546,134.77 $7,238,729.83 Uses of Funds

Escrow Fund $7,451,305.43 $7,150,805.30 Cost of Issuance(1) 94,829.34 87,924.53 Total Uses $7,546,134.77 $7,238,729.83

(1) All costs of issuance, including but not limited to, rating agency fees, legal fees, financial advisory fees, printing fees, fees of the Verification Agent, and the costs and fees of the Paying Agent and Escrow Agent.

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The Series B Bonds

The sources and uses of funds with respect to the Series B Bonds are set forth in the following table:

Sources of Funds

Initial Principal Amount of Series B Bonds $12,000,000.00 Plus Net Original Issue Premium -- Total Sources $12,000,000.00 Uses of Funds

Building Fund $11,859,363.85 Cost of Issuance(1) 140,636.15 Total Uses $12,000,000.00

(1) A portion of the proceeds of the Series B Bonds will be used to pay costs of issuance thereof, including but not limited to, legal and financial advisory fees, printing costs, rating agency fees, and the costs and fees of the Paying Agent.


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THE SERIES 2014 BONDS DEBT SERVICE REQUIREMENTS

The debt service requirements with respect to the Series 2014 Bonds are set forth on the following schedule:

Date Principal Amount Interest

Total Debt Service

January 15, 2015 - $266,466.93 $266,466.93 July 15, 2015 $770,000.00 538,921.88 1,308,921.88

January 15, 2016 - 523,521.88 523,521.88 July 15, 2016 635,000.00 523,521.88 1,158,521.88

January 15, 2017 - 510,821.88 510,821.88 July 15, 2017 1,030,000.00 510,821.88 1,540,821.88

January 15, 2018 - 485,071.88 485,071.88 July 15, 2018 1,155,000.00 485,071.88 1,640,071.88

January 15, 2019 - 456,196.88 456,196.88 July 15, 2019 450,000.00 456,196.88 906,196.88

January 15, 2020 - 447,196.88 447,196.88 July 15, 2020 60,000.00 447,196.88 507,196.88

January 15, 2021 - 445,996.88 445,996.88 July 15, 2021 105,000.00 445,996.88 550,996.88

January 15, 2022 - 443,896.88 443,896.88 July 15, 2022 600,000.00 443,896.88 1,043,896.88

January 15, 2023 - 428,896.88 428,896.88 July 15, 2023 725,000.00 428,896.88 1,153,896.88

January 15, 2024 - 410,771.88 410,771.88 July 15, 2024 875,000.00 410,771.88 1,285,771.88

January 15, 2025 - 388,896.88 388,896.88 July 15, 2025 1,075,000.00 388,896.88 1,463,896.88

January 15, 2026 - 362,021.88 362,021.88 July 15, 2026 1,050,000.00 362,021.88 1,412,021.88

January 15, 2027 - 335,771.88 335,771.88 July 15, 2027 400,000.00 335,771.88 735,771.88

January 15, 2028 - 325,771.88 325,771.88 July 15, 2028 275,000.00 325,771.88 600,771.88

January 15, 2029 - 318,896.88 318,896.88 July 15, 2029 410,000.00 318,896.88 728,896.88

January 15, 2030 - 308,646.88 308,646.88 July 15, 2030 525,000.00 308,646.88 833,646.88

January 15, 2031 - 295,521.88 295,521.88 July 15, 2031 650,000.00 295,521.88 945,521.88

January 15, 2032 - 284,553.13 284,553.13 July 15, 2032 775,000.00 284,553.13 1,059,553.13

January 15, 2033 - 271,475.00 271,475.00 July 15, 2033 900,000.00 271,475.00 1,171,475.00

January 15, 2034 - 255,725.00 255,725.00 July 15, 2034 1,040,000.00 255,725.00 1,295,725.00

January 15, 2035 - 236,875.00 236,875.00 July 15, 2035 1,200,000.00 236,875.00 1,436,875.00

January 15, 2036 - 215,125.00 215,125.00 July 15, 2036 1,340,000.00 215,125.00 1,555,125.00

January 15, 2037 190,000.00 190,000.00 July 15, 2037 1,495,000.00 190,000.00 1,685,000.00

January 15, 2038 - 160,100.00 160,100.00 July 15, 2038 3,840,000.00 160,100.00 4,000,100.00

January 15, 2039 -- 83,300.00 83,300.00 July 15, 2039 4,165,000.00 83,300.00 4,248,300.00

TOTAL: $25,545,000.00 $17,175,495.23 $42,720,495.23

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DEBT SERVICE COVERAGE

Date

Series A Refunding Bonds

Debt Service

Series B Refunding Bonds

Debt Service Series B Bonds Debt Service

Total District Bonds

Debt Service

Series 2014 Bonds

Debt Service

Coverage

January 15, 2015 $140,518.51 $125,948.42 -- $266,466.93 $266,466.93 1.000 July 15, 2015 931,076.63 377,845.25 -- 1,308,921.88 1,308,921.88 1.000

January 15, 2016 406,221.88 117,300.00 -- 523,521.88 523,521.88 1.000 July 15, 2016 806,621.88 351,900.00 -- 1,158,521.88 1,158,521.88 1.000

January 15, 2017 369,471.88 141,350.00 -- 510,821.88 510,821.88 1.000 July 15, 2017 1,116,771.88 424,050.00 -- 1,540,821.88 1,540,821.88 1.000

January 15, 2018 332,784.38 152,287.50 -- 485,071.88 485,071.88 1.000 July 15, 2018 1,183,209.38 456,862.50 -- 1,640,071.88 1,640,071.88 1.000

January 15, 2019 297,471.88 158,725.00 -- 456,196.88 456,196.88 1.000 July 15, 2019 430,021.88 476,175.00 -- 906,196.88 906,196.88 1.000

January 15, 2020 206,256.88 240,940.00 -- 447,196.88 447,196.88 1.000 July 15, 2020 59,736.88 447,460.00 -- 507,196.88 507,196.88 1.000

January 15, 2021 189,359.38 256,637.50 -- 445,996.88 445,996.88 1.000 July 15, 2021 74,384.38 476,612.50 -- 550,996.88 550,996.88 1.000

January 15, 2022 40,207.50 276,955.00 $126,734.38 443,896.88 443,896.88 1.000 July 15, 2022 227,842.50 514,345.00 301,709.38 1,043,896.88 1,043,896.88 1.000

January 15, 2023 40,012.50 294,735.00 94,149.38 428,896.88 428,896.88 1.000 July 15, 2023 226,737.50 547,365.00 379,794.38 1,153,896.88 1,153,896.88 1.000

January 15, 2024 39,795.00 308,280.00 62,696.88 410,771.88 410,771.88 1.000 July 15, 2024 225,505.00 572,520.00 487,746.88 1,285,771.88 1,285,771.88 1.000

January 15, 2025 39,975.00 329,000.00 19,921.88 388,896.88 388,896.88 1.000 July 15, 2025 226,525.00 611,000.00 626,371.88 1,463,896.88 1,463,896.88 1.000

January 15, 2026 40,500.00 271,950.00 49,571.88 362,021.88 362,021.88 1.000 July 15, 2026 229,500.00 505,050.00 677,471.88 1,412,021.88 1,412,021.88 1.000

January 15, 2027 40,162.50 -- 295,609.38 335,771.88 335,771.88 1.000 July 15, 2027 227,587.50 -- 508,184.38 735,771.88 735,771.88 1.000

January 15, 2028 -- -- 325,771.88 325,771.88 325,771.88 1.000 July 15, 2028 -- -- 600,771.88 600,771.88 600,771.88 1.000

January 15, 2029 -- -- 318,896.88 318,896.88 318,896.88 1.000 July 15, 2029 -- -- 728,896.88 728,896.88 728,896.88 1.000

January 15, 2030 -- -- 308,646.88 308,646.88 308,646.88 1.000 July 15, 2030 -- -- 833,646.88 833,646.88 833,646.88 1.000

January 15, 2031 -- -- 295,521.88 295,521.88 295,521.88 1.000 July 15, 2031 -- -- 945,521.88 945,521.88 945,521.88 1.000

January 15, 2032 -- -- 284,553.13 284,553.13 284,553.13 1.000 July 15, 2032 -- -- 1,059,553.13 1,059,553.13 1,059,553.13 1.000

January 15, 2033 -- -- 271,475.00 271,475.00 271,475.00 1.000 July 15, 2033 -- -- 1,171,475.00 1,171,475.00 1,171,475.00 1.000

January 15, 2034 -- -- 255,725.00 255,725.00 255,725.00 1.000 July 15, 2034 -- -- 1,295,725.00 1,295,725.00 1,295,725.00 1.000

January 15, 2035 -- -- 236,875.00 236,875.00 236,875.00 1.000 July 15, 2035 -- -- 1,436,875.00 1,436,875.00 1,436,875.00 1.000

January 15, 2036 -- -- 215,125.00 215,125.00 215,125.00 1.000 July 15, 2036 -- -- 1,555,125.00 1,555,125.00 1,555,125.00 1.000

January 15, 2037 -- -- 190,000.00 190,000.00 190,000.00 1.000 July 15, 2037 -- -- 1,685,000.00 1,685,000.00 1,685,000.00 1.000

January 15, 2038 -- -- 160,100.00 160,100.00 160,100.00 1.000 July 15, 2038 -- -- 4,000,100.00 4,000,100.00 4,000,100.00 1.000

January 15, 2039 -- -- 83,300.00 83,300.00 83,300.00 1.000 July 15, 2039 -- -- 4,248,300.00 4,248,300.00 4,248,300.00 1.000

TOTAL: $8,148,257.70 $8,435,293.67 $26,136,943.86 $42,720,495.23 $42,720,495.23 1.000

The table above assumes no optional redemption. The District Bonds maturing after July 15, 2024 are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, in whole or in part on any date, on or after July 15, 2024. Notwithstanding the foregoing, the District may only redeem all or a portion of the District Bonds if either (a) all of the Authority Bonds will be redeemed in full as a result thereof and will no longer be outstanding under and within the meaning of the Indenture, or (b) a verification agent provides a report demonstrating that the District Bonds which will remain outstanding following a partial redemption will provide sufficient revenues for the payment of debt service on the Authority Bonds which will remain

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outstanding. See “Redemption of the Series 2014 Bonds - Mandatory Redemption from Principal Prepayments” herein.

SECURITY FOR THE SERIES 2014 BONDS

General

The Series 2014 Bonds are payable from and secured solely by the Revenues of the Authority. “Revenues” is defined under the Indenture to mean all amounts derived from or with respect to the District Bonds, including all payments of principal thereof, premium, if any, and interest thereon (including Principal Prepayments). The District Bonds are general obligations of the District, payable solely from the proceeds of ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem taxes for the payment of the principal of and interest on the Series B Bonds and Series A Refunding Bonds upon all property subject to taxation by the District without limitation as to rate or amount (except certain personal property which is taxable at limited rates). The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem taxes for the payment of the principal of and interest on the Series B Refunding Bonds upon all property subject to taxation by the District within the boundaries of Improvement District No. 1 without limitation as to rate or amount (except certain personal property which is taxable at limited rates). See “SECURITY FOR THE DISTRICT BONDS” herein.

The Series 2014 Bonds are special obligations of the Authority, payable solely from Revenues and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the District, or the State of California, or any political subdivision thereof, is pledged to the payment of the Series 2014 Bonds. The Authority has no taxing power. In no event shall Series 2014 Bonds or any interest thereon be payable out of any funds or properties other than those of the Authority as set forth in the Indenture.

Revenue Fund

All Revenues received by the Authority are deposited into the Revenue Fund (except that any portion of Revenues that represents Principal Prepayments are deposited in the Redemption Fund). On each Interest Payment Date, the Trustee shall withdraw from the Revenue Fund and transfer to the Debt Service Fund the amount, if any, necessary to cause the amount on deposit in the Debt Service Fund to be equal to the principal of and interest on Series 2014 Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Series 2014 Bonds. See APPENDIX C—“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE,” for a more detailed description of certain provisions of the Indenture.

Payment of the District Bonds

The Refunding Bonds have been issued under and are governed by the terms of the Refunding Resolutions and the Series B Bonds have been issued under and are governed by the terms of the Series B Resolution. See APPENDIX C—“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS—THE SERIES A REFUNDING RESOLUTION,” and “- THE SERIES B REFUNDING RESOLUTION for a more detailed description of certain provisions of the Refunding Resolutions, and see APPENDIX C—“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS—THE SERIES B RESOLUTION,” for a more detailed description of certain provisions of the Series B Resolution.

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The Revenues are composed of payments of principal, premium, if any, and interest to be received by the Authority, as the owner of the District Bonds.


Series B Refunding Bonds. The Series B Refunding Bonds and Series B Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem property taxes upon all property subject to taxation by the District within the boundaries of Improvement District No. 1, without limitation as to rate or amount (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due. See “SECURITY FOR THE DISTRICT BONDS” herein.

THE AUTHORITY

The Authority is a joint powers authority established by the District and ABAG Finance Authority for Nonprofit Corporations (“ABAG-FANC”) and constitutes a public instrumentality of the State. The Authority was formed for the public purpose of assisting in financing public capital improvements for the District. The debts of the Authority are not an obligation of either the District or ABAG-FANC. The Authority was formed pursuant to a Joint Powers Agreement, dated as of August 1, 2014, by and between the District and ABAG-FANC. The Authority is governed by a five-member Board of Directors which consists of the members of the Board of Trustees of the District. The officers of the Authority are as follows: the President of the Board of Trustees of the District serves as the Chair of the Authority, the Vice President of the Board of Trustees of the District serves as the Vice-Chair of the Authority, the Superintendent of the District serves as the Executive Director of the Authority, the Secretary to the Board of Trustees of the District serves as the Secretary of the Authority, and the Director, Business Services of the District serves as the Treasurer and Controller of the Authority.

The Joint Exercise of Powers Act, Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code (the “Joint Powers Act”), provides for the issuance of revenue bonds of joint powers authorities, such as the Authority, to be repaid solely from the revenues of certain public obligations. The Authority has no taxing power. Pursuant to the Joint Powers Act, the Authority is authorized to issue its revenue bonds for the purpose of financing, among other things, public capital improvement projects or to refund outstanding obligations of local entities.

THE SERIES 2014 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE DISTRICT, OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2014 BONDS. THE AUTHORITY HAS NO TAXING POWER.

The Authority may issue obligations other than the Series 2014 Bonds, which other obligations will be secured by instruments and revenues separate and apart from the Indenture and the Series 2014 Bonds. The holders of such obligations of the Authority would have no claim on the security of the Series 2014 Bonds and the owners of the Series 2014 Bonds would have no claim on the security of such other obligations issued by the Authority.

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SECURITY FOR THE DISTRICT BONDS

General


Series B Refunding Bonds. The Series B Refunding Bonds are general obligations of the District payable solely from ad valorem property taxes. The Board of Supervisors of the County is empowered and obligated to annually levy ad valorem property taxes upon all property subject to taxation by the District within the boundaries of Improvement District No. 1, without limitation as to rate or amount (except certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Series B Refunding Bonds when due.

General. Such taxes will be levied annually in addition to all other taxes during the period that the District Bonds are outstanding in an amount sufficient to pay the principal of and interest on the District Bonds when due. Such taxes, when collected, will be placed by the County in the District’s respective District Debt Service Funds (defined herein), which are segregated and maintained by the County and which are available for the payment of principal of and interest on the respective series of District Bonds when due, and for no other purpose. Although the County is obligated to levy ad valorem taxes for the payment of the District Bonds, and will maintain the respective District Debt Service Funds, the District Bonds are not a debt of the County.

The moneys in the District Debt Service Funds, to the extent necessary to pay the principal of and interest on the District Bonds, as the same becomes due and payable, will be transferred by the County to the Paying Agent which, in turn, shall pay such moneys to the registered owner of the District Bonds. Pursuant to the Indenture, the Authority as owner of the District Bonds, has assigned to the Trustee, for the benefit of the Owners of the Series 2014 Bonds, all of the Revenues and all of the right, title and interest of the Authority in the District Bonds. See “SECURITY FOR SERIES 2014 BONDS” above.

The rate of the annual ad valorem taxes levied by the County to repay the Series B Bonds and Series A Refunding Bonds will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Series B Bonds and Series A Refunding Bonds, respectively, in any year. The rate of the annual ad valorem taxes levied by the County to repay the Series B Refunding Bonds will be determined by the relationship between the assessed valuation of taxable property in the District within the boundaries of Improvement District No. 1 and the amount of debt service due on the Series B Refunding Bonds in any year. Fluctuations in the annual debt service on the District Bonds and the assessed value of taxable property in the District or Improvement District No. 1, may cause the annual tax rates to fluctuate. Economic and other factors beyond the District’s control, such as general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by 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, fire, drought or toxic contamination, could cause a reduction in the assessed value of taxable property within the District or Improvement District No. 1 and necessitate a corresponding increase in the respective annual tax rates. For further information regarding the District’s assessed

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valuation, tax rates, overlapping debt, and other matters concerning taxation. See – “TAX BASE FOR REPAYMENT OF DISTRICT BONDS” herein.

TAX BASE FOR REPAYMENT OF DISTRICT BONDS

Ad Valorem Property Taxation

District property taxes are assessed and collected by the County at the same time and on the same tax rolls as County, city and special district taxes. Assessed valuations are the same for both District and County taxing purposes.

Taxes are levied for each fiscal year on taxable real and personal property which is located in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Unsecured property comprises all property not attached to land such as personal property or business property. Boats and airplanes are examples of unsecured property. Unsecured property is assessed on the “unsecured roll.” A supplemental roll is developed when property changes hands or new construction is completed. The County levies and collects all property taxes for property falling within the County’s taxing boundaries.

The valuation of secured property is established as of January 1 and is subsequently equalized in August. Property taxes on the secured roll are due in two installments, due November 1 and February 1 respectively and become delinquent after December 10 and April 10 respectively. A 10% penalty attaches to any delinquent installment, plus a minimum $10 cost on the second installment, plus any additional amount determined by the Treasurer and Tax Collector of the County. Property on the secured roll with delinquent taxes is declared tax-defaulted on or about June 30 of the calendar 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 subject to sale by the tax-collecting authority of the County.

Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent if they are not paid by August 31. In the case of unsecured property taxes, 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 assessee. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the assessee; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the assessee; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on specified property of the assessee; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. See also “ – Tax Levies, Collections and Delinquencies” herein.

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.

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Assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and K-14 schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year.

Assessed Valuations

The assessed valuation of property in the District and Improvement District No. 1 is established by 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 “APPENDIX A – INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” herein.

Economic and other factors beyond the District’s control, such as general market decline in property 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, fire, drought or toxic contamination, could cause a reduction in the assessed value of taxable property within the District and Improvement District No. 1. Any such reduction would result in a corresponding increase in the annual tax rates levied by the County to pay the debt service with respect to each series of District Bonds. See “SECURITY FOR THE DISTRICT BONDS” herein.

Drought. On January 17, 2014, the Governor proclaimed a State-wide Drought State of Emergency. As of such date, the State faced water shortfalls due to the driest year in recorded State history; California’s river and reservoirs were below their record low levels, and manual and electronic readings recorded the water content of snowpack at the highest elevations in the State (chiefly in the Sierra Nevada mountain range) at about 20 percent of normal average for the winter season. As part of his State of Emergency declaration, the Governor directed State officials to assist agricultural producers and communities that may be economically impacted by dry conditions. In addition, the Water Board notified water rights holders that they should pursue alternative water supplies for water needs, including recycled water.

The Sonoma County Water Agency’s service area (which manages the water supply storage within Lake Mendocino and Lake Sonoma and includes the territory of the District) is currently facing drought conditions after experiencing two dry years and the driest year on record in 2013. Lake Mendocino is a key drinking water resource for the city of Healdsburg and supports flows in the Russian River. As a result of the lack of rainfall received by the Russian River watershed, on May 1, 2013, the State Water Resources Control Board (the “Water Board”) adopted an order reducing in-stream flows in the Russian River; and, subsequent thereto, further reduced in-stream flows pursuant to an order adopted on December 31, 2013. As a result of these reductions, on January 21, 2014, the Healdsburg City Council (the “City Council”) adopted an ordinance to implement mandatory water conservation measures. On February 14, 2014, the City Council declared a drought emergency and approved the construction of a 6,000 foot recycled water pipeline to supply tertiary treated disinfected recycled water for construction and agricultural use. Upon completion of the pipeline, the City Council terminated the state of emergency on July 21, 2014. The pipeline is now connected to approximately 490 acres of irrigated vineyards, and as a result, will increase the annual consumption of recycled water to 60 million gallons.

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Neither the Authority nor the District can make any representation regarding the affects that the current drought has, or, if it should continue, will have on the value of taxable property within the boundaries of the District or Improvement District No. 1. or to what extent the drought could cause disruptions to agricultural production, commercial and retail operations, and other economic activity within the boundaries of the District or Improvement District No. 1. See “SECURITY FOR THE DISTRICT BONDS” and “-Principal Taxpayers” herein.

Assessed Valuation of the District

Property within the District had a total assessed valuation for fiscal year 2014-15 of $4,361,833,445. The following table represents a seven-year history of assessed valuations in the District:

ASSESSED VALUATIONS Healdsburg Unified School District

Fiscal Years 2008-09 through 2014-15

Local Secured Utility Unsecured Total 2008-09 $3,441,544,850 $28,350 $169,035,668 $3,610,608,868 2009-10 3,566,727,816 28,350 172,485,858 3,739,242,024 2010-11 3,591,271,511 37,800 174,879,500 3,766,188,811 2011-12 3,609,153,538 37,800 182,190,988 3,791,382,326 2012-13 3,727,075,551 0 186,485,109 3,913,560,660 2013-14 3,993,089,196 0 189,292,994 4,182,382,190 2014-15 4,170,384,928 0 191,448,517 4,361,833,445

________________________ Source: California Municipal Statistics, Inc.


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Assessed Valuation by Land Use. The following table is an analysis of the District’s fiscal year 2014-15 secured assessed valuation by land use:

ASSESSED VALUATION AND PARCELS BY LAND USE Healdsburg Unified School District

Fiscal Year 2014-15

2014-15 % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Vineyards $1,235,288,595 29.62% 1,779 21.74% Commercial/Office 202,385,272 4.85 263 3.21 Vacant Commercial 11,580,588 0.28 30 0.37 Industrial/Winery 497,995,799 11.94 201 2.46 Vacant Industrial 9,801,247 0.24 29 0.35 Recreational 7,802,845 0.19 14 0.17 Government/Social/Institutional 16,456,635 0.39 123 1.50 Miscellaneous 3,345,526 0.08 90 1.10 Subtotal Non-Residential $1,984,656,507 47.59% 2,529 30.91% Residential: Single Family Residence $1,864,463,272 44.71% 4,579 55.96% Condominium/Townhouse 31,577,082 0.76 148 1.81 Mobile Home 4,227,375 0.10 52 0.64 Mobile Home Park 3,231,552 0.08 3 0.04 Hotel/Motel 75,190,385 1.80 25 0.31 2-4 Residential Units 141,685,476 3.40 334 4.08 5+ Residential Units/Apartments 29,964,890 0.72 42 0.51 Miscellaneous Residential 10,935,553 0.26 29 0.35 Vacant Residential 24,452,836 0.59 442 5.40 Subtotal Residential $2,185,728,421 52.41% 5,654 69.09% Total $4,170,384,928 100.00% 8,183 100.00% ___________________ (1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.


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Assessed Valuation of Single Family Homes. The following table is an analysis of the District’s fiscal year 2014-15 assessed valuation per parcel of single family homes:

ASSESSED VALUATION OF SINGLE FAMILY HOMES Healdsburg Unified School District

Fiscal Year 2014-15

No. of 2014-15 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 4,579 $1,864,463,272 $407,177 $319,985 2014-15 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $49,999 252 5.503% 5.503% $8,421,086 0.452% 0.452% 50,000 - 99,999 378 8.255 13.758 27,069,839 1.452 1.904 100,000 - 149,999 357 7.796 21.555 45,177,711 2.423 4.327 150,000 - 199,999 393 8.583 30.138 68,557,886 3.677 8.004 200,000 - 249,999 426 9.303 39.441 95,801,251 5.138 13.142 250,000 - 299,999 366 7.993 47.434 100,569,962 5.394 18.536 300,000 - 349,999 332 7.250 54.684 108,131,425 5.800 24.336 350,000 - 399,999 358 7.818 62.503 133,273,620 7.148 31.484 400,000 - 449,999 308 6.726 69.229 130,441,775 6.996 38.480 450,000 - 499,999 230 5.023 74.252 108,661,824 5.828 44.308 500,000 - 549,999 209 4.564 78.816 108,996,921 5.846 50.154 550,000 - 599,999 142 3.101 81.917 81,543,361 4.374 54.528 600,000 - 649,999 135 2.948 84.866 84,036,439 4.507 59.035 650,000 - 699,999 97 2.118 86.984 65,236,858 3.499 62.534 700,000 - 749,999 65 1.420 88.404 47,094,230 2.526 65.060 750,000 - 799,999 67 1.463 89.867 52,042,334 2.791 67.851 800,000 - 849,999 62 1.354 91.221 51,046,243 2.738 70.589 850,000 - 899,999 50 1.092 92.313 43,658,519 2.342 72.930 900,000 - 949,999 42 0.917 93.230 38,711,739 2.076 75.007 950,000 - 999,999 44 0.961 94.191 42,777,704 2.294 77.301 1,000,000 and greater 266 5.809 100.000 423,212,545 22.699 100.000 Total 4,579 100.000% $1,864,463,272 100.000%

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


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Assessed Valuation by Jurisdiction. The following table is an analysis of District’s fiscal year 2014-15 assessed valuation by jurisdiction:

ASSESSED VALUATION BY JURISDICTION(1) Healdsburg Unified School District

Fiscal Year 2014-15

Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Healdsburg $1,977,008,664 45.33% $1,977,008,664 100.00% Unincorporated Sonoma County 2,384,824,781 54.67 29,756,893,612 8.01 Total District $4,361,833,445 100.00% Sonoma County $4,361,833,445 100.00% $72,242,742,877 6.04% ___________________ (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc.

Assessed Valuation of Improvement District No. 1

Property within Improvement District No. 1 had a total assessed valuation for fiscal year 2014-15 of $3,271,527,714. The following table represents a seven-year history of assessed valuations in the District:.

ASSESSED VALUATIONS School Facilities Improvement District No. 1

(Elementary Service Area) of the Healdsburg Unified School District


Local Secured Utility Unsecured Total 2008-09 $2,621,835,305 $28,350 $146,488,784 $2,768,352,439 2009-10 2,704,828,372 28,350 149,814,080 2,854,670,802 2010-11 2,694,333,661 37,800 137,465,896 2,831,837,357 2011-12 2,697,515,809 37,800 149,120,865 2,846,674,474 2012-13 2,766,428,558 0 150,202,613 2,916,631,171 2013-14 2,925,439,089 0 149,815,557 3,075,254,646 2014-15 3,118,811,929 0 152,715,785 3,271,527,714

________________________ Source: California Municipal Statistics, Inc.

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Assessed Valuation by Land Use. The following table is an analysis of Improvement District No. 1’s fiscal year 2014-15 secured assessed valuation by land use:

ASSESSED VALUATION AND PARCELS BY LAND USE School Facilities Improvement District No. 1


Fiscal Year 2014-15

2014-15 % of No. of % of Non-Residential: Assessed Valuation (1) Total Parcels Total Agricultural/Vineyards $666,101,308 21.36% 875 13.59% Commercial/Office 191,012,569 6.12 259 4.02 Vacant Commercial 10,015,696 0.32 26 0.40 Industrial/Winery 345,102,999 11.07 146 2.27 Vacant Industrial 9,801,247 0.31 29 0.45 Recreational 5,970,544 0.19 7 0.11 Government/Social/Institutional 12,458,974 0.40 57 0.89 Miscellaneous 1,700,253 0.05 68 1.06 Subtotal Non-Residential $1,242,163,590 39.83% 1,467 22.78% Residential: Single Family Residence $1,556,869,879 49.92% 3,927 60.99% Condominium/Townhouse 31,577,082 1.01 148 2.30 Mobile Home 4,227,375 0.14 52 0.81 Mobile Home Park 3,231,552 0.10 3 0.05 Hotel/Motel 75,190,385 2.41 25 0.39 2-4 Residential Units 141,685,476 4.54 334 5.19 5+ Residential Units/Apartments 29,964,890 0.96 42 0.65 Miscellaneous Residential 10,935,553 0.35 29 0.45 Vacant Residential 22,966,147 0.74 412 6.40 Subtotal Residential $1,876,648,339 60.17% 4,972 77.22% Total $3,118,811,929 100.00% 6,439 100.00% ___________________ (1) Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.

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Assessed Valuation of Single Family Homes. The following table is an analysis of Improvement District No. 1’s fiscal year 2014-15 assessed valuation per parcel of single family homes:

ASSESSED VALUATION OF SINGLE FAMILY HOMES School Facilities Improvement District No. 1


Fiscal Year 2014-15

No. of 2014-15 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 3,927 $1,556,869,879 $396,453 $321,000 2014-15 No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $49,999 239 6.086% 6.086% $7,939,781 0.510% 0.510% 50,000 - 99,999 354 9.015 15.101 25,342,743 1.628 2.138 100,000 - 149,999 305 7.767 22.867 38,457,777 2.470 4.608 150,000 - 199,999 303 7.716 30.583 53,108,768 3.411 8.019 200,000 - 249,999 349 8.887 39.470 78,368,185 5.034 13.053 250,000 - 299,999 297 7.563 47.033 81,880,294 5.259 18.312 300,000 - 349,999 286 7.283 54.316 93,029,762 5.975 24.288 350,000 - 399,999 298 7.588 61.905 111,270,588 7.147 31.435 400,000 - 449,999 262 6.672 68.577 111,016,324 7.131 38.565 450,000 - 499,999 219 5.577 74.153 103,421,769 6.643 45.208 500,000 - 549,999 185 4.711 78.864 96,597,160 6.205 51.413 550,000 - 599,999 132 3.361 82.226 75,862,836 4.873 56.286 600,000 - 649,999 114 2.903 85.129 70,876,895 4.553 60.838 650,000 - 699,999 93 2.368 87.497 62,545,103 4.017 64.856 700,000 - 749,999 58 1.477 88.974 42,000,972 2.698 67.553 750,000 - 799,999 60 1.528 90.502 46,591,475 2.993 70.546 800,000 - 849,999 60 1.528 92.030 49,406,207 3.173 73.719 850,000 - 899,999 40 1.019 93.048 34,948,301 2.245 75.964 900,000 - 949,999 35 0.891 93.939 32,277,769 2.073 78.038 950,000 - 999,999 40 1.019 94.958 38,868,941 2.497 80.534 $1,000,000 and greater 198 5.042 100.000 303,058,229 19.466 100.000 Total 3,927 100.000% $1,556,869,879 100.000%

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

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Assessed Valuation by Jurisdiction. The following table is an analysis of Improvement District No. 1’s fiscal year 2014-15 assessed valuation by jurisdiction:

ASSESSED VALUATION BY JURISDICTION(1) School Facilities Improvement District No. 1


Fiscal Year 2014-15

Assessed Valuation % of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City of Healdsburg $1,977,008,664 60.43% $1,977,008,664 100.00% Unincorporated Sonoma County 1,294,519,050 39.57 $29,756,893,612 4.35% Total District $3,271,527,714 100.00% Sonoma County $3,271,527,714 100.00% $72,242,742,877 4.53% ___________________ (1) Before deduction of redevelopment incremental valuation. Source: California Municipal Statistics, Inc.

Appeals and Adjustments 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. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. 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 “APPENDIX A – INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - 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 or Improvement District No. 1.

See “APPENDIX A— INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS” for a discussion of other limitations on the valuation of real property with respect to ad valorem property taxes.

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Tax Levies, Collections and Delinquencies

The following table sets forth secured tax charges and delinquency information for the County for the years 2004-05 through 2012-13:

SECURED TAX CHARGES AND DELINQUENCIES Sonoma County


Secured Tax Charge(1)

Amt. Due June 30

% Del. June 30

2004-05 $601,962,333 $ 9,443,845 1.57% 2005-06 657,672,054 15,703,214 2.39 2006-07 Data not available for this year 2007-08 778,175,721 32,534,375 4.18 2008-09 789,294,606 31,213,654 3.95 2009-10 658,144,060 19,865,054 3.02 2010-11 765,208,982 18,558,181 2.43 2011-12 767,629,938 18,791,999 2.45 2012-13 774,514,239 13,102,361 1.69

___________________ (1) All taxes collected by the county. Source: California Municipal Statistics, Inc. and California State Controller’s Office.

Alternative Method of Tax Apportionment - “Teeter Plan”

The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. The Teeter Plan guarantees distribution of 100% of the general taxes levied to the taxing entities within the County, with the County administering any penalties and interest ultimately collected as prescribed in the California Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an cash basis to local political subdivisions, including the District, for which the County acts as the tax-levying or tax-collecting agency. At the conclusion of each fiscal year, the County distributes 100% of any taxes delinquent as of June 30th to the respective taxing entities.

The Teeter Plan is applicable to all secured tax levies for which the County acts as the tax-levying or tax-collecting agency, or for which the County treasury is the legal depository of the tax collections. As adopted by the County, the Teeter Plan includes Mello-Roos Community Facilities Districts and special assessment districts which provide for accelerated judicial foreclosure of property for which assessments are delinquent.

The ad valorem property tax to be levied to pay the principal of and interest on the District Bonds will be subject to the Teeter Plan, beginning in the first year of such levy. The District will receive 100% of the ad valorem property tax levied to pay the District Bonds irrespective of actual delinquencies in the collection of the tax by the County.

The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the

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subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the District) for which the County acts as the tax-levying or tax-collecting agency, but penalties and interest would be credited to the political subdivisions.

Tax Rates

The District. The following table summarizes the total ad valorem tax rates, as a percentage of assessed valuation, levied by all taxing entities in a typical tax rate area (TRA) within the District from fiscal year 2009-10 through 2013-14.

SUMMARY OF AD VALOREM TAX RATES (TRA 2-016)(1) Healdsburg Unified School District

Fiscal Years 2009-10 through 2013-14 2009-10 2010-11 2011-12 2012-13 2013-14

General Levy 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% Warm Springs Dam .0070 .0070 .0070 .0070 .0070 City of Healdsburg .0250 .0250 .0300 .0300 .0300 Healdsburg Unified School District .0470 .0470 .0465 .0465 .0460 Healdsburg Unified School District SFID .0395 .0395 .0380 .0365 .0340 Sonoma County Joint Community College District .0250 .0210 .0210 .0210 .0188

Total 1.1435% 1.1395% 1.1425% 1.1410% 1.1358%

(1) The 2013-14 assessed valuation of TRA 2-016 is $620,045,941. Source: California Municipal Statistics, Inc.

Improvement District No. 1. The following table summarizes the total ad valorem tax rates levied, as a percentage of assessed valuation, by all taxing entities in a typical tax rate area (TRA) within the Improvement District No. 1 from fiscal year 2009-10 through 2013-14.

SUMMARY OF AD VALOREM TAX RATES (TRA 2-016)(1) School Facilities Improvement District No. 1


Fiscal Years 2009-10 through 2013-14 2009-10 2010-11 2011-12 2012-13 2013-14

General Levy 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% Warm Springs Dam .0070 .0070 .0070 .0070 .0070 City of Healdsburg .0250 .0250 .0300 .0300 .0300 Healdsburg Unified School District .0470 .0470 .0465 .0465 .0460 Healdsburg Unified School District SFID .0395 .0395 .0380 .0365 .0340 Sonoma County Joint Community College District .0250 .0210 .0210 .0210 .0188

Total 1.1435% 1.1395% 1.1425% 1.1410% 1.1358%

(1) The 2013-14 assessed valuation of TRA 2-016 is $620,045,941. Source: California Municipal Statistics, Inc.

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Principal Taxpayers

The District. The following table lists the major taxpayers in the District based on their 2014-15 secured assessed valuations:

LARGEST LOCAL SECURED TAXPAYERS Healdsburg Unified School District

Fiscal Year 2014-15 2014-15 % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Jackson Family Estates I LLC Winery/Vineyards $77,892,657 1.87% 2. Gallo Vineyards Inc. / Gallo Glass Co. Winery/Vineyards 40,023,406 0.96 3. Simi Winery Inc. Winery/Vineyards 29,965,398 0.72 4. Syar Industries Inc. Winery/Vineyards 27,826,121 0.67 5. Kenneth C. and Diane M. Wilson Winery/Vineyards 27,758,515 0.67 6. Ferrari-Carano Vineyards & Winery LLC Winery/Vineyards 27,519,055 0.66 7. JVW Corp. Winery/Vineyards 27,100,408 0.65 8. Pine Ridge Winery LLC Winery/Vineyards 25,198,014 0.60 9. Ridge Vineyards Inc. Winery/Vineyards 20,117,573 0.48 10. MA Properties LLC Winery/Vineyards 20,031,085 0.48 11. HH Healdsburg Investment Group LLC Hotel 18,864,693 0.45 12. Sonoma Luxury Resort LLC Winery/Vineyards 18,635,591 0.45 13. Edward R. and Sara Tietz Kozel, Trust Residential 18,308,855 0.44 14. Silverado Sonoma Vineyards LLC Winery/Vineyards 15,331,453 0.37 15. H2Hotel LLC Hotel 14,180,851 0.34 16. Robert Young Family LP Winery/Vineyards 13,077,072 0.31 17. Heritage Farms Vineyards Inc. Winery/Vineyards 12,787,952 0.31 18. WCV LLC Winery/Vineyards 12,552,617 0.30 19. Carole A. Mascherini, Trust Commercial Store 11,849,823 0.28 20. Four Square Vineyards LLC Winery/Vineyards 11,396,069 0.27 $470,417,208 11.28% _________________________________________________

(1) 2014-15 local secured assessed valuation: $4,170,384,928. Source: California Municipal Statistics, Inc.


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Improvement District No. 1. The following table lists the major taxpayers in the District based on their 2014-15 secured assessed valuations:

LARGEST LOCAL SECURED TAXPAYERS School Facilities Improvement District No. 1


Fiscal Year 2014-15 2014-15 % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Gallo Vineyards Inc. Winery/Vineyards $35,293,905 1.13% 2. Simi Winery Inc. Winery/Vineyards 28,133,990 0.90 3. JVW Corp. Winery/Vineyards 27,100,408 0.87 4. Pine Ridge Winery LLC Winery/Vineyards 22,658,699 0.73 5. Ridge Vineyards Inc. Winery/Vineyards 20,117,573 0.65 6. Kenneth C. and Diane M. Wilson Winery/Vineyards 19,691,034 0.63 7. HH Healdsburg Investment Group LLC Hotel 18,864,693 0.60 8. Sonoma Luxury Resort LLC Winery/Vineyards 18,635,591 0.60 9. H2Hotel LLC Hotel 14,180,851 0.45 10. Silverado Sonoma Vineyards LLC Winery/Vineyards 13,285,160 0.43 11. Heritage Farms Vineyards Inc. Winery/Vineyards 12,787,952 0.41 12. Carole A. Mascherini, Trust Commercial 11,849,823 0.38 13. Healdsburg Senior Living LLC Assisted Living Facility 11,226,485 0.36 14. Stephan P. and Barbara Vermut, Trust Winery/Vineyards 10,145,853 0.33 15. R/M Healdsburg Ltd. Supermarket 10,047,937 0.32 16. Dry Creek Inn LP Hotel 9,972,825 0.32 17. Kopf Vineyards LLC Winery/Vineyards 9,023,171 0.29 18. Eric and Mary Drew Commercial 8,797,527 0.28 19. Teresa J. Kight, Trust Winery/Vineyards 8,609,791 0.28 20. Herbert M. Dwight, Jr., Trust Winery/Vineyards 8,570,515 0.27 $318,993,783 10.23% _________________________________________________

(1) 2014-15 local secured assessed valuation: $3,118,811,929. Source: California Municipal Statistics, Inc.

The major taxpayers within the boundaries of the District and Improvement District No. 1 are primarily comprised of agricultural producers, particularly vineyards, and industries that are related thereto. Neither the Authority nor the District can make any representation regarding the affects that the current drought has, or, if it should continue, will have on the value of taxable property within the boundaries of the District or Improvement District No. 1. or to what extent the drought could cause disruptions to agricultural production, commercial and retail operations, and other economic activity within the boundaries of the District or Improvement District No. 1. For more information regarding the drought, see “- Assessed Valuations – Drought” above.

Statement of Direct and Overlapping Debt

Set forth below are direct and overlapping debt reports relating to the District and Improvement District No. 1 (each a “Debt Report”) prepared by California Municipal Statistics, Inc., each effective as of October 1, 2014 for debt issued as of August 18, 2014. The Debt Reports are included for general information purposes only. The District has not reviewed the Debt Reports for completeness or accuracy and makes no representation in connection therewith.

The Debt Reports generally include long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the respective Improvement District, in whole or in part. Such long-term obligations generally are not payable from revenues of the District

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(except as indicated) nor are they necessarily obligations secured by land within the District or Improvement District No. 1. 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 first column in the table names each public agency which has outstanding debt as of the date of each Debt Report and whose territory overlaps the District or Improvement District No. 1, in whole or in part. Column 2 in each Debt Report shows the percentage of each overlapping agency’s assessed value located within the boundaries of the District and Improvement District No. 1, respectively. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in column 3 of each Debt Report, which is the apportionment of each overlapping agency’s outstanding debt to taxable property located the District and Improvement District No. 1, respectively.

DIRECT AND OVERLAPPING DEBT STATEMENT Healdsburg Unified School District

2014-15 Assessed Valuation: $4,361,833,455 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 10/1/14 (2) Sonoma County Joint Community College District 6.145% $10,432,367 Healdsburg Unified School District 100.000 22,536,419 (3) Healdsburg Unified School District School Facilities Improvement District No. 1 100.000 13,176,014 (3) City of Healdsburg 100.000 830,000 North Sonoma County Hospital District 33.612 2,129,320 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $49,104,120 OVERLAPPING GENERAL FUND DEBT: Sonoma County General Fund Obligations 6.206% $ 1,749,123 Sonoma County Pension Obligations 6.206 28,495,780 Sonoma County Office of Education Certificates of Participation 6.206 93,090 Sonoma County Joint Community College District General Fund Obligations 6.145 96,784 City of Healdsburg Pension Obligation 100.000 8,003,600 TOTAL OVERLAPPING GENERAL FUND DEBT $38,438,377 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $50,365,000 COMBINED TOTAL DEBT $137,907,497 (4) Ratios to 2014-15 Assessed Valuation: Direct Debt ($22,536,419) .......................................................... 0.52% Combined Direct Debt ($35,712,433) ........................................ 0.82% Total Direct and Overlapping Tax and Assessment Debt ............. 1.13% Combined Total Debt ................................................................... 3.16% Ratio to Redevelopment Incremental Valuation ($1,024,769,410): Total Overlapping Tax Increment Debt ........................................ 4.91% (1) Based on 2013-14 ratios. (2) Excludes any bonds sold between date of report (8/18/14) and 10/1/14. (3) Excludes Series 2014 Bonds and District Bonds. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc.

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DIRECT AND OVERLAPPING DEBT STATEMENT School Facilities Improvement District No. 1


2014-15 Assessed Valuation: $3,271,527,714 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable (1) Debt 10/1/14 (2) Sonoma County Joint Community College District 4.519% $7,671,906 Healdsburg Unified School District 73.529 16,570,804 (3) Healdsburg Unified School District School Facilities Improvement District No. 1 100.000 13,176,014 (3) City of Healdsburg 100.000 830,000 North Sonoma County Hospital District 29.032 1,839,177 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $40,087,901 OVERLAPPING GENERAL FUND DEBT: Sonoma County General Fund Obligations 4.563% $ 1,286,053 Sonoma County Pension Obligations 4.563 20,951,699 Sonoma County Office of Education Certificates of Participation 4.563 68,445 Sonoma County Joint Community College District General Fund Obligations 4.519 71,174 City of Healdsburg Pension Obligation Bonds 100.000 8,003,600 TOTAL OVERLAPPING GENERAL FUND DEBT $30,380,971 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): $50,365,000 COMBINED TOTAL DEBT $120,833,872 (4) Ratios to 2014-15 Assessed Valuation: Direct Debt ($13,176,014) ........................................................... 0.40% Total Direct and Overlapping Tax and Assessment Debt ............. 1.23% Combined Total Debt ................................................................... 3.69% Ratio to Redevelopment Incremental Valuation ($1,024,769,410): Total Overlapping Tax Increment Debt ........................................ 4.91% (1) Based on 2013-14 ratios. (2) Excludes any bonds sold between date of report (8/18/14) and 10/1/14. (3) Excludes Series 2014 Bonds and District Bonds. (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc.

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TAX MATTERS

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Series 2014 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Series 2014 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Series 2014 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations.

The difference between the issue price of a Series 2014 Bond (the first price at which a substantial amount of the Series 2014 Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Series 2014 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Series 2014 Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the Series 2014 Bond Owner will increase the Series 2014 Bond Owner’s basis in the Series 2014 Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the Series 2014 Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

Bond Counsel’s opinion as to the exclusion from gross income of interest (and original issue discount) on the Series 2014 Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the Series 2014 Bonds to assure that interest (and original issue discount) on the Series 2014 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Series 2014 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2014 Bonds. The District has covenanted to comply with all such requirements.

The amount by which a Series 2014 Bond Owner’s original basis for determining loss on sale or exchange in the applicable Series 2014 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Series 2014 Bond premium, which must be amortized under Section 171 of the Code; such amortizable Series 2014 Bond premium reduces the Series 2014 Bond Owner’s basis in the applicable Series 2014 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Series 2014 Bond premium may result in a Series 2014 Bond Owner realizing a taxable gain when a Series 2014 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Series 2014 Bond to the Owner. Purchasers of the Series 2014 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Series 2014 Bond premium.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Series 2014 Bonds will be selected for audit by the IRS. It is also possible that the market value of the Series 2014 Bonds might be affected as a result of such an audit of the Series 2014 Bonds (or by an audit of similar

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bonds). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the Series 2014 Bonds to the extent that it adversely affects the exclusion from gross income of interest on the Series 2014 Bonds or their market value.

SUBSEQUENT TO THE ISSUANCE OF THE SERIES 2014 BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE INTEREST ON THE SERIES 2014 BONDS OR THE MARKET VALUE OF THE SERIES 2014 BONDS. LEGISLATIVE CHANGES HAVE BEEN PROPOSED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME TAX BEING IMPOSED ON CERTAIN OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE SERIES 2014 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE SERIES 2014 BONDS. NO ASSURANCE CAN BE GIVEN THAT, SUBSEQUENT TO THE ISSUANCE OF THE SERIES 2014 BONDS, SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE SERIES 2014 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE SERIES 2014 BONDS.

Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Series 2014 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of bond counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) on the Series 2014 Bonds for federal income tax purposes with respect to any Series 2014 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth.

Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the Series 2014 Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the Series 2014 Bonds and the accrual or receipt of interest (and original issue discount) with respect to the Series 2014 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Series 2014 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Series 2014 Bonds.

Proposed forms of opinion of Bond Counsel for the Series B Bonds is attached hereto as APPENDIX A.

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LEGAL MATTERS

bank, are prudent for the investment of funds of depositors, and under provisions of the California Government Code, are eligible for security for deposits of public moneys in the State.

Continuing Disclosure

Current Undertaking. In connection with the issuance of the Series 2014 Bonds, the District has covenanted for the benefit of Owners and Beneficial Owners of the Series 2014 Bonds to provide certain financial information and operating data relating to the District (the “Annual Reports”) by not later than nine months following the end of the District’s fiscal year (which currently ends June 30), commencing with the report for the 2013-14 Fiscal Year, and to provide notices of the occurrence of certain enumerated events. The Annual Reports and notices of enumerated events will be filed by the District in accordance with the requirements of S.E.C. Rule 15c2-12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Reports or the notices enumerated events is included in “APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE” attached hereto. These covenants have been made in order to assist the Underwriter in complying with the Rule.

Previous Undertakings. Within the past five years, the District has failed to file in a timely manner annual reports for fiscal years 2009-10 and a portion of its annual reports for 2008-09 and 2010-11, as required by its existing continuing disclosure undertakings. Within the past five years, the District has also failed to file certain notices of listed events, as required by its existing continuing disclosure undertakings. Within the past five years, the District has never filed a notice of a failure to provide annual financial information, on or before the date specified in its prior continuing disclosure agreements.

Absence of Material Litigation

No litigation is pending or threatened concerning the validity of the Series 2014 Bonds or the District Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the Series 2014 Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District’s ability to receive ad valorem taxes or to collect other revenues or contesting the District’s ability to issue and retire the District Bonds.

There are currently no lawsuits or claims pending against the District.

Information Reporting Requirements

On May 17, 2006, the President signed the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”). Under Section 6049 of the Internal Revenue Code of 1986, as amended by TIPRA, interest paid on tax-exempt obligations is subject to information reporting in a manner similar to interest paid on taxable obligations. The effective date of this provision is for interest paid after December 31, 2005, regardless of when the tax-exempt obligations were issued. The purpose of this change was to assist in relevant information gathering for the IRS relating to other applicable tax provisions. TIPRA provides that backup withholding may apply to such interest payments made after March 31, 2007 to any bondholder who fails to file an accurate Form W-9 or who meets certain other criteria. The information reporting and backup withholding requirements of TIPRA do not affect the excludability of such interest from gross income for federal income tax purposes.

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Legal Opinion

The validity of Series 2014 Bonds and certain other legal matters are subject to the approving opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, as Bond Counsel. A copy of the proposed form of such legal opinion is attached to this Official Statement as APPENDIX A.

Verification

Upon delivery of the Series 2014 Bonds, Causey Demgen & Moore P.C., Denver, Colorado, will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions assumptions provided to them by the Underwriter (defined herein) relating to (a) the adequacy of the maturing principal of and interest on the Federal Securities (as defined in the Escrow Agreement) in the Escrow Fund, together with any moneys held therein as cash, to pay the redemption price of and interest on the Refunded Bonds and (b) the computations of yield of the Series 2014 Bonds and the Federal Securities in the Escrow Fund which support Bond Counsel’s opinion that the interest on the Series 2014 Bonds is excluded from gross income for federal income tax purposes.

MISCELLANEOUS

Ratings

The Series 2014 Bonds have been assigned ratings of “Aa3” and “AA-” by Moody’s Investors Service (“Moody’s”) and Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), respectively. The ratings reflect only the view of the rating agencies, and any explanation of the significance of such ratings should be obtained from the rating agencies at the following addresses: Moody’s Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, NY 10007; Standard & Poor’s, 55 Water Street, 45th Floor, New York, New York 10041. There is no assurance that the 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 agencies if, in the judgment of the rating agencies, circumstances so warrant. The District undertakes no responsibility 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 Series 2014 Bonds.

The District has covenanted in a Continuing Disclosure Certificate to file on the Municipal Securities Rule Making Board’s Electronic Municipal Market Access portal (“EMMA”), notices of any ratings changes on the Series 2014 Bonds. See “APPENDIX E- FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Notwithstanding such covenant, information relating to ratings changes on the Series 2014 Bonds may be publicly available from the rating agencies prior to such information being provided to the District and prior to the date the District is obligated to file a notice of rating change on EMMA. Purchasers of the Series 2014 Bonds are directed to the ratings agencies and their respective websites and official media outlets for the most current ratings changes with respect to the Series 2014 Bonds after the initial issuance of the Series 2014 Bonds.

Financial Statements

Excerpts from the financial statements with supplemental information for the year ended June 30, 2013, the independent auditor’s report of the District, and the related statements of activities and of cash flows for the year then ended, and the report of Vavrinek, Trine, Day & Company, LLP (the “Auditor”) dated December 9, 2013, are included in this Official Statement as APPENDIX B. In connection with the inclusion herein, the District did not request the Auditor to, and the Auditor has not undertaken to, update its report or to take any action intended or likely to elicit information concerning the accuracy,

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Underwriting

The Series 2014 Bonds are being purchased by George K. Baum & Company (the “Underwriter”). Pursuant to a Bond Purchase Agreement by and between the Underwriter and the Authority (the “Bond Purchase Agreement”), the Underwriter has agreed to purchase all of the Series 2014 Bonds for an aggregate purchase price of $26,784,864.60, which represents the par amount of the Series 2014 Bonds of $25,545,000.00, plus net original issue premium of $1,425,065.85, less an Underwriter’s discount of $185,201.25. The Bond Purchase Agreement provides that the Underwriter will purchase all of the Series 2014 Bonds, if any are purchased, subject to certain terms and conditions set forth in such Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions.

The Underwriter may offer and sell the Series 2014 Bonds to certain dealers and others at prices lower than the public offering prices shown on the inside front cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter.

Additional Information

The purpose of this Official Statement is to supply information to prospective buyers of Series 2014 Bonds. Quotations from and summaries and explanations of the Series 2014 Bonds, the District Bonds, the Resolutions providing for issuance of the District Bonds, the Indenture, and the constitutional provisions, statutes and other documents referenced herein, do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions.

All data contained herein has been taken or constructed from District records. Appropriate Authority and 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. This Official Statement has been approved by the Authority and the District.

HEALDSBURG SCHOOL FACILITIES FINANCING AUTHORITY

By: /s/ Jeff Harding Ed.D. Executive Director


By: /s/ Steve Barekman Director, Business Services

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APPENDIX A

INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET

The information in this Appendix concerning the operations of the Healdsburg Unified School District (the “District”), the District’s finances, and State of California (the “State”) funding of education, is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal of or interest on the Series 2014 Bonds or the District Bonds is payable from the general fund of the District or from State revenues. The Series 2014 Bonds are special obligations of the Authority, payable solely from Revenues and the other assets pledged therefore under the Indenture. “Revenues” is defined under the Indenture to mean all amounts derived from or with respect to the District Bonds, including all payments of principal thereof, premium, if any, and interest thereon (including Principal Prepayments). The Bonds are payable only from the proceeds of an ad valorem property tax levied by the County for the payment thereof. See “SECURITY FOR THE SERIES 2014 BONDS” and “SECURITY FOR THE DISTRICT BONDS” herein, in the front portion of this Official Statement.

GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION

State Funding of Education

School district revenues consist primarily of guaranteed State moneys, local property taxes and funds received from the State 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.

Revenue Limit Funding. Previously, school districts operated under general purpose revenue limits established by the State Department of Education. In general, revenue limits were calculated for each school district by multiplying the ADA for such district by a base revenue limit per unit of ADA. Revenue limit calculations were subject to adjustment in accordance with a number of factors designed to provide cost of living adjustments (“COLAs”) and to equalize revenues among school districts of the same type. Funding of a school district’s revenue limit was provided by a mix of local property taxes and State apportionments of basic and equalization aid. Beginning in fiscal year 2013-14, school districts are funded based on uniform funding grants assigned to certain grade spans. See “—Local Control Funding Formula” herein.

The following table reflects the District’s historical ADA and the revenue limit rates per unit of ADA for fiscal years 2006-07 through 2012-13.

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AVERAGE DAILY ATTENDANCE AND REVENUE LIMIT Healdsburg Unified School District


Fiscal Year Average Daily Attendance(1)

Annual Change in ADA

Base Revenue Limit Per ADA

Funded Base Revenue Limit Per ADA(2)

2007-08 2,136.07 (123.27) $5,902.42 $5,902.42 2008-09 2,064.99 (71.08) 6,231.42 5,742.63 2009-10 1,953.71 (111.28) 6,493.42 5,301.55 2010-11 1,898.27 (55.44) 6,492.74 5,306.50 2011-12 1,836.92 (61.35) 6,611.42 5,269.07 2012-13 1,747.43 (89.49) 6,823.42 5,303.71

(1) Reflects ADA as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April

15 of each school year. Includes special education students. An attendance month is each four week period of instruction beginning with the first day of school for any school district.

(2) Deficit revenue limit funding, when provided for in State budgetary legislation, reduced the revenue limit allocations received by school districts by applying a deficit factor to the base revenue limit for the given fiscal year, and resulted from an insufficiency of appropriation funds in the State budget to provide for State aid owed to school districts. The State’s practice of deficit revenue limit funding was most recently reinstated beginning in fiscal year 2008-09, and discontinued following the implementation of the LCFF (as defined herein).

Source: Healdsburg Unified School District.

Local Control Funding Formula. State Assembly Bill 97 (Stats. 2013, Chapter 47) (“AB 97”), enacted as part of the 2013-14 State budget, established a new system for funding school districts, charter schools and county offices of education. Certain provisions of AB 97 were amended and clarified by Senate Bill 91 (Stats. 2013, Chapter 49).

The primary component of AB 97, as amended by SB 91, is the implementation of the Local Control Funding Formula (“LCFF”), which replaced the revenue limit funding system for determining State apportionments, as well as the majority of categorical program funding. State allocations will be provided on the basis of target base funding grants per unit of ADA (a “Base Grant”) assigned to each of four grade spans. Full implementation of the LCFF is expected to occur over a period of several fiscal years. Beginning in fiscal year 2013-14, an annual transition adjustment is required to be calculated for each school district, equal to such district’s proportionate share of appropriations included in the State budget to close the gap between the prior-year funding level and the target allocation following full implementation of the LCFF. In each year, school districts will have the same proportion of their respective funding gaps closed, with dollar amounts varying depending on the size of a district’s funding gap.

For fiscal year 2013-14, State Budgetary legislation has allocated $2.1 billion of funding to begin implementation of the LCFF. See “- State Budget Measures” herein. The Base Grants per unit of ADA for each grade span are as follows: (i) $6,845 for grades K-3; (ii) $6,947 for grades 4-6; (iii) $7,154 for grades 7-8; and (iv) $8,289 for grades 9-12. Beginning in fiscal year 2013-14, the Base Grants are to be adjusted for cost-of-living increases by applying the implicit price deflator for government goods and services. Following full implementation of the LCFF, the provision of COLAs will be subject to appropriation for such adjustment in the annual State budget. The differences among Base Grants are linked to differentials in statewide average revenue limit rates by district type, and are intended to recognize the generally higher costs of education at higher grade levels.

The Base Grants for grades K-3 and 9-12 are subject to adjustments of 10.4% and 2.6%, respectively, to cover the costs of class size reduction in early grades and the provision of career technical education in high schools. Following full implementation of the LCFF, and unless otherwise collectively bargained for, school districts serving students in grades K-3 must maintain an average class enrollment of 24 or fewer

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students in grades K-3 at each school site in order to continue receiving the adjustment to the K-3 Base Grant. Such school districts must also make progress towards this class size reduction goal in proportion to the growth in their funding over the implementation period. Additional add-ons are also provided to school districts that received categorical block grant funding pursuant to the Targeted Instructional Improvement and Home-to-School Transportation programs during fiscal year 2012-13.

School districts that serve students of limited English proficiency (“EL” students), students from low income families that are eligible for free or reduced priced meals (“LI” students) and foster youth are eligible to receive additional funding grants. Enrollment counts are unduplicated, such that students may not be counted as both EL and LI (foster youth automatically meet the eligibility requirements for free or reduced priced meals and are not discussed separately herein). A supplemental grant add-on (each, a “Supplemental Grant”) is authorized for school districts that serve EL/LI students, equal to 20% of the applicable Base Grant multiplied by such districts’ percentage of unduplicated EL/LI student enrollment. School districts whose EL/LI populations exceed 55% of their total enrollment are eligible for a concentration grant add-on (each, a “Concentration Grant”) equal to 50% of the applicable Base Grant multiplied the percentage of such district’s unduplicated EL/LI student enrollment in excess of the 55% threshold.

The following table shows a breakdown of the District’s ADA by grade span, total enrollment, and the percentage of EL/LI student enrollment, for fiscal years 2012-13 and 2013-14, and budgeted figures for fiscal year 2014-15.

ADA, ENROLLMENT AND EL/LI ENROLLMENT PERCENTAGE Fiscal Years 2012-13 through 2014-15

Healdsburg Unified School District Average Daily Attendance(1) Enrollment

Fiscal Year K-3 4-6 7-8

9-12 Total ADA

Total

Enrollment(2)

% of EL/LI

Enrollment(2) 2012-13 455 331 292 661 1,739 1,813 56% 2013-14(1) 459 286 280 598 1,623 1,694 63 2014-15(3) 470 284 258 587 1,599 1,669 63

(1) Except for fiscal year 2014-15, reflects ADA as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. Excludes special education students. An attendance month is each four week period of instruction beginning with the first day of school for any school district. (2) Except for fiscal year 2014-15, ss of October report submitted to the California Basic Educational Data System (“CBEDS”). For purposes of calculating Supplemental and Concentration Grants, a school district’s fiscal year 2013-14 percentage of unduplicated EL/LI students will be expressed solely as a percentage of its total fiscal year 2013-14 total enrollment. For fiscal year 2014-15, the percentage of unduplicated EL/LI enrollment will be based on the two-year average of EL/LI enrollment in fiscal years 2013-14 and 2014-15. Beginning in fiscal year 2015-16, a school district’s percentage of unduplicated EL/LI students will be based on a rolling average of such district’s EL/LI enrollment for the then-current fiscal year and the two immediately preceding fiscal years. (3) Budgeted. Source: Healdsburg Unified School District.

For certain school districts that would have received greater funding levels under the prior revenue limit system, the LCFF provides for a permanent economic recovery target (“ERT”) add-on, equal to the difference between the revenue limit allocations such districts would have received under the prior system in fiscal year 2020-21, and the target LCFF allocations owed to such districts in the same year. To derive the projected funding levels, the LCFF assumes the discontinuance of deficit revenue limit funding, implementation of a 1.94% COLA in fiscal years 2014-15 through 2020-21, and restoration of categorical funding to pre-recession levels. The ERT add-on will be paid incrementally over the eight-year implementation period of the LCFF. The District does not qualify for the ERT add-on.

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The sum of a school district’s adjusted Base, Supplemental and Concentration Grants will be multiplied by such district’s P-2 ADA for the current or prior year, whichever is greater (with certain adjustments applicable to small school districts). This funding amount, together with any applicable ERT or categorical block grant add-ons, will yield a district’s total LCFF allocation. Generally, the amount of annual State apportionments received by a school district will amount to the difference between such total LCFF allocation and such district’s share of applicable local property taxes. Most school districts receive a significant portion of their funding from such State apportionments. As a result, decreases in State revenues may significantly affect appropriations made by the Legislature to school districts.

Certain schools districts, known as “Basic Aid” districts, have allocable local property tax collections that equal or exceed such districts’ total LCFF allocation, and result in the receipt of no State apportionment aid. Basic aid school districts receive only special categorical funding, which is deemed to satisfy the “basic aid” requirement of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. The implication for basic aid districts is that the legislatively determined allocations to school districts, 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 currently qualifies as a basic aid district.

The District has been a Basic Aid district since fiscal year 2009-10, and, for fiscal year 2013-14 local property tax collections are expected to exceed the District’s LCFF allocation by approximately $4,735,124. The District’s Basic Aid status is a result of reductions to its prior revenue limit (now LCFF allocation), occasioned by reduced levels of State funding of education, declining enrollment, and increasing property tax collections, such that the District’s property taxes now represent the bulk of its LCFF allocation revenues. See “APPENDIX A- INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - DISTRICT FINANCIAL INFORMATION – State Funding of Education” herein. The District expects to renaub a Basic Aid district after the LCFF is fully implemented.

Accountability. The State Board of Education has promulgated regulations regarding the expenditure of supplemental and concentration grant funding, including a requirement that school districts increase or improve services for EL/LI students in proportion to the increase in funds apportioned to such districts on the basis of the number and concentration of such EL/LI students, and as well as the conditions under which school districts can use supplemental or concentration funding on a school-wide or district-wide basis.

School districts are also required to adopt local control and accountability plans (“LCAPs”) disclosing annual goals for all students, as well as certain numerically significant student subgroups, to be achieved in eight areas of State priority identified by the LCFF. LCAPs may also specify additional local priorities. LCAPs must specify the actions to be taken to achieve each goal, including actions to correct identified deficiencies with regard to areas of State priority. LCAPs are required to be adopted every three years, beginning in fiscal year 2014-15, and updated annually thereafter. The State Board of Education has developed and adopted a template LCAP for use by school districts.

Support and Intervention. AB 97, as amended by SB 91, establishes a new system of support and intervention to assist school districts meet the performance expectations outlined in their respective LCAPs. School districts must adopt their LCAPs (or annual updates thereto) in tandem with their annual operating budgets, and not later than five days thereafter submit such LCAPs or updates to their respective county superintendents of schools. On or before August 15 of each year, a county superintendent may seek clarification regarding the contents of a district’s LCAP (or annual update thereto), and the district is required to respond to such a request within 15 days. Within 15 days of receiving such a response, the county superintendent can submit non-binding recommendations for amending the LCAP or annual update, and such recommendations must be considered by the respective school district at a public hearing within 15 days. A district’s LCAP or annual update must be approved by the county superintendent by October 8 of each year if

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the superintendent determines that (i) the LCAP or annual update adheres to the State template, and (ii) the district’s budgeted expenditures are sufficient to implement the actions and strategies outlined in the LCAP.

A school district is required to receive additional support if its respective LCAP or annual update thereto is not approved, if the district requests technical assistance from its respective county superintendent, or if the district does not improve student achievement across more than one State priority for one or more student subgroups. Such support can include a review of a district’s strengths and weaknesses in the eight State priority areas, or the assignment of an academic expert to assist the district identify and implement programs designed to improve outcomes. Assistance may be provided by the California Collaborative for Educational Excellence, a state agency created by the LCFF and charged with assisting school districts achieve the goals set forth in their LCAPs. On or before October 1, 2015, the State Board of Education is required to develop rubrics to assess school district performance and the need for support and intervention.

The State Superintendent of Public Instruction (the “State Superintendent”) is further authorized, with the approval of the State Board of Education, to intervene in the management of persistently underperforming school districts. The State Superintendent may intervene directly or assign an academic trustee to act on his or her behalf. In so doing, the State Superintendent is authorized (i) to modify a district’s LCAP, (ii) impose budget revisions designed to improve student outcomes, and (iii) stay or rescind actions of the local governing board that would prevent such district from improving student outcomes; provided, however, that the State Superintendent is not authorized to rescind an action required by a local collective bargaining agreement.

Other State Sources. In addition to State allocations determined pursuant to the LCFF, the District receives other State revenues consisting primarily of restricted revenues designed to implement State mandated programs. Beginning in fiscal year 2013-14, categorical spending restrictions associated with a majority of State mandated programs were eliminated, and funding for these programs was folded into the LCFF. Categorical funding for certain programs was excluded from the LCFF, – including, among others, child nutrition, after school education and safety, special education, and State preschool - school districts will continue to receive restricted State revenues to fund these programs - and school districts will continue to receive restricted State revenues to fund these programs.

Other Revenue Sources

Federal and Local Sources. The federal government provides funding for several of the District’s programs, including special education programs, programs under the No Child Left Behind Act, and specialized programs such as Drug Free Schools, Innovative Strategies, and Vocational & Applied Technology. In addition, the District receives additional local revenues beyond local property tax collections, such as leases and rentals, interest earnings, interagency services, developer fees (as discussed below) and other local sources.

Foundation. The Healdsburg Education Foundation (the “Foundation”) is a is an independent 501(c)(3) nonprofit corporation founded that supports the Healdsburg Unified School District. It was established in 1985 by a group of citizens. The foundation provides a formalized avenue for raising funds to directly support public education in Healdsburg Unified School District. Contributions for are deposited into the general fund and earmarked for special programs like K-5 enrichment, pilot programs and technology. The District deposits the contributions made by the Foundation in to the restricted general fund. The following table shows a five year history of contributions made by the Foundation to the District:

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FOUNDATION CONTRIBUTIONS Fiscal Years 2009-10 through 2013-14

Healdsburg Unified School District

Fiscal Year

Contribution

2009-10 $166,670 2010-11 213,512 2011-12 260,415 2012-13 208,694 2013-14(1) 296,364

_____________________ (1) Unaudited


Developer Fees. The following table shows a five-year history of develop fees collected on residential and commercial development within the District and a budgeted amount for fiscal year 2014-15.

DEVELOPER FEES COLLECTIONS Healdsburg Unified School District


Fiscal Year

Developer Fees Collected

2009-10 $187,101 2010-11 123,324 2011-12 161,258 2012-13 163,148 2013-14 337,248 2014-15(1) 50,336

_____________________ (1) Year to date Source: Healdsburg Unified School District.

Redevelopment Revenue. The District previously received tax offset revenue from the County as a part of certain redevelopment projects within the Counties (the “Tax Offset Revenues”). The Tax Offset Revenues received are deposited directly into the general fund of the District and offset the State apportionment received by the District. The District also receives pass-through tax increment revenue (the “Pass-Through Revenues”) from the redevelopment agencies within the District’s boundaries. The Pass-Through Revenues received by the District are deposited into the District’s Redevelopment Fund, and used for facilities improvements. The Pass-Through Revenues do not offset the State apportionment received by the District. The amount of Tax Offset Revenues and Pass-Through Revenues received by the District from fiscal years 2012-13 through 2014-15 are shown in the following table.

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TAX OFFSET AND PASS-THROUGH REVENUES Fiscal Years 2012-13 through 2014-15


Fiscal Year

Tax Offset Revenues(1)

Pass-Through Revenues(2)

2012-13 197,491 258,608 2013-14(3) 248,350 325,207 2014-15(4) 245,820 200,000

____________________ (1) Tax Offset Revenues received offset State apportionments received by the District. (2) Pass-Through Revenues received do not offset State apportionments received by the District. (3) Unaudited. (4) Reflects budgeted revenues received. Source: Healdsburg Unified College District.

Budget Process

The District is required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. The budget process for school districts was substantially amended by A.B. 1200, which became law on October 14, 1991. Portions of A.B. 1200 are summarized below.

School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September 15 that is subject to State-mandated standards and criteria. The revised budget must reflect changes in projected income and expenses subsequent to July 1. The single budget is only readopted if it is disapproved by the county office of education, or as needed. The District is on a single budget cycle and adopts its budget on or before July 1.

For both dual and single budgets submitted on July 1, the county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Trustees and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its current obligations and will determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the county superintendent will approve, conditionally approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by August 15 of the county superintendent’s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent’s recommendations. The committee must report its findings no later than August 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. No later than August 20, the county superintendent must notify the Superintendent of Public Instruction of all school districts whose budget has been disapproved.

For all dual budget options and for single budget option districts whose budgets have been disapproved, the district must revise and readopt its budget by September 15, reflecting changes in projected income and expense since July 1, including responding to the county superintendent’s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8 will approve or disapprove the revised budgets. If the

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budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code § 42127.1. Until a district’s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year.

The District has not had an adopted budget disapproved by the county superintendent of schools. The District has received a negative or qualified certification of its Interim Reports. The District self-certified as qualified nine times and negative seven times from First Interim 2003-04 through First Interim of 2011-12, interrupted only by a positive certification at Second Interim of 2003-04. The District received a “positive” certification at Second Interim 2011-12 and for all such subsequent reports to date.

2014-15 Budget Projections. The District currently projects that it will meet the minimum general fund reserve requirement in fiscal years 2014-15 and 2015-16, maintaining unrestricted general fund reserves of approximately 16.0%, and 10.5%, respectively for such years. The District currently projects an operating deficit in fiscal year 2014-15 of approximately $2,090,606. The District currently projects an operating deficit in 2015-16 of approximately $374,917.

The following tables summarize the District’s adopted general fund budgets for fiscal years 2010-11 through 2014-15, and audited ending results for fiscal years 2010-11 through 2012-13, and unaudited actual results for fiscal year 2013-14.


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GENERAL FUND BUDGETING Healdsburg Unified School District

Fiscal Years 2010-11 through 2014-15 Fiscal Year

2010-11 Fiscal Year

2011-12 Fiscal Year

2012-13 Fiscal Year

2013-14 Fiscal Year

2014-15

Budget(1)

Audited(1)

Budget(1)

Audited(1)

Budget(1)

Audited(1)

Budget(3)

Unaudited(4)

Budgeted REVENUES:

Revenue Limit Sources/LCFF(6): $12,298,717 $12,085,646 $12,249,452 $14,779,911 $12,129,845 $16,529,342 $13,006,565 $16,021,303 $15,173,947 Federal Revenue 1,036,027 1,198,520 1,073,898 1,191,263 772,146 872,264 716,301 761,097 682,285 Other State Revenue 1,272,329 1,952,668 1,472,963 1,670,276 803,063 1,707,947 1,609,112 1,127,965 499,566 Other Local Revenue 1,435,808 2,234,186 1,407,523 1,640,826 1,167,174 1,733,161 1,493,652 1,530,553 983,275

TOTAL REVENUES(2) 16,042,881 17,471,020 16,203,836 19,282,276 14,872,228 20,842,714 16,825,630 19,440,918 17,339,073 EXPENDITURES:

Certificated Salaries 6,477,989 6,786,497 6,304,889 6,698,333 6,227,447 7,128,718 7,150,938 8,001,329 7,750,278 Classified Salaries 2,231,652 2,433,391 2,069,746 2,367,912 2,233,967 2,702,895 2,731,155 3,106,558 3,081,246 Employee Benefits 4,096,742 4,131,951 4,149,609 4,115,472 4,193,416 4,348,002 4,885,187 5,253,233 4,599,958 Books & Supplies 152,706 580,515 38,875 432,089 88,935 537,550 177,328 838,980 242,393 Services & Other Operating Expenditures 2,362,615 2,583,814 2,894,780 2,508,249 2,812,113 2,744,133 3,642,922 2,874,093 3,420,804 Other Outgo(5) 182,381 182,832 164,400 168,543 155,000 268,865 225,500 259,455 235,000 Capital Outlay 23,640 493,409 -- -- -- 849 -- 185,970 -- Debt Service – principal -- 22,525 -- -- -- -- -- -- -- Debt Service – interest -- 1,115 -- -- -- -- -- -- --

TOTAL EXPENDITURES(2) 15,527,725 17,216,049 15,622,299 16,290,598 15,710,878 17,731,012 18,813,030 20,519,617 19,329,679 Excess (Deficiency) of Revenues Over (Under)

Expenditures 515,156 254,971 581,537 2,991,678 (838,650) 3,111,702 (1,987,400) (1,078,700) (1,990,606)

OTHER FINANCING SOURCES (USES)

Other sources -- 497,992 -- -- -- -- -- 595,401 172,909 Operating Transfers In -- -- -- -- -- -- -- 90,922 -- Operating Transfers Out -- (1,099,347) -- -- -- (516,276) (1,075,000) (3,090,383) (272,909)

TOTAL OTHER FINANCING SOURCES (USES) -- (601,355) -- -- -- (516,276) (1,075,000) (2,404,060) (100,000) NET CHANGE IN FUND BALANCES 515,156 (346,384) 581,537 2,991,678 (838,650) 2,595,426 (3,062,400) (3,482,760) (2,090,606) FUND BALANCE, JULY 1 (adjusted) 1,326,060 1,326,060 979,676 979,676 3,971,354 3,971,354 6,566,780 6,566,780 $3,084,021 FUND BALANCE, JUNE 30 $1,841,216 $979,676 $1,561,213 $3,971,354 $3,132,704 $6,566,780 $3,504,380 $3,084,021 $993,415

(1) From the District’s Comprehensive Audited Financial Statements for fiscal years 2011-12 through 2012-13, respectively. (2) On behalf payments of $285,871, $375,842 and $346,738 are excluded from revenues and expenditures for fiscal years 2010-11 through 2012-13, respectively. In addition, activities related to the consolidation of Fund 14, Deferred Maintenance Fund and Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects into the general fund of the District as a result of GASB 54 implementation are excluded for such years. See “APPENDIX B – EXCERPTS FROM THE DISTRICT’S 2012-13 AUDITED FINANCIAL STATEMENTS – Required Supplementary Information” herein. (3) From the District’s original Adopted Budget for fiscal year 2013-14 approved by District Board on June 19, 2013. (4) From the District’s original Unaudited Actuals for fiscal year 2014-15 approved by District Board on September 17, 2014. (5) The categories “Other Outgo (excluding Transfers of Indirect Costs)” and “Other Outgo- Transfers of Indirect Costs” have been combined for comparison purposes. (6) Beginning with the first interim financial report for fiscal year 2013-14, this category of funds is coded as “LCFF/Revenue Limit. Source: Healdsburg Unified School District.

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Accounting Practices

The accounting policies 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. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred.


Introduction

The District. The District is situated within Sonoma County and is located approximately 65 miles north of San Francisco and 115 miles west north-west of Sacramento. The District is a Basic Aid district. The District operates one high school, one middle school and two elementary schools, serving a population of approximately 1,637. The District’s average daily attendance (“ADA”) for fiscal year 2014-15 is budgeted to be approximately 1,599 students. The District has a 2014-15 total assessed valuation of $4,361,833,445.

Improvement District No. 1. Improvement District No. 1 encompasses the former boundaries of the Healdsburg Elementary School District, which unified with the former Healdsburg Union High School District in 1994. Improvement District No. 1 accounts for approximately 75% of the fiscal year 2014-15 assessed value of property within the District. Taxable property within Improvement District No. 1 has a fiscal year 2014-15 assessed valuation of $3,271,527,714. See “APPENDIX I – “LOCATION MAP OF THE DISTRICT AND IMPROVEMENT DISTRICT NO. 1” herein.

Administration

The District is governed by a five-member Board of Trustees (the “Board”), each member of which is elected to a four-year term. Elections for positions to District Board are held every two years, alternating between two and three available positions. Current members of District Board, together with their office and the date their term expires, are listed below:

BOARD OF TRUSTEES Healdsburg Unified School District

Name Office Term Expires Judy Velasquez President December 2016

Donna del Rey Vice President December 2014

Edward Crowell, Ph.D. Member December 2016 Vince Dougherty Member December 2014

Genevieve Llerena Member December 2016

The Superintendent of the District is responsible for administering the affairs of the District in accordance with the policies of District Board. Dr. Jeff Harding is currently the Superintendent of the District. Brief biographies of key personnel follow:

Jeff Harding Ed.D., Superintendent. Dr. Harding has been Superintendent of the District since June, 2008. Dr. Harding began his career in environmental education, first as a teacher and then as

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program director. Prior to becoming Superintendent he was a Principal and Assistant Superintendent for the Windsor Unified School District. Dr. Harding is an honors graduate from U.C. Berkeley, where he was a Sherman-Fairchild Scholar. He earned a Masters Degree in Educational Administration and his Doctor’s Degree in Educational Administration from Sonoma State University.

Steve Barekman, Director, Business Services. Mr. Barekman was appointed as the Director of Business Services in 2006. Prior to joining the District he was the Director of Fiscal Services at Ukiah Unified School District. Mr. Barekman graduated from Whittier College with a Bachelor of Arts in Business Administration.

District Growth

The following table shows a seven-year enrollment history for the District and a budgeted amount for fiscal year 2014-15.

HISTORICAL ENROLLMENT Fiscal Years 2007-08 through 2014-15


Fiscal Year Enrollment % Change

2007-08 2,266 (5.82)% 2008-09 2,161 (4.63) 2009-10 2,048 (5.23) 2010-11 1,981 (3.27) 2011-12 1,919 (3.13) 2012-13 1,813 (5.52) 2013-14 1,735 (4.30) 2014-15(1) 1,674 (3.52)

____________________ (1) Budgeted Note: Except for fiscal year 2014-15, enrollment is as of the October report submitted to the California Basic Educational Data System (“CBEDS”) in each school year. Source: Healdsburg Unified School District.

Charter School

The California Legislature enacted the Charter Schools Act of 1992 (California Education Code Sections 47600-47616.5) to permit teachers, parents, students, and community members to establish schools that would be free from most state and district regulations. Revised in 1998, California’s charter school law states that local boards are the primary charter approving agency and that county panels can appeal a denied charter. State education standards apply, and charter schools are required to use the same student assessment instruments. The charter school is exempt from state and local education rules and regulations, except as specified in the legislation.

The District has certain fiscal oversight and other responsibilities with respect to both independent and affiliated charter schools established within its boundaries. However, independent charter schools receive funding directly from the State, and such funding would not be reported in the District’s audited financial statements. Affiliated charter schools receive their funding from the District, and would be reflected in the District’s audited financial statements. There is one charter school currently operating within the District, which is sponsored by the District (collectively, the “Charter Schools”). The following table shows enrollment figures in for the District’s Charter School for the past three fiscal years.

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CHARTER SCHOOL ENROLLMENT Fiscal Years 2009-10 through 2013-14


Affiliated Fiscal Year Charter School 2011-12 92 2012-13 168 2013-14(1) 193

_________________________ Source: Healdsburg Unified School District.

Labor Relations

The District currently employs 90 full-time certificated employees and 33 full-time classified employees. In addition, the District employs 65 part-time faculty and staff. District employees, except management and some part-time employees, are represented by the two bargaining units as noted below:

BARGAINING UNITS Healdsburg Unified School District

Labor Organization

Number of Employees

In Bargaining Unit

Contract

Expiration Date

Healdsburg Area Teachers Association (HATA) 100 June 30, 2015 Classified School Employees Association Chapter 314 88 June 30, 2016 ________________ Source: Healdsburg Unified School District.

Retirement Programs

The information set forth below regarding the District’s retirement 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, the Financial Advisor or the Underwriter.

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 under a defined benefit program (the “STRS Defined Benefit Program”). The STRS Defined Benefit Program is funded through a combination of investment earnings and statutorily set contributions from three sources: employees, employers, and the State. Benefit provisions and contribution amounts are established by State statutes, as legislatively amended from time to time.

Prior to fiscal year 2014-15, unlike typical defined benefit programs, neither the employee, employer or State contribution rate to the STRS Defined Benefit Program varied annually to make up funding shortfalls or assess credits for actuarial surpluses. In recent years, the combined employer, employee and State contributions to the STRS Defined Benefit Program have not been sufficient to pay actuarially required amounts. As a result, and due to significant investment losses, the unfunded actuarial liability of the STRS Defined Benefit Program has increased significantly in recent fiscal years. In September 2013, STRS projected that the STRS Defined Benefit Program would be depleted in 31 years

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assuming existing contribution rates continued, and other significant actuarial assumptions were realized. In an effort to reduce the unfunded actuarial liability of the STRS Defined Benefit Program, the State recently passed legislation described below to increase contribution rates.

Prior to July 1, 2014, K-14 school districts were required by such statutes to contribute 8.25% of eligible salary expenditures, while participants contributed 8% of their respective salaries. On June 24, 2014, the Governor signed A.B. 1469 (“A.B. 1469”) in to law as a part of the 2014-15 State Budget. A.B. 1469 seeks to fully fund the unfunded actuarial obligation with respect to service credited to members of the STRS Defined Benefit Program before July 1, 2014 (the “2014 Liability”), within 32 years, by increasing member, K-14 school district and State contributions to STRS. Commencing on July 1, 2014, the employee contribution rates will increase over a three year phase in period in accordance with the following schedule:

MEMBER CONTRIBUTION RATES STRS (Defined Benefit Program)

Effective Date

STRS Members Hired Prior to January 1, 2013

STRS Members Hired After January 1, 2013

July 1, 2014 8.150% 8.150% July 1, 2015 9.200 8.560 July 1, 2016 10.250 9.205

____________________ Source: A.B. 1469.

Pursuant to A.B. 1469, K-14 school districts’ contribution rate will increase over a seven year phase in period in accordance with the following schedule:

K-14 SCHOOL DISTRICT CONTRIBUTION RATES STRS (Defined Benefit Program)

Effective Date

K-14 school districts

July 1, 2014 8.88% July 1, 2015 10.73 July 1, 2016 12.58 July 1, 2017 14.43 July 1, 2018 16.28 July 1, 2019 18.13 July 1, 2020 19.10

____________________ Source: A.B. 1469.

Based upon the recommendation from its actuary, for fiscal year 2021-22 and each fiscal year thereafter the STRS Teachers’ Retirement Board (the “STRS Board”), is required to increase or decrease the K-14 school districts’ contribution rate to reflect the contribution required to eliminate the remaining 2014 Liability by June 30, 2046; provided that the rate cannot change in any fiscal year by more than 1% of creditable compensation upon which members’ contributions to the STRS Defined Benefit Program are based; and provided further that such contribution rate cannot exceed a maximum of 20.25%. In addition to the increased contribution rates discussed above, A.B. 1469 also requires the STRS Board to report to the State legislature every five years (commencing with a report due on or before July 1, 2019) on the fiscal health of the STRS Defined Benefit Program and the unfunded actuarial obligation with respect to service credited to members of that program before July 1, 2014. The reports are also required to identify

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adjustments required in contribution rates for K-14 school districts and the State in order to eliminate the 2014 Liability.

The District’s contribution to STRS was $552,715 in fiscal year 2010-11, $542,531 in fiscal year 2011-12, and $586,913 in fiscal year 2012-13. The District contributed $666,307 (unaudited) to STRS for fiscal year 2013-14 and has budgeted $629,707 as its contribution to STRS in fiscal year 2014-15.

The State also contributes to STRS, currently in an amount equal to 3.454% of teacher payroll for fiscal year 2014-15. The State’s contribution reflects a base contribution rate of 2.017%, and a supplemental contribution rate that will vary from year to year based on statutory criteria. Pursuant to A.B. 1469, the State contribution rate will increase over the next three years to a total of 6.328% in fiscal year 2016-17. Based upon the recommendation from its actuary, for fiscal year 2017-18 and each fiscal year thereafter, the STRS Board is required, with certain limitations, to increase or decrease the State’s contribution rates to reflect the contribution required to eliminate the unfunded actuarial accrued liability attributed to benefits in effect before July 1, 1990. In addition, the State is currently required to make an annual general fund contribution up to 2.5% of the fiscal year covered STRS member payroll to the Supplemental Benefit Protection Account (the “SBPA”), which was established by statute to provide supplemental payments to beneficiaries whose purchasing power has fallen below 85% of the purchasing power of their initial allowance.

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 provisions are established by the State statutes, as legislatively amended from time to time. PERS operates a number of retirement plans including the Public Employees Retirement Fund (“PERF”). PERF is a multiple-employer defined benefit retirement plan. In addition to the State, employer participants at June 30, 2013 included 1,580 public agencies and schools (representing more than 2,500 entities). PERS acts as the common investment and administrative agent for the member agencies. The State and school districts (for “classified employees,” which generally consist of school employees other than teachers) are required by law to participate in PERF. Employees participating in PERF generally become fully vested in their retirement benefits earned to date after five years of credited service. One of the plans operated by PERS is for school districts throughout the State (the “Schools Pool”).

Contributions by employers to the PERS Schools Pool are based upon an actuarial rate determined annually and contributions by plan members vary based upon their date of hire. The District is currently required to contribute to PERS at an actuarially determined rate, which is 11.771% of eligible salary expenditures for fiscal year 2014-15. Participants enrolled in PERS prior to January 1, 2013 contribute 7% of their respective salaries, while participants enrolled after January 1, 2013 contribute at an actuarially determined rate, which is 6% of their respective salaries for fiscal year 2013-14. See “—California Public Employees’ Pension Reform Act of 2013” herein.

The District’s contributions to PERS was $267,863 in fiscal year 2010-11, $270,679 in fiscal year 2011-12, and $320,697 in fiscal year 2012-13. The District contributed $360,982 (unaudited) to PERS for fiscal year 2013-14 and has budgeted $384,954 as its contribution to PERS in fiscal year 2014-15.

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)

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http://www.calstrs.com/

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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. The following table summarizes information regarding the actuarially-determined accrued liability for both STRS and PERS. Actuarial assessments are “forward-looking” information that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans.

The following table sets forth information regarding the actuarially determined accured liabilities for both STRS and PERS.

FUNDED STATUS STRS (Defined Benefit Program) and PERS

(Dollar Amounts in Millions) (1)

Fiscal Years 2010-11 through 2012-13 STRS PERS

Fiscal Year

Accrued Liability

Value of Trust Assets

(MVA) (2)

Unfunded Liability

(MVA) (2) (3)

Unfunded Liability

(AVA) (4)

Accrued Liability

Value of Trust Assets

(MVA) (2)

Unfunded Liability

(MVA) (2)

Unfunded Liability

(AVA) (4) 2010-11 $208,405 $147,140 $68,365 $64,475 $58,358 $45,901 $12,457 $6,811 2011-12 215,189 143,118 80,354 70,957 59,439 44,854 14,585 5,648 2012-13 222,281 157,176 74,374 73,667 61,487 49,782 12,005 5,237

____________________ (1) Amounts may not add due to rounding. (2) Reflects market value of assets. (3) Excludes SBPA reserve. (4) Reflects actuarial value of assets. Source: PERS State & Schools Actuarial Valuation; STRS Defined Benefit Program Actuarial Valuation.

Over the past two years, the PERS Board of Administration (the “PERS Board”) has taken several steps, as described below, intended to reduce the amount of the unfunded accrued actuarial liability of its plans, including the Schools Pool.

On March 14, 2012, the PERS Board voted to lower the PERS’ rate of expected price inflation and its investment rate of return (net of administrative expenses) (the “PERS Discount Rate”) from 7.75% to 7.5%. As one consequence of such decrease, the annual contribution amounts paid by PERS member public agencies, including the District, have been increased by 1 to 2% for miscellaneous plans and by 2 to 3% for safety plans beginning in fiscal year 2013-14. On February 18, 2014, the PERS Board voted to keep the PERS Discount Rate unchanged at 7.5%.

On April 17, 2013, the PERS Board approved new actuarial policies aimed at returning PERS to fully-funded status within 30 years. The policies include a rate smoothing method with a 30-year amortization period for gains and losses, a five-year increase of public agency contribution rates, including the contribution rate at the onset of such amortization period, and a five year reduction of public agency contribution rates at the end of such amortization period. The PERS Board has delayed the implementation of the new actuarial policies until fiscal year 2015-16 for the State, K-14 school districts and all other public agencies.

http://www.calpers.ca.gov/

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Also, on February 20, 2014, the PERS Board approved new demographic assumptions reflecting (i) expected longer life spans of public agency employees and related increases in costs for the PERS system and (ii) trends of higher rates of retirement for certain public agency employee classes, including police officers and firefighters. The cost of the revised assumptions shall be amortized over a 20-year period and related increases in public agency contribution rates shall be affected over a three year period, beginning in fiscal year 2014-15. The new demographic assumptions affect each of: the State, K-14 school districts and all other public agencies.

The District can make no representations regarding the future program liabilities of STRS, or whether the District will be required to make additional contributions to STRS in the future above those amounts required under A.B. 1469. The District can also provide no assurances that the District’s required contributions to PERS will not increase in the future.

California Public Employees’ Pension Reform Act of 2013. On September 12, 2012, the Governor signed into law the California Public Employee’s Pension Reform Act of 2013 (the “Reform Act”), which makes changes to both STRS and PERS, most substantially affecting new employees hired after January 1, 2013 (the “Implementation Date”). For STRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor (the age factor is the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. Similarly, for non-safety PERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and increases the eligibility requirement for the maximum age factor of 2.5% to age 67. Among the other changes to PERS and STRS, the Reform Act also: (i) requires all new participants enrolled in PERS and STRS after the Implementation Date to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (ii) requires STRS and PERS to determine the final compensation amount for employees based upon the highest annual compensation earnable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants enrolled after the Implementation Date (previously 12 months for STRS members who retire with 25 years of service), and (iii) caps “pensionable compensation” for new participants enrolled after the Implementation Date at 100% of the federal Social Security contribution (to be adjusted annually based on changes to the Consumer Price Index for all Urban Consumers) and benefit base for members participating in Social Security or 120% for members not participating in social security (to be adjusted annually based on changes to the Consumer Price Index for all Urban Consumers), while excluding previously allowed forms of compensation under the formula such as payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off.

Early Retirement Incentives. Under CalSTRS law, certain early retirement incentives require the employer to pay the present value of the additional benefit which may be paid on either a current or deferred basis. The District has long-term obligations to CalSTRS totaling $647,737 for early retirement incentives granted to retired certificated employees. The District has implemented a five year obligation to CalPERS for retirement incentive as of June 30, 2013 for the amount of $246,803.

Year Ending June 30 CalSTRS

CalPERS

Total

2014 $647,737 $246,803 $894,540

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Other Post-Employment Benefits

Benefits Plan. The Postemployment Benefits Plan (the “Plan”) is a single-employer defined benefit healthcare plan administrated by the District. The Plan provides post employment health care benefits (the “Benefits”), in accordance with District employment contracts. The District no longer offers Benefits to District employees, and as a result, there will be no additional employees added to the Plan.

As of August 1, 2014, membership of the Plan consisted of 169 retirees currently receiving Benefits, and 143 active plan members potentially eligible.

Funding Policy. The District contributes up to 100% of the amount of premiums incurred by retirees. Expenditures for the Benefits are recognized on a pay-as-you-go basis, as retirees’ premiums are paid. The contribution requirements of plan members and the District are established and may be amended by the District and the employee groups. District contributions for retiree benefits based on the rates established in accordance with the bargaining unit agreements. Contributions made by retirees vary depending on their agreements.

During fiscal year ending June 30, 2013, the District recognized $1,058,343 of expenditures for the Benefits. For fiscal year ending June 30, 2014, the District recognized $1,262,819 (unaudited) of such expenditures. For fiscal year ending June 30, 2015, the District has budgeted $1,255,772 of such expenditures.

As of August 1, 2014 the District has segregated approximately $390,922 to begin funding its accrued liability with respect to the Benefits. The District has budgeted a contribution of $100,000 to such segregated fund in fiscal year 2014-15. These funds, however, have not been deposited into an irrevocable trust and are available for general fund purposes upon formal action of the Board.

Accrued Liability. The District has implemented Governmental Accounting Standards Board Statement #45, Accounting and Financial Reporting by Employers for Postemployment Benefit Plans Other Than Pension Plans, pursuant to which the District has commissioned and received several actuarial studies of its outstanding liabilities with respect to the Post-Employment Benefits. The most recent of these studies (the “Study”), dated as of April 16, 2008, determined that the AAL with respect to the Benefits, as of a January 1, 2008 valuation date, was $20,837,000. The Study also concluded that the annual required contribution (“ARC”) was $1,153,000 for the year beginning January 1, 2008. The ARC is the amount that would be necessary to fund the value of future benefits earned by current employees during each fiscal year (the “Normal Cost”) and the amount necessary to amortize the AAL, in accordance with the GASB Statements Nos. 43 and 45; the ARC is expected to increase each year based on covered payroll.

As of June 30, 2013, the District recognized a long-term obligation (the “Net OPEB Obligation”) of $125,347 with respect to its accrued liability for the Benefits. The Net OPEB Obligation is based on the District’s contributions towards the ARC during fiscal year 2012-13. The Net OPEB Obligation was calculated based on a prior actuarial study of the Benefits. See “APPENDIX A – INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - HEALDSBURG UNIFIED SCHOOL DISTRICT – District Debt Structure – Long-Term Debt” and “APPENDIX B – EXCERPTS FROM THE DISTRICT’S 2012-13 AUDITED FINANCIAL STATEMENTS– Note 11.”

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.

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During fiscal year ending June 30, 2014, the District contracted with Redwood Empire Schools’ Insurance Group JPA (RESIG) 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 2014, the District participated in the Redwood Empire Schools’ Insurance Group JPA (RESIG), an insurance purchasing pool. The intent of the Redwood Empire Schools’ Insurance Group is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in the RESIG JPA. The workers’ compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in RESIG JPA. 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 of RESIG JPA. Participation in RESIG JPA is limited to districts that can meet the RESIG JPA selection criteria.

Insurance Program/Company Name Type of Coverage Limits

Redwood Empire Schools’ Insurance Group JPA Workers’ compensation $1,000,000 Redwood Empire Schools’ Insurance Group JPA Property $1,000,000 Redwood Empire Schools’ Insurance Group JPA Liability $350,000

Comparative Financial Statements

The District’s audited financial statements for the year ended June 30, 2013 are included for reference in APPENDIX B hereto. Audited financial statements for the District for the fiscal year ended June 30, 2013, and prior fiscal years are on file with the District and available for public inspection at the Office of the Director, Business Services of the District, 1028 Prince Street, Healdsburg, California 95448; telephone: (707) 431-3488. The following tables reflect the District’s revenues, expenditures and fund balances for fiscal years 2008-09 through 2010-13.


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AUDITED STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND FUND BALANCES

Healdsburg Unified School District Fiscal Years 2008-09 through 2012-13

Audited Fiscal Year

2008-09

Audited Fiscal Year

2009-10

Audited Fiscal Year

2010-11

Audited Fiscal Year

2011-12

Audited Fiscal Year

2012-13 Revenue: Revenue Limit Sources $12,475,958 $12,369,426 $12,085,646 $14,779,911 $16,529,343 Federal Revenue 2,161,867 1,844,148 1,198,520 1,191,263 871,684 State Revenues 2,748,664 3,516,961 2,238,539 2,046,118 2,054,685 Local Revenues 1,929,450 1,047,504 2,237,211 1,649,880 1,742,139

Total Revenue 19,315,939 18,778,039 17,759,916 19,667,172 21,197,851 Expenditures: Instruction 13,698,102 12,472,192 11,247,133 11,116,061 11,532,212 Instruction — related activities:

Supervision of instruction 644,349 926,587 524,244 567,550 708,707 Instructional library, media, technology 142,394 155,240 144,863 146,998 181,115 School site administration 1,258,507 1,267,072 1,122,623 1,087,226 1,348,388

Pupil Services: Home-to-school transportation 361,362 349,907 918,195 316,269 338,775 All other pupil services 865,980 764,624 619,449 645,596 767,583

General Administration: Data processing 136,170 135,118 166,453 141,462 206,495 All other general administration 1,076,280 1,010,656 1,015,709 958,866 1,118,524

Plant Services 1,679,981 1,533,464 1,539,583 1,440,120 1,546,194 Facility acquisition and construction -- 978 -- -- 195,239 Ancillary Services 26,714 27,314 24,841 36,141 24,354 Other outgo 294,775 209,374 182,832 216,441 305,403 Community Services 3,353 -- -- -- -- Debt service- Principal 20,450 21,463 22,525 -- -- Debt service- Interest and other 3,190 2,177 1,115 -- --

Total Expenditures 20,211,607 18,876,166 17,529,565 16,672,730 18,272,989 Excess (deficiency) of revenues over expenditures

(895,668) (98,127) 230,351 2,994,442 2,924,862

Net Other Financing Sources & Uses

Transfers in 385,120 151,378 -- -- -- Transfers out -- (93,224) -- -- (16,277) Other sources -- -- 497,992 -- --

Net Financing Sources (Uses) 385,120 58,154 497,992 -- (16,277) Net Change in Fund Balance (510,548) (39,973) 728,343 2,994,442 2,908,585 Beginning Balance 1,876,581 1,366,033 1,326,060 2,054,403 5,048,845 Ending Balance $1,366,033 $1,326,060 $2,054,403 $5,048,845 $7,957,430


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District Debt Structure

Long-Term Debt. A schedule of changes in long-term debt for the fiscal year ended June 30, 2013, is shown below:

Balance

July 1, 2012 Additions Deductions Balance

June 30, 2013 General obligation bonds $37,030,497 $22,732,590 $11,344,140 $48,418,947 Capital Leases 1,254,246 -- 101,737 1,152,509 Early retirement incentives 784,366 477,856 367,682 894,540 Compensated absences 64,397 16,482 7,543 73,336 Other Postemployment Benefits 31,347 1,152,343 1,058,343 125,347 $39,164,853 $24,379,271 $12,879,445 $50,664,679 Source: Healdsburg Unified School District.

General Obligation Bonds. On November 8, 1994, the voters of the District approved the issuance of $19,500,000 principal amount of general obligation bonds (the “1994 Authorization”). On January 23, 1997, the District issued the General Obligation Bonds, Election of 1994, Series 1997 (the “Series 1997 Bonds”), which were the second series of bonds under the 1994 Authorization in the aggregate principal amount of $9,499,997.85. On November 5, 2002, the voters of the District approved the issuance of $3,990,000 principal amount of general obligation bonds (the “2002 Authorization”). On June 18, 2003, the District issued the General Obligation Bonds, Election of 2002, Series 2003 (the “Election of 2002, Series 2003 Bonds”), which were the only series of bonds under the 2002 Authorization in the aggregate principal amount of $3,990,000. On February 6, 2007, the District issued its 2007 General Obligation Refunding Bonds (the “Series 2007 Bonds”) in the aggregate principal amount of $8,690,000 to refund the District’s General Obligation Bonds, Election of 1994, Series 1995, which were the first series of bonds issued under the 1994 Authorization described above.

On November 5, 2002, the voters of Improvement District No. 1 approved the issuance of $18,820,000 principal amount of general obligation bonds (the “2002 SFID Authorization”). On June 18, 2003, the District issued the Bonds of the School Facilities Improvement District No. 1 (Elementary Service Area) of the Healdsburg Unified School District, Election of 2002, Series 2003 (the “Series 2003 SFID Bonds”), which were the first series of bonds under the 2002 SFID Authorization in the aggregate principal amount of $13,000,000. On February 17, 2005, the District issued the Bonds of the School Facilities Improvement District No. 1 (Elementary Service Area) of the Healdsburg Unified School District, Election of 2002, Series 2005 (the “Series 2005 SFID Bonds”), which were the second and final series of bonds under the 2002 SFID Authorization in the aggregate principal amount of $5,819,951.15. On July 26, 2012, the District issued its 2012 General Obligation Refunding Bonds (the “Series 2012 SFID Bonds”) in the aggregate principal amount of $9,920,000 to refund the Series 2003 SFID Bonds.

The 2012 Authorization was the result of an election held on June 5, 2012 and approved by at least 55% of the votes cast by eligible voters within the District to issue $35,000,000 maximum principal amount of general obligation bonds. On November 8, 2012, the District issued its first series of bonds under the 2012 Authorization in the aggregate principal amount of $11,998,868.70 (the “Election of 2012 Series A Bonds”). The Series B Bonds are the second series of bonds issued under the 2012 Authorization. Following the issuance of the Series B Bonds, 11,001,131.30 of the 2012 Authorization will remain.

The following table shows the total debt service with respect to the District’s outstanding general obligation bonded debt, including the Bonds.

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BONDED DEBT SERVICE Healdsburg Unified School District(1)

Year Ending

July 15(1) Series

1997 Bonds Series

2003 Bonds(1) Series 2012 SFID Bonds

Election of 2012 Series A Bonds

Series A Refunding

Bonds

Series B Refunding

Bonds Series B Bonds Total

Debt Service 2015 $865,000.00 $186,300.00 $803,465.00 -- $1,071,595.14 $503,793.67 -- $3,430,153.81 2016 890,000.00 -- 803,360.00 -- 1,212,843.76 469,200.00 -- 3,375,403.76 2017 920,000.00 -- 807,857.50 -- 1,486,243.76 565,400.00 -- 3,779,501.26 2018 975,000.00 -- 806,825.00 -- 1,515,993.76 609,150.00 -- 3,906,968.76 2019 2,200,000.00 -- 810,395.00 -- 727,493.76 634,900.00 -- 4,372,788.76 2020 2,800,000.00 -- 808,435.00 -- 265,993.76 688,400.00 -- 4,562,828.76 2021 2,940,000.00 -- 811,077.50 -- 263,743.76 733,250.00 -- 4,748,071.26 2022 -- -- 813,190.00 $1,265,000.00 268,050.00 791,300.00 $428,443.76 3,565,983.76 2023 -- -- 809,772.50 1,296,810.00 266,750.00 842,100.00 473,943.76 3,689,376.26 2024 -- -- 810,957.50 1,321,810.00 265,300.00 880,800.00 550,443.76 3,829,311.26 2025 -- -- 816,612.50 1,351,810.00 266,500.00 940,000.00 646,293.76 4,021,216.26 2026 -- -- 816,605.00 1,381,810.00 270,000.00 777,000.00 727,043.76 3,972,458.76 2027 -- -- 816,067.50 1,411,810.00 267,750.00 -- 803,793.76 3,299,421.26 2028 -- -- -- 1,681,810.00 -- -- 926,543.76 2,608,353.76 2029 -- -- -- 1,721,810.00 -- -- 1,047,793.76 2,769,603.76 2030 -- -- -- 1,761,810.00 -- -- 1,142,293.76 2,904,103.76 2031 -- -- -- 1,806,810.00 -- -- 1,241,043.76 3,047,853.76 2032 -- -- -- 1,851,810.00 -- -- 1,344,106.26 3,195,916.26 2033 -- -- -- 1,896,810.00 -- -- 1,442,950.00 3,339,760.00 2034 -- -- -- 1,948,040.00 -- -- 1,551,450.00 3,499,490.00 2035 -- -- -- 1,998,750.00 -- -- 1,673,750.00 3,672,500.00 2036 -- -- -- 2,048,710.00 -- -- 1,770,250.00 3,818,960.00 2037 -- -- -- 2,107,690.00 -- -- 1,875,000.00 3,982,690.00 2038 -- -- -- -- -- -- 4,160,200.00 4,160,200.00 2039 -- -- -- -- -- -- 4,331,600.00 4,331,600.00

Total $11,590,000.00 $186,300.00 10,534,620.00 $26,853,100.00 $8,148,257.70 $8,435,293.67 $26,136,943.86 $91,884,515.23

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(1) Excludes debt service on the Refunded Bonds. (2) The Series 2012 SFID Bonds mature on July 1, 2027, and the Election of 2012 Series A Bonds mature on August 1, 2037.

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Capital Leases. The District has entered into agreements to lease various facilities. Such agreements are, in substance, purchases (capital leases) and are reported as capital lease obligations. The District’s liability on lease agreements is summarized below:

Building Lease Balance, July 1, 2012 $1,254,246 Payments (101,737) Balance, June 30, 2013 $1,152,509

The District’s capital leases have minimum lease payments as following:

Year Ending June 30

Lease

Payment 2014 $159,056 2015 159,056 2016 159,056 2017 159,056 2018 159,056

2019-2022 636,225 Total $1,431,505

Less: Amount Representing Interest (278,996) Present Value of Minimum Lease Payments $1,152,509

Leased land, buildings, and equipment in capital assets and accumulated depreciation at June 30, 2013, include the following:

Buildings $1,700,000 Equipment 106,481 Less: Accumulated Depreciation (524,826) Total: $1,281,655

Operating Leases. The District has entered into operating leases for equipment with lease terms in excess of one year. The agreement contains purchase options. It contains a termination clause providing for cancellation after a specified number of days written notice to lessor, but it is unlikely the District will cancel the agreement prior to the expiration date. Future minimum lease payments under this agreement are as follows:

Year Ending June 30

Lease

Payment 2014 $58,781 2015 10,493 Total $69,274

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CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

The Series 2014 Bonds are special obligations of the Authority, payable solely from Revenues and the other assets pledged therefor under the Indenture. “Revenues” is defined under the Indenture to mean all amounts derived from or with respect to the District Bonds, including all payments of principal thereof, premium, if any, and interest thereon (including Principal Prepayments). See “SECURITY FOR THE SERIES 2014 BONDS” herein. The principal of and interest on the District Bonds will be payable solely from the proceeds of an ad valorem tax levied by the County for the payment thereof. See “SECURITY FOR THE DISTRICT BONDS” herein. Articles XIIIA, XIIIB, XIIIC and XIIID of the Constitution, Propositions 98 and 111, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the County to levy taxes on behalf of the District and the District to 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 District Bonds. The tax levied by the County for payment of the District Bonds was approved by the voters of the District in compliance with Article XIIIA, Article XIIIC, and all applicable laws.

Article XIIIA of the California Constitution

Article XIIIA (“Article XIIIA”) of the State Constitution limits the amount of ad valorem property 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. Determined in this manner, the full cash value is also referred to as the “base year value.” 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 has been amended to allow for temporary reductions of assessed value in instances where the fair market value of real property falls below the adjusted base year value described above. Proposition 8—approved by the voters in November of 1978—provides for the enrollment of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. Reductions in assessed value could result in a corresponding increase in the annual tax rate levied by the County to pay debt service on the Bonds. See “SECURITY FOR THE DISTRICT BONDS” and “TAX BASE FOR REPAYMENT OF DISTRICT BONDS” herein.

Article XIIIA requires a vote of two-thirds or more 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 property, 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, or (b), as the result of an amendment approved by State voters on June 3, 1986, on any bonded indebtedness approved by two-thirds or more 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 fifty-five percent or more of the votes cast on the proposition, but only if

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certain accountability measures are included in the proposition. The tax for payment of the Series B Bonds falls within the exception described in (c) 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.

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 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, nonutility 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 a basic aid district, taxes lost through any reduction in assessed valuation will not be compensated by the State as equalization aid under the State’s school financing formula. See “APPENDIX A – INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - DISTRICT FINANCIAL INFORMATION” herein.

Article XIIIB of the California Constitution

Article XIIIB (“Article XIIIB”) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of

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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 a school district to mean the percentage change in the ADA of the school district from the preceding fiscal year.

For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the 1986-87 fiscal year adjusted for the changes made from that fiscal year 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 such as the District Bonds, (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 fifty percent 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 “– Propositions 98 and 111” herein.

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

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

Article XIIIC and Article XIIID of the California Constitution

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

According to the “Title and Summary” of Proposition 218 prepared by the California Attorney General, Proposition 218 limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Among other things, Article XIIIC establishes that every tax is either a “general tax” (imposed for general governmental purposes) or a “special tax” (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. 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.

Propositions 98 and 111

On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, 1990. The Accountability Act changed State funding of public education below the university level and the operation of the State’s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as “K-14 school districts”) at a level equal to the greater of (a) the same percentage of State general fund revenues as the percentage appropriated to such districts in 1986-87, and (b) the amount actually appropriated to such

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districts from the State general fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a one-year period.

The Accountability Act also changed how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount are, instead of being returned to taxpayers, is transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year is automatically increased by the amount of such transfer. These additional moneys enter the base funding calculation for K-14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which can be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act.

Since the Accountability Act is unclear in some details, there can be no assurances that the Legislature or a court might not interpret the Accountability Act to require a different percentage of State general fund revenues to be allocated to K-14 school districts, or to apply the relevant percentage to the State’s budgets in a different way than is proposed in the Governor’s Budget.

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

The most significant provisions of Proposition 111 are summarized as follows:

a. Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the “change in the cost of living” is now measured by the change in California per capita personal income. The definition of “change in population” specifies that a portion of the State’s spending limit is to be adjusted to reflect changes in school attendance.

b. Treatment of Excess Tax Revenues. “Excess” tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools’ minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts’ base expenditures for calculating their entitlement for State aid in the next year, and the State’s appropriations limit is not to be increased by this amount.

c. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for “qualified capital outlay projects” as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990

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level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, 1990. These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which was expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs.

d. Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year 1990-91. It is based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if Proposition 111 had been in effect.

e. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues (“Test 1”) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (“Test 2”). Under Proposition 111, schools will receive the greater of (1) Test 1, (2) Test 2, or (3) a third test (“Test 3”), which will replace Test 2 in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capital personal income. Under Test 3, schools will receive the amount appropriated in the prior year adjusted for change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 will become a “credit” to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth.

Proposition 39

On November 7, 2000, California voters approved an amendment (commonly known as Proposition 39) to the California Constitution. This amendment (1) allows school facilities bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections and permits property taxes to exceed the current 1% limit in order to repay the bonds and (2) changes existing statutory law regarding charter school facilities. As adopted, the constitutional amendments may be changed only with another Statewide vote of the people. The statutory provisions could be changed by a majority vote of both houses of the Legislature and approval by the Governor, but only to further the purposes of the proposition. The local school jurisdictions affected by this proposition are K-12 school districts, including the District, community college districts, and county offices of education. As noted above, the California Constitution previously limited property taxes to 1 percent of the value of property, and property taxes could only exceed this limit to pay for (1) any local government debts approved by the voters prior to July 1, 1978 or (2) bonds to 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: (1) a requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; (2) a specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and (3) a requirement that the school board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. Legislation approved in June 2000 places certain limitations on local school bonds to be approved by

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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, when assessed valuation is projected to increase in accordance with Article XIIIA of the Constitution. These requirements are not part of Proposition 39 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 (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. 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 November 2, 2010, 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 reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 was expected to be approximately $1 billion in fiscal year 2010-11, with an estimated immediate fiscal effect equal to approximately 1% 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. See also “APPENDIX A – INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - DISTRICT FINANCIAL INFORMATION – State Dissolution of Redevelopment Agencies” herein.

Jarvis vs. Connell

On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California). The Court of Appeal held that either a final budget bill, an emergency appropriation, a self-executing authorization pursuant to state statutes (such as continuing appropriations) or the California Constitution or a federal mandate is necessary for the State Controller to disburse funds. The foregoing requirement could apply to amounts budgeted by the District as being received from the State. To the extent the holding in such case would apply to State payments reflected in the District’s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of such payments to the District if such required legislative action is delayed, unless the payments are

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self-executing authorizations or are subject to a federal mandate. On May 1, 2003, the California Supreme Court upheld the holding of the Court of Appeal, stating that the Controller is not authorized under State law to disburse funds prior to the enactment of a budget or other proper appropriation, but under federal law, the Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act.

Proposition 30

On November 6, 2012, voters of the State of California approved the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Funding, Initiative Constitutional Amendment (also known as “Proposition 30”), which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes. Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, 2016. Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1, 2017, for storage, use, or other consumption in the State. This excise tax will be levied at a rate of 0.25% of the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable year commencing January 1, 2012 and ending December 31, 2018, Proposition 30 increases the marginal personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers (over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less than $500,000 for single filers (over $408,000 but less than $608,000 for joint filers), and (iii) 3% for taxable income over $500,000 for single filers (over $608,000 for joint filers).

The revenues generated from the temporary tax increases will be included in the calculation of the Proposition 98 minimum funding guarantee for school districts and community college districts. See “APPENDIX A – INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Propositions 98 and 111” herein. From an accounting perspective, the revenues generated from the temporary tax increases will be deposited into the State account created pursuant to Proposition 30 called the Education Protection Account (the “EPA”). Pursuant to Proposition 30, funds in the EPA will be allocated quarterly, with 89% of such funds provided to schools districts and 11% provided to community college districts. The funds will be distributed to school districts and community college districts in the same manner as existing unrestricted per-student funding, except that no school district will receive less than $200 per unit of ADA and no community college district will receive less than $100 per full time equivalent student. The governing board of each school district and community college district is granted sole authority to determine how the moneys received from the EPA are spent, provided that, the appropriate governing board is required to make these spending determinations in open session at a public meeting and such local governing boards are prohibited from using any funds from the EPA for salaries or benefits of administrators or any other administrative costs.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and Propositions 22, 26, 30, 39 and 98 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.

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State Budget Measures

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 guarantee 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 Series 2014 Bonds or the District Bonds are payable from the general fund of the District. The Series 2014 Bonds are special obligations of the Authority, payable solely from Revenues and the other assets pledged therefor under the Indenture. “Revenues” is defined under the Indenture to mean all amounts derived from or with respect to the District Bonds, including all payments of principal thereof, premium, if any, and interest thereon (including Principal Prepayments). The principal of and interest on the District Bonds will be payable solely from the proceeds of an ad valorem tax levied by the County for the payment thereof.. See “SECURITY FOR THE SERIES 2014 BONDS” and “SECURITY FOR THE DISTRICT BONDS” in the front portion of this Official Statement.

2014-15 Budget. On June 20, 2014, the Governor signed into law the State budget for fiscal year 2014-15 (the “2014-15 Budget”). The following information is drawn from the State Department of Finance’s summary of the 2014-15 Budget and the LAO report entitled “The 2014-15 Budget: California Spending Plan,” and certain other sources relating to Proposition 2 (defined herein).

The 2014-15 Budget is based on revenue projections previously included in the Governor’s May revision to the proposed budget for fiscal year 2014-15. For fiscal year 2013-14, the 2014-15 Budget projects total State general fund revenues of $102.2 billion, and total State general fund expenditures of $100.7 billion. The 2014-15 Budget projects that the State will end the 2013-14 fiscal year with a $2.9 billion general fund surplus. For fiscal year 2014-15, the 2014-15 Budget projects total State general fund revenues of $109.5 billion and total State general fund expenditures of $108 billion, leaving the State with a projected general fund surplus for fiscal year 2014-15 of approximately $2.1 billion. This projected reserve is a combination of $449 million in the State’s general fund traditional reserve, and an authorized deposit of $1.6 billion into the Budget Stabilization Account (the “BSA”) established by the California Balanced Budget Act of 2004 (also known as Proposition 58).

As part of implementing certain provisions of the 2014-15, a legislatively-referred constitutional amendment (Proposition 2), has been placed on the November 4, 2014 statewide ballot which, if approved by the requisite vote of the electors, would (i) require an annual deposit into the BSA of 1.5% of annual general fund revenues and an additional amount each year whenever capital gains revenues rise to more than 8% of general fund tax revenues; (ii) set the maximum size of the BSA at 10% of State general fund revenues; (iii) require half of each year’s deposit into the BSA for the next 15 years be used for supplemental payments to pay fiscal obligations, such as budgetary loans and unfunded state-level pensions plans; (iv) allow the withdrawal of funds from the BSA only for a disaster or if spending remains at or below the highest level of spending from the past three years and limit the amount that could be withdrawn from the BSA in the first year of a recession to half of the BSA fund balance; (v) require the State to provide a multi-year budget forecast to help better manage the State’s longer term finances; and (vi) create a Proposition 98 reserve, whereby spikes in funding would be deposited thereto to smooth school spending. This reserve would make no changes to the Proposition 98 calculations, and it would not begin to operate until the existing maintenance factor is fully paid off.

As a result of changes in State general fund revenues, local property tax collections and changes in student attendance, the 2014-15 Budget includes revised estimates to the minimum fund guarantees for fiscal years 2012-13 and 2013-14. The 2012-13 minimum guarantee is revised upward to $57.8 billion, an increase of $1.3 billion over the estimate included in the 2013-14 State budget. For fiscal year 2013-

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14, the 2014-15 Budget revises the minimum guarantee at $58.3 billion, approximately $3 billion higher than that included in the 2013-14 State budget.

The 2014-15 Budget sets the Proposition 98 minimum funding guarantee for fiscal year 2014-15 at $60.9 billion, including $44.5 billion of support from the State general fund. This represents an increase of $2.6 billion over the estimates included in the Governor’s May revision. The 2014-15 Budget also authorizes certain payments to reduce the State’s outstanding maintenance factor, including $5.2 billion allocable to fiscal year 2012-13 and $2.6 billion allocable to fiscal year 2014-15. The State is expected to end fiscal year 2014-15 with an outstanding maintenance factor of approximately $4 billion.

Significant features of the 2014-15 Budget related to the funding of K-12 education include the following:

• State Pensions – The 2014-15 Budget includes a plan to reduce the $74.4 billion unfunded STRS liability in approximately 30 years by increasing contribution rates among the State, K-14 school districts, and participating employees. For fiscal year 2014-15, these increases are expected to result in $276 million of additional contributions from all three entities. The plan also provides the STRS Board (as defined herein) with limited authority to (i) increase State, school district and community college district contributions based on changing conditions, and (ii) reduce school district and community college district contributions if they are no longer necessary. For additional information, see “APPENDIX A - INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET – HEALDSBURG UNIFIED SCHOOL DISTRICT – Retirement Programs” herein.

• Local Control Funding Formula – An increase of $4.7 billion in Proposition 98 funding to continue the transition to the LCFF. This includes a 0.85% COLA to prior-year Base Grants, and results in per-pupil funding that is 12% higher than the prior-year. This increase is projected to close the remaining funding implementation gap between prior year funding levels and the LCFF target levels by approximately 29%. As a result, the adjusted 2014-15 Base Grants are as follows: (i) $7,011 for grades K-3, (ii) $7,116 for grades 4-6, (iii) $7,328 for grades 7-8, and (iv) $8,491 for grades 9-12. The LAO estimates that the 2014-15 funding levels are approximately 80% of the full implementation cost. The 2014-15 Budget also provides $26 million towards implementing the LCFF for county offices of education, sufficient to fully fund their LCFF funding target in fiscal year 2014-15. See also “APPENDIX A - INFORMATION RELATING TO THE DISTRICT’S OPERATIONS AND BUDGET - DISTRICT FINANCIAL INFORMATION – State Funding of Education – Local Control Funding Formula” herein.

• School Reserves – Senate Bill 858 (Stats. 2014, Chapter 32) (“SB 858”), trailer legislation to the 2014-15 Budget, creates new disclosure requirements effective beginning fiscal year 2015-16 for school districts that have general fund reserves in excess of the State minimum. Existing minimum reserve levels vary between one to five percent of general fund expenditures, depending on the size of the district, and generally require higher reserves for smaller school districts. SB 858 would require school districts to identify amounts in excess of their required reserves and explain the need for higher levels. This information must be disclosed at a public meeting and in each budget submitted to a county office of education. The LAO indicates that available data shows that virtually all school districts maintain excess reserves. If voters approve Proposition 2 (discussed above), certain additional provisions of SB 858 go into effect that will cap school district reserve levels. Reserves would be capped in any fiscal year following a State deposit into the Proposition 98 reserve created by Proposition 2. Caps for most school districts would range between three to ten percent of annual general fund expenditures. SB 858 would permit a county office of education to grant

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an exemption from the reserve cap for up to two years if a school district demonstrates that it would face extraordinary fiscal circumstances justifying a higher reserve.

• Categorical Programs – The 2014-15 Budget provides $33 million to fund a 0.85% COLA for select K-12 categorical programs, including foster youth services, American Indian American Indian Childhood Education, special education and child nutrition.

• K-12 Deferrals – The 2014-15 Budget provides $5.2 billion to reduce outstanding apportionment deferrals, including $4.7 billion for school districts. Under the budget plan, $992 million in deferrals, including $897 million for school districts, are expected to remain outstanding at the end of fiscal year 2014-15. The 2014-15 Budget also provides for a trigger mechanism whereby potentially all outstanding deferrals would be repaid if the Proposition 98 minimum guarantee increases as a result of additional funding sources. Effectively, the 2014-15 Budget earmarks the first $992 million of additional State spending allocable to fiscal years 2013-14 and 2014-15 to the paydown of deferrals.

• Student Assessments – The 2014-15 Budget provides $54 million to continue the implementation of new student assessments.

• Independent Study – The 2014-15 Budget streamlines the existing independent study program, reducing administrative burdens and freeing up time for teachers to spend on student instruction and support, while making it easier for schools to offer and expand instructional opportunities available to students through non-classroom based instruction.

• K-12 Mandates – The 2014-15 Budget provides $400 million, including $287 million of Proposition 98 funding and $113 million from unspent prior-year funds, to reduce a backlog of unpaid reimbursement claims to school districts for the cost of State-mandated programs. Funds will be distributed to school districts on a per-student basis. The 2014-15 Budget also adds six new K-12 reimburseable mandates to the existing block grant program. The 2014-15 Budget does not increase funding for the block grant program as the added costs are expected to be minimal.

• Proposition 39 – Passed by voters in November 2012, Proposition 39 increases State corporate tax revenues and requires a five-year period, starting in fiscal year 2013-14, that a portion of these additional revenues be used to improve energy efficiency and expand the use of alternative energy in public buildings. The 2014-15 Budget provides $279 million of Proposition 98 funding for qualifying school district energy programs and $28 million for a revolving loan program for K-14 school districts.

• Quality Education Investment Act – The 2014-15 Budget authorizes a final payment of $410 million to retire the State’s obligation under the Quality Education Investment Act (Stats. 2006, Chapter 751), which required the State to provide additional annual school district and community college district funding payments. Of this amount, $316 million is for continued funding of the QEIA program (including $268 million for school districts) and $94 million is to pay down a separate State obligation related to school facility repairs.

• Emergency Repair Program – $189 million of funding towards the Emergency Repair Program (“ERP”), which was created in 2004 to fund critical repair projects at certain low-performing schools. Funds will be allocated to school districts that have unfunded claims for emergency repairs from the most recent ERP award cycle, which occurred in 2008.

• School Infrastructure – The 2014-15 Budget shifts existing bonding authority under the Career Technical Education ($4.1 million) and High Performance Initiative ($32.9 million) school facility programs to the New Construction and Modernization facility programs. Bonding authority will be split equally between new construction and modernization.

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• K-12 High- Speed Internet Access – An increase of $27 million in one-time Proposition 98 funding for the K-12 High Speed Network to provide technical assistance and grants to K-12 local educational agencies required to successfully implement Common Core. These funds will be targeted to those K-12 local educational agencies most in need of help with securing internet connectivity and infrastructure required to implement the new computer adaptive tests under Common Core.

• Career Technical Education Pathways Program – An increase of $250 million in one-time Proposition 98 funding to support competitive grants for participating K-12 local educational agencies. The Career Pathways Trust Program provides grant awards to improve career technical programs and linkages between employers, schools, and community colleges.

For additional information regarding the State’s budgets and revenue projections and a more detailed description of the 2014-15 Budget, see the State Department of Finance website at www.dof.ca.gov and the LAO’s website at www.lao.ca.gov. However, the information presented on such websites is not incorporated herein by reference.

Future Actions. The District cannot predict what actions will be taken in the future by the State legislature and the Governor to address changing State revenues and expenditures. The District also cannot predict the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors over which the District will have no control. Certain actions or results could produce a significant shortfall of revenue and cash, and could consequently impair the State’s ability to fund schools. Future State budget shortfalls may also have an adverse financial impact on the financial condition of the District

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http://www.dof.ca.gov/

http://www.lao.ca.gov/

B-1

APPENDIX B

EXCERPTS FROM THE DISTRICT’S 2012-13 AUDITED FINANCIAL STATEMENTS


ANNUAL FINANCIAL STATEMENTS

JUNE 30, 2013


TABLE OF CONTENTS JUNE 30, 2013

FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis Basic Financial Statements

Government-Wide Financial Statements Statement of Net Position Statement of Activities

Fund Financial Statements Governmental Funds - Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances

Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities

Fiduciary Funds - Statement of Net Position Fiduciary Funds - Statement of Changes in Net Position

Notes to Financial Statements

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

SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards Local Education Agency Organization Structure Schedule of Average Daily Attendance Schedule of Instructional Time Reconciliation of Annual Financial and Budget Report with Audited Financial Statements Schedule of Financial Trends and Analysis Early Retirement Incentive Program Schedule of Charter Schools Combining Statements - Non-Major Governmental Funds

Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances

Note to Supplementary Information

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

Report on Compliance for Each Major Program and Report on Internal Control over Compliance Required by the 0MB Circular A-133 Report on State Compliance

SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors' Results Financial Statement Findings Federal Awards Findings and Questioned Costs State Awards Findings and Questioned Costs Summary Schedule of Prior Audit Findings

2 5

14 15

17 18 19

21 22 23 24

51 52

54 55 56 57 58 59 60 61

62 63 64

67

69 72

75 76 81 84 85

FINANCIAL SECTION

I

D

Governing Board

VAVRINEK. TRINE, DAY &COMPANY,LLP

Cttrtlfinl Pu/,/Jc ll~cowtt,mts

INDEPENDENT AUDITORS' REPORT

Healdsburg Unified School District Healdsburg, California

Report on the Financial Statements

VA L UE Tl!£ l>lfi'EAEIICE

We have audited the accompanying financial statements of the governmental activities. each major fund, and the aggregate remaining fund infonnati.on of the Healdsburg Unified School District (the "District'') as of and for the year ended June 30~ 2013, and the n,lated mrtes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents.

Management'• RespoulblDty for the Ffnandal Statemenu

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles genemlly accepted in the United States of America; this includes the design. implementation, and maintenance of internal control relevant to the preparation and fair presentation of financi.el statements that are free from material misstatement, whether due to fraud or error.

Auditor'• Responsibility

Our responsibility is to express opinions on these financial statement:& based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govenu,,ent Auditing Standanb, issued by the Comptroller General of the United States; and Stamlards and Procedures for Audits of California K-12 Local Education Agencie.a 1012-2013, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain n,asonable assurance about whether the financi.el statements are free from material misstatement

An audit involves performing proceduRs to obtain audit evidence about the amounts and discloSURs in the financial statements. The procedures selected depend on the auditor's judgment, includmg the assessment of the risks of material misstatement of the financial statements, whether due to fi:aud or error. In making those risk assessments, the auditor considers internal con1rol n,levant to the Dismct's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opmion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statmients.

2

!'iOOO Hopyam Road, Suile 335 Pleasanton, CA 94588 Tel: !l25.T.i4.6600 Fax; 925.734.8611 www.vlxlcpa.co,n

F:RJSNO • LAGUNA BILLS• P,iLO ALTO • P LEASANTON • JlANCBO CllCAMONGA • :RIVJl:RIIDE • IIACRAMl:NTO

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Healdsburg Unified School District, as of June 30, 2013, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matten

Required Supplementary Information

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

Other Information

Our audit was conducted for the pUipose of forming opinions on the financial statements that collectively comprise the Healdsburg Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual nonmajor fund financial statements and schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the other supplementary information, are presented for pUiposes of additional analysis and are not a required part of the basic financial statements.

The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

3

Other ~rting Required by GoHmfllDlt A11tiiti,,g Stal&tltmb

In accordance with Government Auditing Standards, we have also issued our report dated December 9, 2013, on our considemtion of the Healdsburg Unified. School District's internal control over finanoial reporting and on our tests of its compliance with certain prov:isio:n.s of laWB, :regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of 0\11' testing of internal control over .financial reporting and compliance and the results of that testing, and not to provide an opinion on intemal control over .financial reporting or on compliance' That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Healdsburg Unified School District's intemal control over financial reporting and compliance.

Vam~ek.., 'Tr;ne, Uiy &, CJ., L.LP

Pleasanton, California December 9, 2013

4


MANAGEMENT'S DISCUSSION AND ANALYSIS

JONE 30, 2013

This section of Healdsburg Unified School District's annual financial report presents management's discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2013. Please read it in conjunction with the District's financial statements, which immediately follow this section.

FINANCIAL mGHLIGHTS OF THE PAST YEAR

• The District ended the year with available reserves of $6,955,490 or 38.12 percent, which exceeds the State-recommended level of three percent and State-required level of one percent.

• General Fund revenues were higher than expenditures by $2,595,426.

• General Fund revenues increased from 2011-2012 to 2012-2013 by $1,560,438 or 8.09 percent before onbehalf payments:

o Property tax revenue decreased by $111,972 or 0.96 percent; o Payments of former redevelopment area taxes totaling $4,632,881 were received; when this

amount is added to property taxes, property taxes increased by $1,499,971 overall, or 10.22 percent;

o State funding increased by $249,460 or 251.12 percent; o Federal revenue decreased by $319,429 or 26.78 percent; o Other State revenue increased by $37,631 or 2.26 percent; o Other local revenue increased by $92,335 or 5.63 percent.

OVERVIEW OF THE FINANCIAL STATEMENTS

The Financial Statements

The financial statements presented herein include all of the activities of the District using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement Number 34.

The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present the governmental activities and include all assets of the District (including capital assets) as well as all liabilities (including long-term debt). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables and receivables.

The Fund Financial Statements include statements for each of the two categories of activities: governmental and fiduciary.

The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting.

5


MANAGEMENT'S DISCUSSION & ANALYSIS JUNE 30, 2013

The Fiduciary Activities include the scholarship trust and agency funds. The scholarship trust uses the cUITent financial resources measurement focus. The agency funds report a balance sheet and do not have a measurement focus.

Reconciliations of the Fund Financial Statements to the Government-Wide Financial Statements are provided to explain the differences created by the integrated approach.

FINANCIAL ANALYSIS OF HEALDSBURG UNIFIED SCHOOL DISTRICT AS A WHOLE

The Statement ofNet Position and the Statement of Activities

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

These two statements report the District's net position and changes in them. Net position is the difference between assets and 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 position 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 Board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation.

In the Statement of Net Position and the Statement of Activities we report the District activities as follows:

Governmental Activities - All of the District's services are reported in this category. This includes the education of Kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, state income taxes, user fees, interest income, federal, state and local grants, as well as general obligation bonds finance these activities.

REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS

Fund Financial Statements

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

6



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.

HEALDSBURG UNIFIED SCHOOL DISTRICT AS TRUSTEE

Reporting the District's Fiduciary Responsibilities

The District is the trustee, or .fiduciary, for funds held on behalf of others, like our funds for associated student body activities and scholarships. The District's fiduciary activities are reported in separate Statements of Fiduciary Net Position, Statement of Revenues, Expenses, and Changes in Fund Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes.

HEALDSBURG UNIFIED SCHOOL DISTRICT AS A WHOLE

Net Position

The District's net position was $19.89 million and $17.66 million for the fiscal years ended June 30, 2013 and 2012, respectively. The District has a surplus in unrestricted net position of $7.07 million for the fiscal year ended June 30, 2013, and a surplus of $4.07 million for the fiscal year ended June 30, 2013. Net investment in capital assets account for $7.15 million and $7.91 million of the total net position for 2013 and 2012, respectively. Table 1 provides a summary of the District's net position as of June 30, 2013 and 2012.

TABLEl

(Amounts in millions) Governmental Activities 2013 2012

Current and other assets $ 26.97 $ 12.02 Capital assets 45.23 46.20

Total Assets 72.19 58.22 Current liabilities 4.56 3.61 Long-term debt 47.74 36.95

Total Liabilities 52.30 40.56 Net Position

Net investment in capital assets 7.15 7.91 Restricted 5.67 5.68 Unrestricted 7.07 4.07

Total Net Position $ 19.89 $ 17.66

7



Changes in Net Position

The results of this year's operations for the District as a whole are reported in the Statement of Activities. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so the reader may see our total revenues for the year, total expenses and the increase or decrease to the District's net position.

(Amounts in millions) Revenues

Charges for services Operating grants and contributions General revenues:

Federal and State aid Property taxes

Other general revenues

Total Revenues Expenses

Instruction related Student support services Administration Maintenance and operations Other

Total Expenses Change in Net Position

TABLE2

$

$

8

Governmental Activities 2013 2012

0.10 $ 0.11 3.63 3.92

1.29 0.94 19.48 17.88

1.33 1.21 25.83 24.06

15.44 14.08 2.13 1.93 1.38 1.14 1.81 1.60 2.84 2.07

23.60 20.82 2.24 $ 3.24

HEALDSBURG UNIFIE.D SCHOOL DISTRICT

MANAGEM.ENT'S DISCUSSION & ANALYSIS JUNE 30, 2013

As reported in the Statement of Activities, program revenues totaled $3. 73 million and general revenues totaled $22.10 million. Property tax.es, state and federal aid and other General Revenues accounted for 85.57 percent of the District's revenue (see Figure A). The remaining 14.43 percent of revenue was from a combination of operating grants and charges for services.

Figure A 2012-2013 Revenues

Charges for services

State and Federal aid 5%

Property taxes 76%

0%

9

Operating grants and contributions

14%

Other general reve.nues

5%


MANAGEMENT'S UISCUSSION & ANALYSIS JUNE 30, 2013

The total cost of all programs and services was $23.60 million. The District's ex.penses were predominantly related to student instruction and support services. Expenses in those areas were 74.50 percent of total expenses (see Figure B). Administrative expenses of the District were only 5.90 percent of total costs.

Figure B 2012-2013 Expenses

Administratio 6%

Maintenance and operations

7%

Pupil service 9%

Goverm11ental Activities

Other 12%

Instruction-related 10%

ln.struction 56%

As reported in the Statement of Activities, the cost of all governmental activities was $23.60 million and $20.82 million for fiscal years ended 2013 and 2012, respectively. The amount that taxpayers ultimately financed for these activities through local taxes was only $I 9.48 million and$ l 7.88 million in 2013 and 2012. The remaining costs were paid by other governmental organizations that subsidized certain programs with grants and contributions/entitlements ($3.63 million and $3.92 million) and by those programs which benefited from District services ($0.10 million in 2013, $0.l.l million i.n 2012). The District paid for the remaining "public benefit" ponion of our governmental activities with $1.29 million and $0.94 million in Federal and. State funds and with S 1.33 million and $1.21 million of other revenues such as interest and general entitlements for the fiscal years ended 2013 and 2012, respectively.

IO



In Table 3, we have presented the net cost of each of the District's largest functions - instruction, instructionrelated activities, pupil services, general administration, maintenance and operations, and other, as well as each program's net cost (total cost less revenues generated by the activities). Ali 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.

TABLEJ

(Dollar amounts in millions) Net Cost of Services 2013 2012

Instruction $ 11.02 $ 9.73 Instruction-related activities 1.89 1.52 Pupil Services 1.12 0.89 General Administration 1.30 1.06 Maintenance and operations 1.70 1.53 Other 2.84 2.07

Totals s 19.87 s 16.79

FINANCIAL ANALYSIS OF HEALDSBURG UNIFIED SCHOOL DISTRICT'S FUNDS

As the District completed this year, our Governmental Funds reported a combined fund balance of $25.43 million, which is an increase of $14.44 million from last year. The General Fund increased by $2.60 million without the consolidation of Fund 14, Deferral Maintenance Fund and Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects, due to the receipt of $4.63 million in former redevelopment agency property taxes.

Other Governmental Funds changed as follows:

I. The Cafeteria Fund decreased by $1,489.

2. The Deferred Maintenance Fund increased by $307,487, which is consolidated into General Fund for GASB 54 reporting purposes.

3. The Special Reserve for Other Than Capital Outlay Projects increased by $5,670, which is consolidated into General Fund for GASB 54 reporting purposes.

4. The Building Fund increased by $11,501,839 due to the receipt of $11,782,068 in bond sale proceeds. This money will be used to renovate and modernize the Healdsburg High School and Healdsburg Junior High School campuses.

5. The Capital Facilities Fund increased by $113,044 as developer fee revenue exceeded student housing expenditures.

6. The Special Reserve Fund for Capital Outlay Projects decreased by $49,721.

7. The Bond Interest and Redemption Fund decreased by $37,132.

II



General Fund Budgetary HighUghts

Over the course of the year, the District revises its budget as it attempts to deal with anticipated changes in revenues and expenditures. The final amendment to the budget was completed in May 2013. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report as listed in the table of contents).

Expenditure budgets are revised throughout the year for a variety of reasons, including changes to account for actual staffing costs, negotiated salary increases and for expenditure of additional state, federal and local funds received subsequent to budget adoption.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

At June 30, 2013, the District had $45.23 million in a broad range of capital assets, including land, buildings, furniture, equipment, and work in progress. This amount represents a net decrease of just over $0.97 million, or 2.1 percent, from last year. A summary of capital assets, net ofrelated depreciation, is presented in Table 4.

TABLE4

(Amounts in millions) Governmental Activities 2013 2012

Land $ 1.36 $ 1.36 Improvement of sites 4.62 4.88 Buildings and improvements 38.33 39.39 Equipment and Vehicles 0.46 0.51 Work in progress 0.46 0.05

Totals s 45.23 s 46.20

More detailed information about the District's capital assets is presented in Note 4 to the financial statements.

Long-Term Debt

At the end of this year, the District had $50.66 million in long-term debt outstanding versus $39.16 million last year, and is outlined in Table 5.

(Amounts in millions)

Bonds Payable Capital Leases Payable Compensated Absences Early Retirement Incentives Other Postemployment Benefits

Totals

TABLES

$

s

Governmental Activities 2013 2012

48.42 $ 37.03 1.15 1.25 0.07 0.06 0.89 0.78 0.13 0.03

so.66 _s _____ 39_.1_6_

More detailed information about the District's long-term debt is presented in Note 8 to the financial statements.

12



FACTORS BEARING ON THE DISTRICT'S FUTURE

At the time the financial statements were prepared and audited, the District was unaware of any locally existing circumstances that could adversely affect its financial health significantly in future years. However, the volatility of the state economy, the state's move to the Local Control Funding Formula, and the uncertainty over future former redevelopment agency disbursements continue to create challenges in budgeting for future years. The Board of Trustees has consistently demonstrated in the past that it is prepared to take the steps necessary to ensure the District's solvency.

The District prepares a three-year projection of its General Fund at least twice each year. Based on these projections, District Management believes Healdsburg Unified School District will be able to meet its financial commitments in the current year and subsequent two years. However, the variables mentioned above will undoubtedly affect the projection and the District will respond accordingly to maintain solvency during the preparation of the First and Second Period Interim Financial reports.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, students, 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 Director of Business Services, Healdsburg Unified School District, 1028 Prince Street, Healdsburg, California 95448.

13


STATEMENT OF NET POSITION JUNE 30, 2013

ASSETS Deposits and inves1ments Receivables

Deferred charges

Stores inventories

Capital assets not depreciated

Capital assets, net of accumulated depreciation

Total Assets

LIABILITIES Accounts payable

Interest payable

Deferred revenue

Current portion of long-tenn obligations

Noncurrent portion of long-term obligations

Total Liabilities

NET POSfflON Net inves1ment in capital assets

Restricted for:

Debt service

Capital projects

Educational programs

Unrestricted

Total Net Position

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

14

Governmental

Activities

$ 137,246,589 27,578,962

2,087,764

151,272

1,0232011 2653

1119013041750

12,685,974

14,623,487

66,577

2,923,871

41916092957

4492953!519

7,156,256

4,286,409

924,847

457,778

7272525!941 $ 74013511231


STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013

Program.Rewnues

Charges for Operating

Senices and GrantB and

Functions/ProgrlllDI Expenses Sales Contributions

Gowrnmeotal Acthities: Instruction $ 13,147,614 $ 9,074 $ 2,120,861

Instruction-related activities :

Supervision of instruction 720,562 394 263,263 Instructional hbrary, n::iedia, and

technoJogy 181,765 13,744

School site administration 1,388,317 1,274 121,926

Pupil services:

Hon::ie-to-school transportation 426,853 11,760 61,104

Food services 937,905 71,226 714,808

All other pupil services 769,140 152,763

Administration:

Data processing 210,551

All other administration 1,169,491 3,305 73,843

Plant services 1,808,293 3,468 104,891

Ancillary services 24,354

Fnterprise services 28,666

Interest on Jong-term.obligations 2,299,731

Other outgo 484,017

Total Gowrnmental Actht1ie1 $ 23,597,259 $ 100,501 $ 3,627,203

General revenues and subventions:

Property ~s, levied for general purposes

Property ~s, levied for debt service

Ta.,ces levied fur other specific purposes

Federal and State aid not restricted to specific purposes

Interest and investn::ient earnings

Miscellaneous

Subtotal, General Re\'enues

Change in Net Position

Net Position - Beginning

Net Position - Fnding


15

Net (F.xpemes)

Rewnues and

Changes in

Net Position

Gowrnmental

Acthities

$ (11,017,679)

(456,905)

(168,021)

(1,265,117)

(353,989)

(151,871)

(616,377)

(210,551)

(1,092,343)

(1,699,934)

(24,354)

(28,666)

(2,299,731)

(484,017)

$ (19,869,555)

16,265,200

2,958,028

258,608

1,289,653

77,475

1,255,685

22,104,649

2,235,()1)4

17,659,485

$ 19,894,579


GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2013

General Fund

ASSETS Deposits and im,,stments $ 22,378,298 $ Receivables 22,632,848 Due from other funds 3,822,448 Stores inventories 93,331

Total Assets $ 49,155,435 $

LIABILITIES AND FUND BALANCES Liabilities:

Accounts payable $ 9,898,316 $ Due to other funds 4,088,234 Deferred rewnue 66 577

Total Liabilities 14,053,127 Fund Balances:

Nonspendable 5,000 Restricted 2,506,293 Committed 90,922 Assigned 652,629 Unassigned 6,955,490

Total Fund Balances 10;!,_10,334 Total Liabilities and Fund Balances $ 24;!,_63,461 $


16

Special Reserve Building Capital Outlay

Fund Fund

80,665,224 $ 4,366,489 5,963,463

90,995,176 $

2,271,496 $

3,201

2;!,_74,697

11,501,839 103,734

11,501,839 103 734

13,776,536 $ 103 734

Bond Intere11t Non Major Total and Redemption Governmental Governmental

Fund Funds Funds

$ 21,060,667 $ 11,411,163 $ 135,515,352 7,213 251,054 27,257,604

16,554 9,802,465 57,941 151,272

s 21!067,880 $ 11,736,712 $ 172,955J03

$ 514,652 s 12,684,464 5,920,203 10,011,638

66>577 6,434,855 22,762,679

39,180 44,180 4,806,849 1,025,502 19,944,217

90,922 652,629

6,955,490 4,806,849 1,064,682 27,687,438

s 4,806,849 $ 7!499,537 $ 50,450,117

17


RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION

JUNE 30, 2013

Total Fund Balance - Governmental Funds

Amounts Reported fur Governmental Activities in the Statement of Net Position are Dilferent Because:

Capital assets used in governmental activities are not fmancial resources

and, therefore, are not reported as assets in governmental funds.

The cost of capital assets is

Accumulated depreciation is

$ 65,522,531

Net Capital Assets

Expemlitures relating to debt issuance costs were recorded as deferred

charges and amorti7.ed over the life of the debts in the government-wide

statements, but are expensed in the year debt is issued on the governmental

fund statements.

In governmental funds, unmatured interest on long-term obligations is

recogniz.ed in the period when it is due. On the government-wide

financial statements, unmatured interest on long-term obligations is

recogniz.ed when it is incurred

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:

Bonds payable

Capital leases payable

Net OPEB obligation

Compensated absences (vacations)

Early retirement inceotives

Total Long-Term Obligations Total Net Position - Governmental Activities


18

(20,296,658)

48,418,947 1,152,509

125,347 73,336

894,540

$ 25,434,534

45,225,873

419,291

(520,440)

(50,664,679) $ 19,894,579


GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

FOR THE YEAR ENDED JUNE 30, 2013

General Fund

REVE.WEi Revenue limit sources $ 16,529,343 Federal sources 871,684 Other State sources 2,054,685 Other local sources 1,742,139

Total Rnenues 21,197,851 EXPffiDIJ11REi Current

Instruction 11,532,212 Instruction-related activities:

Supervision of instruction 708,707 Instructional library, media and technology 181,115 School site administration 1,348,388

Pupil services: Horm-to-s chool transportation 338,775 Food services All other pupil services 767,583

Administration: Data processing 206,495 All other administration 1,118,524

Plant services 1,546,194 Facility acquisition and construction 195,239 Ancillary services 24,354 Other outgo 305,403

Debt service Principal Interest and other

Total Expencitures 18,272,989 Euel!III (Deficiency) of Rewnues ~r Eq,encitures 2,924,862 Other Financing Sources ~es)

Transfers in Other sources Transfers out (16,277) Otheruses

Net Financing Sources ~es) (16,277)

NEf CHANGE IN FUND BALANCES 2,908,585

Fund Balance - Beginning 5,048,845

FundBalance - lruing $ 7,957,430

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

19

Special Re11er,ti Builcing Cap.tal

Fund Fund

$ $

58,807 258,655

58,807 258,655

128,710 21,009 210,327 128,311

101,737 279,999 57,319

619,036 308,376

(560,229) (49,721)

12,062,068

12,062,068

11,501,839 (49,721)

153,455

$ 11,501,839 $ 103,734

Bond Intere11 t Nonmajor Total andRedemption Go~rn:mental Go-wrnmental

Fund Fundl Fundl

$ - $ - $ 16,529,343 636,098 1,507,782

14,510 272,139 2,341,334 2,970,206 3(,(),888 5,390,695

2,984,716 1,269,125 25,769,154

201,456 11,733,668

8,755 717,462 181,115

28,276 1,376,664

338,775 787,404 787,404

767,583

206,495 42,593 1,161,117

105,362 1,801,275 533,877 24,354

305,403

11,344,140 11,445,877 1,419,094 1,756,412

12,763,234 1,173,846 33,137,481

(9,778,518) 95).79 (7,368,327)

16,277 16,277 9,920,000 21,982,068

(16,277) (178,614) (178,614)

9,741,386 16,277 21,803,454

(37,132) 111,556 14,435,127

4,843,981 953,126 10,999,407

$ 4,806,849 $ 1,064,682 $ 25,434,534

20


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, 2013

Total Net Change in Fund Balances - Governmental Fund.I Amount1 Reported for Governmental Activitie1 in the Statement of Activities are Different Because:

Capital outlays to purchase or build capita] assets are reported in governmental funds as expenditures; ho"M:ver, for governmental activities, those costs are shown in the statement of net position and allocated over their estimated useful liws as amrual depreciation expenses in the statement of activities.

This is the amount by v.hich depreciation exceeds capital outlays in the period. Depreciation expense Capital outlays

Net Expense Adjustment Payment of bond issuance costs is an expenditure in the governmental funds, but it is recorded as a deferred charge and amoritzed on the statement of net position owr the life of the bonds.

ProceedB received from new long term debts are re\lCnw::s in the governmental funds, increase long term liabilities in the sttement of net position and do not affect the statement of activities.

Amorti2lltion of issuance costs relating to the general obligation bonds are reported in the government-wide finaru:ial statement, but is not accounted for in the govermnental funds.

In the statement of activities, certain operating expenses, such as compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, ho'NCver, expenditures for these items are measured by the amount of finaru:ial resources used ( essentially, the amounts actually paid). Vacation used was less than the amounts earned.

In governmental funds, repayments of long-term debt are reported as expenditures. In the gowrmnent-wide statements, repayments oflong-term debt are reported as reduction of liabilities.

Accreted interest on capital appreciation bonds does not require the use of current .financial resources, and thus is not recorded in the govermnental funds. In the statement of activities, ho..wwr, accreted interest expense is recognized in the go=ent-wide statements es the interest accrues.

In the gowrnmental funds, payment of the early retirement incentiw costs are reported as expenditure in the period paid. In the government-wide statements, the full amount of the debt is recognized in the current period This is the amount by which additions to the program exceeded payments made.

In the statement of activities, unfunded Annual Required Contribution (ARC) is recognized as an expense, but is not recognized in the governmental funds.

Interest on long-term obligations is recorded as an expenditure in the funds when it is due; ho'NCwr, in the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due.

Change in Net Position ofGowrnmental Acthities

21

$ (1,513,607) 542,998

$ 63,463,155

(970,609)

436,385

(21,918,869)

(17,094)

(8,939)

11,445,877

(813,721)

(110,174)

(94,000)

(148,889)

S 51,263,122


FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2013

ASSETS

Deposits and investments Receivables

Total As sets

LIABILITIES Due to student groups

Total Liabilities

NET POSITION Reserved for scho1arships

Total Net Position

22

Scholarship Agency Trust Funds

$ 223t518 $ 248t631

46t612

$ 2702130 $ 248,631

$

$ 248,631

$

$ 270,130


FIDUCIARY FUNDS STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2013

ADDITIONS

Private donations Interest

Total Additions

DEDUCTIONS

Salaries and benefits Other operating expenditures

Total Deductions

Change in Net Position Net Position - Beginning Net Position - Ending


23

$

$

Scholars hip Trust

49,022 1,884

50,906

40,990 14,623 55,613

(4,707) 274,837 270,130


NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013

NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The Healdsburg Unified School District (the District) was unified on 1995 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 one elementary school and one charter school, each of which is spread over two campuses, one middle school, one high school, one charter school, a continuation school, and an independent study program.

A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Healdsburg 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 for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund.

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

In addition, under the flexibility provisions of current statute that allow certain formerly restricted revenues to be used for any educational purpose, Fund 14, Deferred Maintenance Fund does not currently meet the defmition of special revenue funds as this fund is no longer primarily composed of restricted or committed revenue sources.

24



As the District has not taken formal action to commit the flexed revenue(s) formerly restricted to these programs to the continued operation of the original programs, the revenues within these funds would be considered to be available for general educational purposes, resulting in Fund 14, Deferred Maintenance Fund being combined with the General Fund for presentation in these audited financial statements.

As a result, the General Fund reflects an increase in assets, liabilities, fund balance, revenues, and expenditures of $1,480,539, $1,390,648, $89,891, $8,397, and $195,239, respectively.

Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued.

Special Reserve Fund for Capital Outlay Projects The Special Reserve Fund for Capital Outlay Projects exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education. Code Section 42840).

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

Non-Major Governmental Funds

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

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 3 8090-3 8093) 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).

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 Government (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in Code sections 65970-65981 or to the items specified in agreements with the developer (Government Code Section 66006).

25



Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is split into two classifications: private-purpose trust funds and agency funds. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held

Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore, not available to support the District's own programs. The District's trust fund is the Scholarship fund.

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 are 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. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared.

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

Net position should be reported as restricted when constraints placed on net position 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 position restricted for other activities result from special revenue funds and the restrictions on their net position use.

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

26



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 balance 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. Fiduciary funds are excluded from the government-wide financial statements because they do not represent resources of the District.

Revenues - Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defmed as collectible within 45 or 60 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to State-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources.

Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and pmpose restrictions. 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 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.

27



Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on longterm obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements.

Investments

Investments held at June 30, 2013, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor.

Restricted Assets

Restricted assets arise when restrictions on their use change the normal understanding of the availability of the asset. Such constraints are either imposed by creditors, contributors, grantors, or laws of other governments or imposed by enabling legislation. Restricted assets in the debt service fund represent investments required by debt indenture to be set aside by the District for the purpose of making future bond interest and principal payments.

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 funds and expenses in the proprietary funds when used.

Capital Assets and Depreciation

The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. 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 position. 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 is computed using 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, five to 50 years; equipment, two to 15 years.

28



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 column of the statement of net position.

Compensated Absences

Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net position. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year-end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid.

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

Accrued Liabilities and Long-Term Obligations

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

However, claims and judgments, compensated absences, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the governmental fund financial statements only to the extent that they are due for payment during the current year. Bonds, capital leases, and other long-term obligations are recognized as liabilities in the governmental fund financial statements when due.

Deferred Issuance Costs

In the government-wide financial statements, long-term obligations are reported as liabilities in the applicable governmental activities of net position. Bond issuance costs are deferred and amortized over the life of the bonds using the straight-line method.

Fund Balances - Governmental Funds

As ofJune 30, 2013, fund balances of the governmental funds are classified as follows:

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

29



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

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

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

Unassigned - all other spendable amounts. It is the District's practice to maintain an amount equal to at least three percent of the General Fund annual expenditures and other financing uses for Economic Uncertainties.

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.

Net Position

Net position represents the difference between assets and liabilities. Net position net of investment in 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 position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available.

lnterfund Activity

Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented in the financial statements. There was no such transaction during the year due to the GASB 54 implementation, which Funds 14 and 17 activities have been combined with General fund and inter-fund activities have been eliminated as intrafund transfers.

30



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 prescnbed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts io 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.

Property Tax

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

Changes in Accounting Principles

In June 2011, the GASB issued Statement No. 63, Financial Reporting of Defe"ed Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial reportiog guidance for deferred outflows of resources and deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements, iotroduced and defined those elements as a consumption of net assets by the government that is applicable to a future reportiog period, and an acquisition of net assets by the government that is applicable to a future reportiog period, respectively. Previous financial reportiog standards do not ioclude guidance for reporting those financial statement elements, which are distinct from assets and liabilities.

Concepts Statement No. 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements----and Management's Discussion and Analysis-for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred ioflows of resources into the definitions of the required components of the residual measure and by renamiog that measure as net position, rather than net assets.

The District has implemented the provisions of this Statement for the year ended June 30, 2013.

31



New Accounting Pronouncements

In March 2012, the GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities.

Concepts Statement No. 4, Elements of Financial Statements, introduced and defined the elements included in financial statements, including deferred outflows of resources and deferred inflows of resources. In addition, Concepts Statement No. 4 provides that reporting a deferred outflow of resources or a deferred inflow of resources should be limited to those instances identified by the Board in authoritative pronouncements that are established after applicable due process. Prior to the issuance of this Statement, only two such pronouncements have been issued. Statement No. 53, Accounting and Financial Reportingfor Derivative Instruments, requires the reporting of a deferred outflow of resources or a deferred inflow of resources for the changes in fair value of hedging derivative instruments, and Statement No, 60, Accounting and Financial Reporting for Service Concession Arrangements, requires a deferred inflow of resources to be reported by a transferor government in a qualifying service concession arrangement. This Statement amends the financial statement element classification of certain items previously reported as assets and liabilities to be consistent with the definitions in Concepts Statement No. 4.

This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations.

The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. Earlier implementation is encouraged. The District is currently evaluating the impact of this Statement on the fmancial statements.

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.

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:

32



Contributions from employers and nonemployer contributing entities to the pension plan and eanrings 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 contnbuting entities, and the pension plan adnrinistrator. 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.

Note disclosure and required supplementary information requirements about pensions also are addressed Distinctions are made regarding the particular requirements for employers based on the number of employers whose employees are provided with pensions through the pension plan and whether pension obligations and pension plan assets are shared. Employers are classified in one of the following categories for purposes of this Statement:

• Single employers are those whose employees are provided with defmed benefit pensions through singleemployer pension plans----pension plans in which pensions are provided to the employees of only one employer (as defined in this Statement).

• Agent employers are those whose employees are provided with defmed benefit pensions through agent multiple-employer pension plans----pension plans in which plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer's share of the pooled assets is legally available to pay the benefits of only its employees.

• Cost-sharing employers are those whose employees are provided with defined benefit pensions through cost-sharing multiple-employer pension plans----pension plans in which the pension obligations to the employees of more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan.

In addition, this Statement details the recognition and disclosure requirements for employers with liabilities (payables) to a defined benefit pension plan and for employers whose employees are provided with defined contribution pensions. This Statement also addresses circumstances in which a non-employer entity has a legal requirement to make contributions directly to a pension plan.

This Statement is effective for fiscal years beginning after June 15, 2014. Earlier implementation is encouraged. The District is currently evaluating the impact of this Statement on the fmancial statements.

33



NOTE 2 -DEPOSITS AND INVESTMENTS

Summary of Deposits and Investments

Deposits and inves1ments as of June 30, 2013, are classified in the accompanying financial statements as follows:

Governmental activities Fiduciary funds

Total Deposits and Inves1ments

Deposits and inves1ments as of June 30, 2013, consist of the following:

Cash on hand and in banks Cash in revolving Inves1ments

Total Deposits and Inves1ments

Policies and Practices

$135,515,352 21,198,450

$156,738,802

$ 3,186,580 62,000

155,196,459 $158,445,039

The District is authorized under California Government Code to make direct inves1ments in local agency bonds, notes, or warrants within the State; U.S. Treasury instrwnents; 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 inves1ment 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 inves1ment 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.

34



General Authorizations

Limitations as they relate to interest rate 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 I 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/or 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.

The District monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. Information about the weighted average maturity of the District's portfolio is presented in the following schedule.

Investment Type County Pool $

35

Fair Value

24,603,411

Weighted Average Maturity Days

1,102



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 investment's in the county pool are not required to be rated, nor have they been rated as of June 30, 2013.

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, 2013, all of the District's bank balance of $258,771 was insured and collateralized with securities held by pledging financial institution's trust department or agent.

NOTE 3-RECEWABLES

Receivables at June 30, 2013 consisted of intergovernmental grants, entitlements, interest, and other local sources. All receivables are considered collectible in full.

Federal Government

Categorical aid

State Government

Apportionment

Categorical aid

Lottery

Other State Local Government

Interest

Other Local Sources Total

36

$

General

Fund

345,972

48,588 686,454

149,404

1,853

532,176 $ 1,764,447

Non-Major

Governmental

Funds

$

$

69,315

5,886

417

86,042 161,660

$

Total

415,287

48,588 692,340

149,404

417

1,853 618,218

$ 1,926,107



NOTE 4 - CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2013, was as follows:

Balance July 11 2012 Additions

GGvernmental Activities Capital Assets Not Being Depreciated:

Land $ 1,356,450 $ Construction in Progress 521968 406,540

Total Capital Assets Not Being Depreciated 114091418 4061540

Capital Assets Being Depreciated: Land Improvements 7,774,254 93,535 Buildin~ and Improvements 54,162,176 Furniture and Equipment 117341226 42,923

Total Capital Assets Being Depreciated 6316701656 1361458 Total Capital Assets 65,080,074 542,998

Less Accwnulated Depreciation: Land Improvements 2,894,534 355,867 Buildin~ and Improvements 14,769,566 1,061,002 Furniture and Equipment 112191492 961738

Total Accwnulated Depreciation 181883!592 115131607 Governmental Activities Capital Assets, Net $ 46,196,482 $ (970,609)

Deductions

$

1001541

1001541 100,541

1001541 1001541

$

Depreciation expense was charged as a direct expense to governmental functions as follows:

Instruction $ School administration Home-to-school transportation Food services All other pupil services Enterprise Other general administration Plant maintenance and operations

Total Depreciation Expenses $

37

Balance June 301 2013

$ 1,356,450 4591508

118151958

7,867,789 54,162,176

116761608

6317061573 65,522,531

3,250,401 15,830,568

112151689 2012961658

$ 45,225,873

1,236,923 627

87,052 148,802

1,385 28,666

1,932 81220

11513!607



NOTE 5 -INTERFUND TRANSACTIONS

Interfund Receivables/Payables (Due To/Due From)

Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which 1ransactions are executed. Jnterfund receivable and payable balances at June 30, 2013, between major and non-major governmental funds and fiduciary funds are as follows:

General Fund Building Fund

Due To

Special Reserve Capital Outlay Fund Non-Major Governmental Funds

Total

Operating Tranl!lfers

$

$

General Fund

128,709 2001000

361313 3651022

DueFrom

Special Reserve Non-Major

Capital Outlay Governmental Fund Funds

$ 258,609 $ 16,277

7 049 $ 2651658 $ 161277

Interfund 1ransfers for the year ended June 30, 2013, consisted of the following:

The General Fund 1ransferred to the Child Development Fund for contributions.

38

Total $ 274,886

128,709 200,000

431362 $ 6461957

$ 16,277



NOTE 6-ACCOUNTS PAYABLE

Accounts payable at June 30, 2013, consisted of the following:

General Building Fund FlDld

Vendor payabJes $ 858,673 $30,899 Salaries and benefits 133,497

Special Reserve Non-Major Capitaf Outlay Governmental

Fund Funds Total $ 6,392 $ 44,046 $ 940,010

4,895 138,392 Total $ 992,170 $30,899 $ 62392 $ 48,941 $ 1,078,402

NOTE 7 -DEFERRED REVENUE

Deferred revenue at June 30, 2013, consists of the following:

Non-Major General Governmental Fund Funds Total

Federal financial assistance $ 66,577 $ $ 66,577 State categorical aid

Total $ 66i577 $ $ 661577

NOTE 8-LONG-TERM OBLIGATIONS

Summary

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

Balance Additions & Balance Due in July 12 2012 Adjustments Deductions June 302 2013 One Year

General obligation bonds $ 37,030,497 $22,732,590 $11,344,140 $ 48,418,947 $ 1,917,882 Capital leases 1,254,246 101,737 1,152,509 106,387 Early retirement incentives 784,366 477,856 367,682 894,540 894,540 Compensated absences 64,397 16,482 7,543 73,336 5,062 Other Postemployment Benefits 31,347 1,152,343 1,058,343 125,347

$ 3921642853 $2423792271 $1218791445 $ 5016641679 $ 229232871

Payments on the general obligation bonds are made by the bond interest and redemption fund from local property tax revenues. The special reserve for capital outlay fund makes payments for the capital leases. The compensated absences and other postemployment benefits are paid for by the funds for which the employees worked. Early retirement incentives are paid by the general fund. Bond Refunding

39



On July 26, 2012, the District issued $9,920,000 of2012 General Obligation Refunding Bonds. The bonds consist of serial bonds bearing fixed rate of 2.65 percent with annual maturities from July 1, 2013 through 2027.

The net proceeds of $9,714,014 (after issuance costs of $156,386 and discounts of $49,600) were used to refund the 2003 series General Obligation Bonds with a total principal amount of $9,585,000 with interest rates ranging between 3.25 percent to 4.3 percent.

The refunding decreased the District's total debt service payments by approximately $939,000 including interest payments. The transaction resulted in an economic gain ( difference between the present value of the debt service on the old and the new bonds) of $747,040, which results in a savings to the community.

Bonded Debt

The outstanding general obligation bonded debt is as follows:

Bonds Bonds

Issue Maturity Interest Original Outstanding Accreted Outstanding Date Date Rate Issue Jul:l'.: 122012 Issued Interest Redeemed June 302 2013

1997 2021 4.8-8.0% $4,409,988 $ 9,912,401 - $ 174,459 $ 324,717 $ 9,762,143

2003 2027 3.1-8.0% 3,990,000 3,475,000 135,000 3,340,000

2003 2027 3.25-5.0% 13,000,000 10,045,000 10,045,000

2005 2027 2.25-5.1% 5,819,951 7,248,096 278,402 224,423 7,302,075

2007 2019 3.75-5.0% 8,690,000 6,350,000 615,000 5,735,000

2012 2038 3.97%-5.08% 11,998,869 11,998,869 360,860 12,359,729

2012 2028 2.650% 9,920,000 9!920!000 9!920!000

$37,030,497 $ 21,918,869 $ 813,721 $ 11,344,140 $48,418,947

40



Debt Service Requirements to Maturity

The bonds mature through 2028 as follows:

Interest to Fi<ical Year Principal Maturity

2014 $ 1,917!882 $ 603,334 2015 1,989,676 549,374 2016 2,124,449 495,128 2017 2,229,131 442,374 2018 2,584,229 383,730

2019-2023 11,066,851 1,176,771 2024-2028 9,268,765 407,266 2029-2033 2,827,644 2034-2038 52611!364

Total 39,619,991 $ 4.0571976

.Accretions to date 82798!956 $ 48,418,947

Accumulated Unpaid Employee Vacation

Accreted Interest Total

$ 627,118 $ 3,148,334 695,324 3,234,374 790,551 3,410,128 815,869 3,487,374 915,771 3,883,730

9,078,149 21,321,771 4,431,235 14,107,266 3,987,356 6,815,000 321232636 827351000

$ 24.465.009 $ 68.1421976

The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2013 amounted to $73,336.

Capital Leases

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

Balance, July 1, 2012 Payments Balance, June 301 2013

The District's capital leases have minimum lease payments as following:

Year Ending June 30,

2014 2015

2016

2017

2018

2019-2022

Total Less: Amount Representing Interest Present Value of Minimwn Lease Payments

41

Bwlding Lease $ 1,254,246

$

101 737 1,152,509

Lease Payment

$ 159,056

$

159,056

159,056

159,056

159,056

636,225

1,431,505 278,996

1,152,509



Leased land, buildings, and equipment in capital assets and accumulated depreciation at June 30, 2013, include the following:

Buildings $ 1,700,000 106;481

{524,826) Equipment Less : Accumulated Depreciation

Total $ 1,281,655 ==========~==

Early Retirement Incentives

Under CalSTRS law, certain early retirement incentives require the employer to pay the present value of the additional benefit which may be paid on either current or deferred basis. The District has long-term obligations to CalSTRS totaling $647,737 for early retirement incentives granted to retired certificated employees. The District has implemented a five year obligation to CalPERS for retirement incentive as of June 30, 2013 for the amount of $246,803.

Year Ending June 30,

2014

STRS Golden Handshake $ 647,737

Other Postemployment Benefits (OPED) Obligation

$ PERS Total

246,803 $ 894,540

As of June 30, 2013, the net OPEB obligation was $125,347. See Note 11 for additional information regarding the OPEB obligation and the postemployment benefits plan.

42



NOTE 9-FUND BALANCES

Fund balances are composed of the following elements:

Nonspendable Rewlving cub Stores UM:Dtories

Total Nonspendable

Restricted Legally restricted programs Educational programs Capital projects Debt services

Total Restricted

Committed OPEB Obligation

Total Committed

Assigned Deferred maintenance project

Total Assigned

Uaassigned

$

General Building Fund Fund

62,000 $ -93,331

383,841

2,506,293 73,731,089

2,506,293 73,731,089

90,922 90,922

14,989,390

Special Resent: Capital Outlay

Fund

$ -

Bond Interest Non-Major and Redemption Governmental

Fund FUilds Total

$ - $ - $ 62,000 57 941 151,272 57 941 441,782

76,237,382 368,810 368,810

4,322,106 4,322,106 21,067,880 21,067,880 21,067,880 4,690,916 101,996,178

90,922 90922

14,989,390

7,579,245 Resene for ecoDOillic UDCertainties Remaining unassigned

7,579,245 16,440,740 14,989,390 12,264 31,442,394

Total Unassigned 24,019,985 14,989,390 12,264 39,021,639 Total $ 27,001,041 $103,709,869 $ 12.264 s 21,061,sso _s __ 4,_74_s_,s_s1 ___ s _1s_6,_s3_9,._,9_11_

NOTE 10- EXPENDITURES (BUDGET VERSUS ACTUAL)

At June 30, 2013, the following District's major fund exceeded the budgeted amounts as follows:

Expenditures and Other Uses Major funds: Budget Actual Excess

General fund Certificated Salaries $ 7.000,637 $ 7.128,718 $ (128.081)

Classified SaJaries $ 2,692,184 $ 2,702,895 $ (I0,711~ Other Outgoing $ 250,985 $ 268,865 $ (17,880)

43



NOTE 11 - POSTEMPLOYMENT HEALTH BENEFIT PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION

Plan Description

The Postemployment Benefits Plan (the Plan) is a single-employer defined benefit healthcare plan administrated by the Healdsbmg Unified School District The Plan provides post employment health care benefits, in accordance with District employment contracts, to all employees who retire from the District on or after attaining age 55 with at least 10 years of service. Currently, 185 employees meet those eligibility requirements. The District contributes up to 100 percent of the amount of premiums incurred by retirees. ExpenditUies for post employment benefits are recognized on a pay-as-you-go basis, as retirees' premiums are paid.

Contribution Information

The contribution requirements of plan members and the District are established and may be amended by the District and the Employee groups. For fiscal year 2012-2013, the District contributed $1,058,343 to the plan all of which was used for cUirent premiums. District contributions for retiree benefits based on the rates established in accordance with the bargaining unit agreements. Contributions made by retirees vary depending on their agreements.

Annual OPED Cost and Net OPED Obligation

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 year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the Plan:

Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made Increase in net OPEB obligation Net OPEB obligation, beginning of year Net OPEB obligation, end of year

44

$

$

1,153,000 1,567

(2,224) 1,152,343

(1,058,343) 94,000 31 347

125 347



Trend Information

The trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for 2013 is as follows:

AnnualOPEB Actual Percentage Net OPEB Asset Year Ended June 30, Cost Contribution Contributed Obli!!,ation

2011 $ 1,158,932 $ 1,153,656 99.54% $ 55,425 2012 1,151,915 1,175,993 102.09% 31,347 2013 1,152,343 1,058,343 91.84% 125,347

Funded Status and Funding Progress

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

Actuarial Methods and Assumptions

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

In the January 1, 2008 actuarial valuation, the Projected Unit Credit method was used. The actuarial assumptions included a five percent investment rate of return and 3,25 percent general inflation per year. The UAAL is being amortized at a level percentage of payroll assuming a 3 .25 percent annual increase in payroll. The remaining amortization period at July 1, 2013, was 25 years.

NOTE 12-RISK MANAGEMENT

Property and Liability

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. During fiscal year ending June 30, 2013, the District contracted with Redwood Empire Schools' Insurance Group JP A (RESIG) 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.

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Workers' Compensation

For fiscal year 2013, the District participated in the Redwood Empire Schools' Insurance Group JPA (RESIG), an insurance purchasing pool. The intent of the Redwood Empire Schools' Insurance Group is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in the RESIG JP A. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in RESIG JP A. 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 of RESIG JP A. Participation in RESIG JP A is limited to districts that can meet the RESIG JP A selection criteria.

NOTE 13 -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 (Ca!PERS).

Ca!STRS

Plan Description

The District contributes to the California State Teachers' Retirement System (CalSTRS), a cost-sharing multipleemployer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits, anoual 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 anoual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS anoual financial report may be obtained from CalSTRS, 100 Waterfront Place, West Sacramento, California 95605.

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 2012-2013 was 8.25 percent of covered payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalSTRS for the fiscal years ending June 30, 2013, 2012, and 2011, were $586,913, $542,531, and $552,715, respectively, and equal 100 percent of the required contributions for each year.

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CaIPERS

Plan Description

The District contributes to the School Employer Pool under the California Public Employees' Retirement System (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. The actuarial methods and assumptions used for determiniog the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2012-2013 was 11.417 percent of annual covered payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalPERS for the fiscal years ending June 30, 2013, 2012, and 2011, were $320,697, $270,679, and $267,863, respectively, and equal 100 percent of the 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.

On Behalf Payment,

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 $346,738 (5.176 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. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budget amounts reported in the General Fund Budgetary Comparison Schedule.

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NOTE 14 - COMMITMENTS AND CONTINGENCIES

Grants

The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. 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, 2013.

Litigation

The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall fmancial position of the District at June 30, 2013.

Operating Leases

The District has entered into operating leases for equipment with lease terms in excess of one year. The agreement contains on purchase options. It contains a termination clause providing for cancellation after a specified number of days written notice to lessor, but it is unlikely that the District will cancel any of agreement prior to the expiration date. Future minimum lease payments under this agreement are as follows:

Year Ending Lease June 30, Pal'.!!!ent

2014 $ 58,781 2015 10 493 Total $ 69,274

NOTE 15 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS, JOINT POWERS AUTHORITIES AND OTHER RELATED PARTY TRANSACTIONS

The District is a member of the Redwood Empire Schools' Insurance Group JP A (RESIG), Bay Area Schools Insurance Cooperative and the Public Entities Property Insurance Program public entity risk pools. The District pays an annual premium to the applicable entity for its workers' compensation and property liability coverage through RESIG. The relationships between the District, the pools, and the JPA's are such that they are not component units of the District for fmancial reporting purposes.

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

During the year ended June 30, 2013, the District made payments of $110,888 for property and liability coverage and $252,791 for workers' compensation coverage.

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NOTE 16-LEASE INCOME

The District has entered into agreement.s to lease Foss Creek School site including fields and playgrounds to City of Healdsburg effective July 1, 2008. The tenns of the lease are $8,833,000 for the period commencing July 1 2008 and concluding June 30, 2058. The City of Healdsburg has the option to extend the lease for second five year term (June 30, 2013). By the 1 otti year, the City has the option to extend for the remaining term through June 30, 2058. As of the year ended June 30, 2013, the lease is automatically rolled over for another year and the District received $424,346 lease income.

The District's future lease income will be received in 2013-2014 is summarized below:

Year Ending June 30

2013 Total

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Lease Income

$ 500,000 $ 500,000

REQUIRED SUPPLEMENTARY INFORMATION

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GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2013

Variances-Favorable

(Unfavorable} Budaeted Amounts Final

Original Final Actual to Actual

REVENUES ReveD1Jelimitsources $ 12,129,845 $ 16,066,388 $ 16,529,342 $ 462,954

Federal sources 772,146 921,076 872,264 (48,812)

Other State sources 803,063 1,565,209 1,707,947 142,738

Other local sources 1!1672174 125172268 127332161 2152893

Total Revenues 1 14,872,228 20,069,941 20,842,714 772,773

EXPENDTilJRES

Current

Certificated salaries 6,227,447 7,000,637 7,128,718 (128,081)

Classified salaries 2,233,967 2,692,184 2,702,895 (10,711)

Employee benefits 4,193,416 4,520,536 4,348,002 172,534

Books and supplies 88,935 600,467 537,550 62,917

Service and operating expenditures 2,812,113 3,537,555 2,744,133 793,422

Olpital outlay 28,041 849 27,192

Other outgo 155,000 250,985 268,865 {17,880)

Total Expenditures 1 15,710,878 18,630,405 17,731,012 899,393 Excess (Defl.ciency) of Revenues Over Expenditures {838,650} 1,439,536 3,111,702 1,672,166

Other Financing Sources (Uses) 'lhmsfers out {516,276} {516,276)

Net Financing Sources (Uses) {5162276) {5162276)

NET CHANGE IN FUND BALANCES (838,650) 1,439,536 2,595,426 1,155,890

Fund Balance - Beginning 3,971,354 3,971,354 3,971,354

Fund Balance - Ending $ 3!1322704 $ 5 24102890 $ 615662780 $ 111552890

1 On behalfpaymenm of$346,738 are excludedfrom this schedule. In addition. activities related to the consolidation ofFund 14, Deferred

Maintenance Fund and Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects into the General Fund 88 a result of GASB 54 implementation are also excluded from this schedule.

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SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS

FOR THE YEAR ENDED JUNE 30, 2013

Actuarial Valuation

Date

Actuarial Accrued Liability (AAL)-

Aduarial Value Unprojected of Assets (a) Unit Credit (b)

• January 1, 2008 $ $20,837,000

• Molltcum:nt actuarial Btudy available, see finding 2013-4.

Unfunded AAL

(UAAL) (b- a)

$ 20,837,000

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UAALa1a Percentage of

Funded Ratio Covered Covered Payroll (a/b) Paymll (c) ([b - a]/ c)

0% 10,278,446 202.73%

APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS

The following summary discussion of selected provisions of the Indenture, the Series A Refunding Resolution, the Series B Refunding Resolution and the Series B Resolution are made subject to all of the provisions of such documents. This summary discussion does not purport to be a complete statement of said provisions and prospective purchasers of the Series 2014 Bonds are referred to the complete texts of said documents, copies of which are available upon request sent to the Trustee.

THE INDENTURE

Definitions

Unless the context otherwise requires, the terms defined below shall for all purposes of this summary of the Indenture have the meanings specified below.

“Additional Bonds” means Bonds other than Series 2014 Bonds issued under the Indenture in accordance with the provisions thereof.

“Annual Debt Service” means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the scheduled Principal Amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year).

“Authority” means the Healdsburg School Facilities Financing Authority, a joint exercise of powers authority organized and existing under the laws of the State of California, and any successor thereto.

“Authorized Representative” means, with respect to the Authority, the Executive Director of the Authority, the Treasurer and Controller of the Authority and the Secretary of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee.

“Bond Counsel” means a firm of nationally recognized bond counsel selected by the Authority.

“Bond Law” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Sections 6584 et seq. of the California Government Code.

“Bond Year” means each twelve-month period beginning on July 16 in each year and extending to the next succeeding July 15, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on July 15, 2015.

“Bonds” means the Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds issued under the Indenture, and includes the Series 2014 Bonds and any Additional Bonds.

“Book-Entry Bonds” means the Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of the Indenture.

“Business Day” means a day which is not (a) a Saturday, Sunday or legal holiday in the State of California, (b) a day on which banking institutions in the State of California, or in any state in which the Office

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of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed.

“Closing Date” means the date upon which the Series 2014 Bonds are delivered to the Original Purchaser.

“Code” means the Internal Revenue Code of 1986.

“Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated the Closing Date, of the District, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Debt Service Fund” means the fund by that name established and held by the Trustee pursuant to the Indenture.

“Defeasance Securities” means non-callable direct obligations of the United States of America or other non-callable obligations the payment of the principal of and interest on which is guaranteed by a pledge of the full faith and credit of the United States of America.

“Depository” means DTC, and its successors as securities depository for any Series of Book-Entry Bonds, including any such successor appointed pursuant to the Indenture.

“District” means Healdsburg Unified School District, a school district organized and existing under the laws of the State of California, and any successor thereto.

“District Bonds” means the Healdsburg Unified School District (Sonoma County, California) Election of 2012 General Obligation Bonds, Series B, the Healdsburg Unified School District (Sonoma County, California) 2014 General Obligation Refunding Bonds, Series A, and the Healdsburg Unified School District (Sonoma County, California) 2014 General Obligation Refunding Bonds, Series B, each issued under the applicable District Resolution.

“District Resolutions” means the resolutions adopted by the District on September 17, 2014, pursuant to which the District Bonds are issued, as the applicable District Resolution may be amended or supplemented from time to time in accordance with the terms thereof.

“DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors.

“Indenture” means the Indenture, dated as of September 1, 2014, by and between the Authority and the Trustee, as originally executed and as it may be amended or supplemented from time to time by any Supplemental Indenture.

“Independent Consultant” means any consultant or firm of such consultants selected by the Authority and who, or each of whom (a) is generally recognized to be qualified in the financial consulting field, (b) is in fact independent and not under the control of the Authority or the District, (c) does not have any substantial interest, direct or indirect, with or in the Authority or the District, and (d) is not connected with the Authority or the District as an officer or employee thereof, but who may be regularly retained to make reports to the Authority or the District.

“Interest Payment Dates” means January 15 and July 15 of each year, commencing July 15, 2015, so long as any Bonds remain Outstanding.

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“Moody’s” means Moody’s Investors Service, Inc., a corporation duly organized and existing under the laws of the State of Delaware, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority.

“Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture.

“Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority by the Trustee in writing.

“Opinion of Counsel” means a written opinion of Bond Counsel.

“Original Purchaser” means the original purchaser of the Series 2014 Bonds from the Authority.

“Outstanding” means, when used as of any particular time with reference to Bonds, subject to the provisions of the Indenture, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the Indenture, including Bonds (or portions of Bonds) disqualified under the Indenture, and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

“Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books.

“Participating Underwriter” has the meaning ascribed thereto in the Continuing Disclosure Certificate.

“Paying Agent” means The Bank of New York Mellon Trust Company, N.A., as the paying agent appointed under the District Resolutions, or any successor thereto as paying agent thereunder.

“Permitted Investments” means any of the following to the extent then permitted by the general laws of the State of California applicable to investments by the Authority (provided that the Trustee shall be entitled to rely upon any investment directions from the Authority as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California):

(1) (a) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America (“United States Treasury Obligations”), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated (collectively “United States Obligations”). These include, but are not necessarily limited to:

- U.S. Treasury obligations All direct or fully guaranteed obligations

- Farmers Home Administration

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Certificates of beneficial ownership - General Services Administration

Participation certificates - U.S. Maritime Administration

Guaranteed Title XI financing - Small Business Administration

Guaranteed participation certificates - Guaranteed pool certificates - Government National Mortgage Association (GNMA)

GNMA-guaranteed mortgage-backed securities GNMA-guaranteed participation certificates

- U.S. Department of Housing & Urban Development Local authority bonds

- Washington Metropolitan Area Transit Authority Guaranteed transit bonds

(2) Federal Housing Administration debentures.

(3) The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America:

- Federal Home Loan Mortgage Corporation (FHLMC) Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) Senior debt obligations

- Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) Consolidated system wide bonds and notes

- Federal Home Loan Banks (FHL Banks) Consolidated debt obligations

- Federal National Mortgage Association (FNMA) Senior debt obligations Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts)

- Student Loan Marketing Association (SLMA) Senior debt obligations (excluded are securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date)

- Financing Corporation (FICO) Debt obligations

- Resolution Funding Corporation (REFCORP) Debt obligations

(4) Unsecured certificates of deposit, time deposits, and bankers’ acceptances (having maturities of not more than 30 days) of any bank the short-term obligations of which are rated “A-1” or better by S&P, which may include the Trustee or any of its affiliates.

(5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million, which may include the Trustee or any of its affiliates.

(6) Commercial paper (having original maturities of not more than 270 days) rated “A-1+” by S&P and “Prime-1” by Moody’s.

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(7) Money market funds rated “AAm” or “AAm-G” by S&P, or better and the investment pool maintained by the county in which the District is located or other investment pools, in either case so long as such pool is rated in one of the two highest rating categories by S&P and Moody’s, including such funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee services as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from funds for services rendered, (ii) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee.

(8) State Obligations, which means

(a) Direct general obligations of any state of the United States or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated “A3” by Moody’s and “A” by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated.

(b) Direct, general short-term obligations of any state agency or subdivision described in (a) above and rated “A-1+” by S&P and “MIG-l” by Moody’s.

(c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (a) above and rated “AA” or better by S&P and “Aa” or better by Moody’s.

(9) Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by Moody’s meeting the following requirements:

(a) the municipal obligations are (i) not subject to redemption prior to maturity or (ii) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions;

(b) the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations;

(c) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations (“Verification”);

(d) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;

(e) no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and

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(f) the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent.

“Person” means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Principal Amount” means the principal amount thereof.

“Principal Prepayments” means, for any District Bonds, any amounts received by the Trustee representing an optional redemption of such District Bonds pursuant to the applicable District Resolution, consisting of the principal or accreted value of such District Bonds being optionally redeemed and the premium paid upon such optional redemption; but excluding the amount of regularly scheduled payments of principal or accreted value of and interest, if any, on such District Bonds paid concurrently therewith.

“Program Fund” means the fund by that name established and held by the Trustee pursuant to the Indenture.

“Purchase Contract” means the Purchase Contract, dated September 30, 2014, by and between the District and the Authority, relating to the acquisition by the Trustee of the District Bonds.

“Rebate Fund” means the fund by that name established and held by the Trustee pursuant to the Indenture.

“Rebate Requirement” has the meaning ascribed thereto in the Tax Certificate.

“Record Date” means the 1st calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day.

“Redemption Fund” means the fund by that name established and held by the Trustee pursuant to the Indenture.

“Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant to the Indenture.

“Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to the Indenture.

“Revenue Fund” means the fund by that name established and held by the Trustee pursuant to the Indenture.

“Revenues” means all amounts derived from or with respect to the District Bonds, including all payments of principal thereof, premium, if any, and interest thereon (including Principal Prepayments).

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, a corporation duly organized and existing under the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority.

“Series” means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to the Indenture as the Series 2014 Bonds, and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds.

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“Series 2014 Bonds” means the Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014, issued under the Indenture.

“Supplemental Indenture” means any supplemental indenture amendatory of or supplemental to the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

“Tax Certificate” means the Tax Certificate executed by the Authority at the time of issuance of the Series 2014 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee under the Indenture, appointed as provided therein.

“Verification Report” means, with respect to the deemed payment of Bonds pursuant to the Indenture, a report of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, deposited in connection with such deemed payment satisfy the requirements of the Indenture.

“Written Certificate” and “Written Request” of the Authority mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

Certain Terms and Conditions of the Bonds

Special Obligations. All obligations of the Authority under the Bonds shall be special obligations of the Authority, payable solely from Revenues and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the District, or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds.

Registration Books. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the Authority; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as provided in the Indenture.

Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate Principal Amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate Principal Amount in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under the provisions of the Indenture summarized in this paragraph and of the expenses which may be incurred by the Authority and the Trustee. Any Bond of a Series issued under such provisions of the Indenture in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall

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constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with all other Bonds of such Series secured by the Indenture.

Additional Bonds

Conditions for the Issuance of Additional Bonds. The Authority may at any time issue one or more Series of Additional Bonds (in addition to the Series 2014 Bonds) payable from Revenues as provided in the Indenture on a parity with all other Bonds theretofore issued under the Indenture, but only subject to the following conditions, which are conditions precedent to the issuance of such Additional Bonds:

(a) upon the issuance of such Additional Bonds, no default shall have occurred and be continuing under the Indenture;

(b) the issuance of such Additional Bonds shall have been authorized under and pursuant to the Bond Law and under and pursuant to the Indenture and shall have been provided for by a Supplemental Indenture which shall specify the following:

(i) the purposes for which such Additional Bonds are to be issued; provided, however, that the proceeds of the sale of such Additional Bonds shall be applied only to provide funds to refund any Bonds issued under the Indenture and, if so specified in the Supplemental Indenture pursuant to which such Additional Bonds are issued, to provide funds to pay costs of issuance incurred in connection with the issuance of such Additional Bonds;

(ii) the Principal Amount and designation of such Series of Additional Bonds;

(iii) the interest rate to be borne by each maturity of such Additional Bonds, which shall be a rate that is fixed from the date of issuance of such Additional Bonds through such maturity date;

(iv) the date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, that (A) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on July 15 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on July 15, (B) the Additional Bonds shall be payable as to interest semiannually on January 15 and July 15 of each year, except that the first installment of interest may be payable on either January 15 or July 15 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on January 15 and July 15, (C) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (D) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates;

(v) the redemption premiums and terms, if any, for such Additional Bonds; provided, however, that such Additional Bonds of such additional Series shall be subject to mandatory redemption from Principal Prepayments received with respect to the District Bonds;

(vi) the form of such Additional Bonds; and

(vii) such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture.

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(c) Annual Debt Service in each Bond Year, calculated for all Bonds to be Outstanding after the issuance of such Additional Bonds, will be less than or equal to Annual Debt Service in such Bond Year, calculated for all Bonds Outstanding immediately prior to the issuance of such Additional Bonds.

Nothing contained in the Indenture shall limit the issuance of any bonds payable from Revenues if, after the issuance and delivery of such bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding.

Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Bond Law, such Additional Bonds shall be executed by the Authority for issuance under the Indenture and shall be delivered to the Trustee and thereupon shall be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following:

(a) a certified copy of the Supplemental Indenture authorizing the issuance of such Additional Bonds;

(b) a Written Certificate of the Authority stating that the conditions precedent to the issuance of such Additional Bonds specified in the Indenture have been satisfied;

(c) a Written Request of the Authority as to the delivery of such Additional Bonds;

(d) an opinion of Bond Counsel substantially to the effect that (i) the Indenture and all Supplemental Indentures have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of, the Authority, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), (ii) such Additional Bonds constitute valid and binding special obligations of the Authority payable solely from Revenues as provided in the Indenture and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and (iii) the issuance of such Additional Bonds, in and of itself, will not adversely affect the exclusion of interest on the Bonds Outstanding prior to the issuance of such Additional Bonds from gross income for federal income tax purposes;

(e) the proceeds of the sale of such Additional Bonds; and

(f) such further documents or money as are required by the provisions of the Indenture or by the provisions of the Supplemental Indenture authorizing the issuance of such Additional Bonds.

Additional Bonds. So long as any of the Bonds remain Outstanding, the Authority shall not issue any Additional Bonds or obligations payable from Revenues, except pursuant to the provisions of the Indenture summarized above.

Security for Bonds; Flow of Funds; Investments

Pledge and Assignment. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Revenue Fund and the Debt Service Fund are pledged by the Indenture to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Bond Law. Said pledge shall constitute a first lien on such assets.

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The Authority assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority in the District Bonds, if any. The Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority and shall forthwith be paid by the Authority to the Trustee. Subject to the provisions of the Indenture summarized under the caption “— Events of Default and Remedies — Exercise of Rights Under District Bonds,” the Trustee also shall be entitled to and may take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the District under and with respect to the District Bonds.

Revenue Fund.

(a) The Trustee shall establish and maintain a separate fund designated the “Revenue Fund.” Upon the receipt by the Trustee of any Revenues, the Trustee shall deposit such Revenues in the Revenue Fund; provided, however, that any portion of any such Revenues that represents Principal Prepayments shall be deposited in the Redemption Fund.

(b) On each Interest Payment Date, the Trustee shall withdraw from the Revenue Fund and transfer to the Debt Service Fund the amount, if any, necessary to cause the amount on deposit in the Debt Service Fund to be equal to the principal of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds.

(c) On July 16 of each year, the Trustee shall withdraw from the Revenue Fund and transfer to the Paying Agent, for deposit in the Debt Service Funds established under the District Resolutions, as directed in a Written Certificate of the Authority, all amounts, if any, on deposit in the Revenue Fund on such July 16.

Debt Service Fund.

(a) The Trustee shall establish and maintain a separate fund designated the “Debt Service Fund.” The Trustee shall deposit in the Debt Service Fund from time to time the amounts required to be deposited therein pursuant to the Indenture.

(b) On each Interest Payment Date, the Trustee shall withdraw from the Debt Service Fund for payment to the Owners of the Bonds the principal of and interest on the Bonds then due and payable, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds.

Redemption Fund.

(a) The Trustee shall establish and maintain a special fund designated the “Redemption Fund.” Upon the receipt by the Trustee of any Principal Prepayments, the Trustee shall deposit such Principal Prepayments in the Redemption Fund. The Trustee shall deposit in the Redemption Fund amounts received from the Authority in connection with the Authority’s exercise of its rights to optionally redeem Series 2014 Bonds pursuant to the provisions of the Indenture and any other amounts required to be deposited therein pursuant to any Supplemental Indenture.

(b) Amounts in the Redemption Fund shall be disbursed therefrom for the payment of the Redemption Price of Series 2014 Bonds optionally redeemed or mandatorily redeemed from mandatory Principal Prepayments pursuant to the provisions of the Indenture and to pay the Redemption Price of Additional Bonds redeemed under the Supplemental Indenture pursuant to which such Additional Bonds are issued.

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Rebate Fund.

(a) The Trustee shall establish and maintain a special fund designated the “Rebate Fund.” There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the Authority. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to the Indenture or anything to the contrary contained therein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by these provisions of the Indenture and by the Tax Certificate (which is incorporated in the Indenture by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Authority, and shall have no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate. The Trustee may conclusively rely upon the Authority’s determinations, calculations and certifications required by the Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the Authority’s calculations.

(b) Any funds remaining in the Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in the provisions of the Indenture relating to the Rebate Fund, shall, upon receipt by the Trustee of a Written Request of the Authority, be withdrawn by the Trustee and remitted to the Authority.

Program Fund. The Trustee shall establish and maintain a separate fund designated the “Program Fund.” The Trustee shall credit all District Bonds to the Program Fund and shall hold and administer the Program Fund so long as the Trustee is the Owner of any District Bond. On the Closing Date there shall be deposited in the Program Fund the amount specified in Indenture. On the Closing Date, the Trustee shall withdraw from the Program Fund the amount indicated in the Indenture and apply such amount to the purchase on such date of the District Bonds, all pursuant to and in accordance with the provisions of the Purchase Contract. In accordance with the Purchase Contract, the ownership of the District Bonds shall be registered in the name of the Trustee upon the acquisition thereof.

Investment of Moneys. Except as otherwise provided in the Indenture, all moneys in any of the funds or accounts established pursuant to the Indenture and held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in writing by the Authority two Business Days prior to the making of such investment. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Indenture. Absent timely written direction from the Authority, the Trustee shall invest any funds held by it in Permitted Investments described in clause (7) of the definition thereof; provided, however, that any such investment shall be made with due regard for the Trustee’s obligations and responsibilities as a fiduciary under the Indenture; provided further, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the Authority specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request is so received, the Trustee shall hold such moneys uninvested.

Subject to the provisions of the Indenture summarized under the caption “— Security for Bonds; Flow of Funds; Investments — Rebate Fund,” all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to the Indenture shall be retained therein.

Permitted Investments acquired as an investment of moneys in any fund or account established under the Indenture shall be credited to such fund or account. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each February 15 and August 15.

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The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the Authority, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to the Indenture. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established under the Indenture.

The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur, the Authority specifically waives receipt of such confirmations to the extent permitted by law. The Trustee shall furnish the Authority periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Indenture.

Covenants

Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture and received by the Authority or the Trustee.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the provisions of the Indenture summarized in this paragraph shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged under the Indenture while any of the Bonds are Outstanding, except as permitted by the Indenture.

Power to Issue Bonds and Make Pledge. The Authority is duly authorized pursuant to the Bond Law to issue the Bonds and to enter into the Indenture and to pledge the Revenues and other assets pledged under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and shall be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee (subject to the provisions of the Indenture summarized under the caption “— Trustee”) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge of Revenues and other assets and all the rights of the Owners under the Indenture against all claims and demands of all Persons whomsoever.

Tax Covenants.

(a) The Authority shall not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Series 2014 Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the Authority shall comply with the requirements of the Tax Certificate, which is incorporated in the Indenture as if fully set forth therein. This covenant shall survive payment in full or defeasance of the Bonds.

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(b) In the event that at any time the Authority is of the opinion that for purposes of the provisions of the Indenture summarized under this caption (“— Tax Covenants”) it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established under the Indenture, the Authority shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions.

(c) Notwithstanding any provisions of the Indenture summarized under this caption (“— Tax Covenants”), if the Authority shall provide to the Trustee an opinion of Bond Counsel to the effect that any specified action required under the Indenture is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Series 2014 Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of the Indenture and of the Tax Certificate, and the covenants thereunder shall be deemed to be modified to that extent.

Collection of Revenues. The Trustee shall collect and cause to be paid to it all Revenues promptly as such Revenues become due and payable, and shall enforce and cause to be enforced all rights of the Trustee under and with respect to the District Bonds.

Disposition of District Bonds. The Trustee shall not sell or otherwise dispose of the District Bonds, or any interest therein, unless either (i) there shall have occurred and be continuing an Event of Default under the Indenture, or (ii) the proceeds derived by the Trustee from such sale or other disposition are sufficient to enable the Trustee to redeem or defease all of the Outstanding Bonds in accordance with the terms of the Indenture.

Continuing Disclosure. Pursuant to the provisions of each of the District Resolutions, the District has undertaken all responsibility for compliance with continuing disclosure requirements, and the Authority shall have no liability to the holders of the Series 2014 Bonds or any other person with respect to S.E.C. Rule 15c2-12. Notwithstanding any other provision of the Indenture, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; provided, however, that the Trustee, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate Principal Amount of Outstanding Series 2014 Bonds shall, upon receipt of indemnification reasonably satisfactory to the Trustee, or any holder or beneficial owner of the Series 2014 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Annual Reports and Notifications Required by the Bond Law.

(a) Not later than October 30 of each year, commencing October 30, 2014 and until the October 30 following the final maturity of the Bonds, the Authority shall supply to the California Debt and Investment Advisory Commission the information required to be provided thereto pursuant to Section 6599.1(b) of the Bond Law.

(b) If at any time the Trustee fails to pay principal or interest due on any scheduled payment date for the Bonds, the Trustee shall notify the Authority in writing of such failure and, in accordance with Section 6599.1(c) of the Bond Law, the Authority shall notify the California Debt and Investment Advisory Commission of such failure within 10 days of the failure to make such payment.

Further Assurances. The Authority shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in the Indenture.

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Events of Default and Remedies

Events of Default. The occurrence, from time to time, of any one or more of the following events shall constitute an Event of Default under the Indenture:

(a) failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise;

(b) failure to pay any installment of interest on any Bonds when and as the same shall become due and payable.

(c) failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Authority by the Trustee or the Owners of not less than 5% in aggregate Principal Amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the Authority, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and the Authority shall thereafter diligently and in good faith cure such failure in a reasonable period of time; or

(d) the Authority shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute.

Exercise of Rights Under District Bonds. In each and every case during the continuance of an Event of Default, the Trustee may and, at the direction of the Owners of not less than a majority of the aggregate Principal Amount of Bonds then Outstanding (and upon indemnification of the Trustee to its reasonable satisfaction as provided in the Indenture), shall, upon notice in writing to the Authority, exercise any and all rights and pursue any and all remedies available pursuant to law or granted with respect to the District Bonds and, in addition, take whatever action at law or in equity may appear necessary or desirable to protect and enforce any of the rights vested in the Trustee or the Owners by the Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in the Indenture.

Other Remedies. Subject to the provisions of the Indenture summarized under the caption “— Events of Default and Remedies — Exercise of Rights Under District Bonds,” during the continuance of an Event of Default, the Trustee shall have the right:

(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or any member, director, officer or employee thereof, and to compel the Authority or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained in the Indenture or in the Bonds;

(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee or the Owners; or

(c) by suit, action or proceeding in any court of competent jurisdiction, to require the Authority to account as if it or they were the trustee or trustees of an express trust.

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Notwithstanding anything to the contrary contained in the Indenture, the Trustee shall have no right upon an Event of Default under the Indenture to accelerate the payment of the principal of or interest on any Bonds.

Remedies Not Exclusive. Subject to the provisions of the Indenture, no remedy therein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given thereunder or now or thereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy under the Indenture, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Application of Funds. If an Event of Default shall occur and be continuing, all Revenues and any other funds thereafter received by the Trustee under any of the provisions of the Indenture shall be applied by the Trustee as follows and in the following order:

(a) to the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture;

(b) to the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference;

(c) to the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference; and

(d) any remaining funds shall be transferred by the Trustee to the Revenue Fund.

Power of Trustee to Enforce. All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of the Indenture.

Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture; provided, however, that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and, provided, further, that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction.

Limitation on Owners’ Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Bond Law or any other applicable law with respect to such Bonds, unless (a) such Owner shall

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have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are thereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by such Owner’s or Owners’ action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners, or to enforce any right under the Bonds, the Indenture, the Bond Law or other applicable law with respect to the Bonds, except in the manner provided therein, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner therein provided and for the benefit and protection of all Owners, subject to the provisions of the Indenture.

Absolute Obligation. Nothing in the provisions of the Indenture summarized under the caption “— Events of Default and Remedies — Limitation on Owners’ Right to Sue” or in any other provision of the Indenture or in the Bonds contained shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but solely from Revenues and the other assets pledged therefor under the Indenture, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.

Termination of Proceedings. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then, subject to any such adverse determination, the Trustee, such Owner and the Authority shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. In case any proceedings taken by the Trustee or any one or more Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or any Owner, then in every such case the Trustee, such Owner and the Authority, subject to any determination in such proceedings, shall be restored to their former positions and rights under the Indenture, severally and respectively, and all rights, remedies, powers and duties of the Trustee, the Owners and the Authority shall continue as though no such proceedings had been taken.

No Waiver of Default. No delay or omission of the Trustee or of any Owner to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein, and every power and remedy given by the Indenture to the Trustee or to the Owners may be exercised from time to time and as often as may be deemed expedient.

Trustee

Duties and Liabilities of Trustee.

(a) Duties of Trustee Generally. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture. The Trustee shall, during the existence of any Event of Default which has not been cured or waived, exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

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(b) Removal of Trustee. The Authority may, by an instrument in writing, remove the Trustee initially a party to the Indenture and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party to the Indenture and any successor thereto if at any time (i) requested to do so by an instrument or concurrent instruments in writing signed by the Owners of a majority of the aggregate Principal Amount of the Bonds at the time Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with paragraph (e) below, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall appoint a successor Trustee by an instrument in writing.

(c) Resignation of Trustee. The Trustee may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the Authority, and to the Owners at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee by an instrument in writing.

(d) Appointment of Successor Trustee. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that under any circumstances the successor Trustee shall be qualified as provided in paragraph (e) below. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Owner (on behalf of such Owner and all other Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice, if any, as it may deem proper, appoint such successor Trustee Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the written request of the Authority or the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon acceptance of appointment by a successor Trustee as provided in this paragraph, the Authority shall mail or cause the successor Trustee to mail, by first class mail postage prepaid, a notice of the succession of such Trustee to the trusts under the Indenture to the Owners at the addresses shown on the Registration Books. If the Authority fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority.

(e) Qualifications of Trustee. The Trustee shall be a bank, national banking association or trust company having trust powers incorporated or organized under the laws of the United States of America or any state thereof, having (or if such bank, national banking association or trust company is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state agency. If such bank, national banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this paragraph the combined capital and surplus of such bank, national banking association or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

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In case at any time the Trustee shall cease to be eligible in accordance with the provisions of the immediately preceding paragraph, the Trustee shall resign immediately in the manner and with the effect specified in the Indenture.

(f) Trustee to Act as Paying Agent. Notwithstanding anything to the contrary contained in the Indenture, so long as the Trustee shall be the owner of any District Bonds, no entity shall be qualified to act as the Trustee (or to act as any successor Trustee) except the Paying Agent. Upon any resignation or removal of the Paying Agent in accordance with the applicable District Resolution, such event shall automatically cause the resignation or removal of the Trustee under the Indenture; and upon the appointment of a successor Paying Agent in accordance with the applicable District Resolution, such appointment shall automatically constitute the appointment of a successor Trustee under the Indenture. Under no circumstances shall the Trustee be removed or resign under the Indenture unless the Paying Agent shall be removed or resign as such under and pursuant to each of the District Resolutions.

Merger or Consolidation. Any bank, national banking association or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank, national banking association or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank, national banking association or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank, national banking association or trust company shall be eligible under the provisions of the Indenture relating to the qualifications of the Trustee shall be the successor to such Trustee, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties to the Indenture, anything therein to the contrary notwithstanding.

Liability of Trustee.

(a) The recitals of facts in the Indenture and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or of the Bonds or shall incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations in the Indenture or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee makes no representations as to the validity or sufficiency of the Indenture or of any Bonds, or in respect of the security afforded by the Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to (i) the issuance of the Bonds for value, (ii) the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or (iii) the application of any moneys paid to the Authority or others in accordance with the Indenture except as the application of any moneys paid to it in its capacity as Trustee. The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. The Trustee and its officers and employees may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding.

(b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.

(c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate Principal Amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any

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proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.

(d) No provision of the Indenture or any other document related to the Indenture shall require the Trustee to risk or advance its own funds.

(e) The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents.

(f) The Trustee may execute any of its powers or duties under the Indenture through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care.

(g) The Trustee shall have no responsibility or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds.

(h) Before taking action under the provisions of the Indenture summarized under the caption “— Events of Default and Remedies” or “— Trustee” or upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur.

(i) The Trustee shall not be deemed to have knowledge of an Event of Default under the Indenture unless it has actual knowledge thereof.

(j) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty.

Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith; provided, however, the Trustee shall in no event delay any payment with respect to the Bonds in anticipation of any such opinion.

Whenever in the administration of the duties imposed upon it by the Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof be specifically prescribed in the Indenture) may be deemed to be conclusively proved and established by a Written Certificate of the Authority, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.

The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to the Indenture and delivered using Electronic Means (“Electronic Means” means the following communications methods: S.W.I.F.T., e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services under the Indenture); provided, however, that the District shall provide to the Trustee an incumbency certificate listing the Authorized Representatives and containing specimen signatures of such Authorized Representatives, which incumbency certificate shall be amended by the District whenever a person is to be

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added or deleted from the listing. If the District elects to give the Trustee Instructions using Electronic Means and the Trustee in its discretion elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The District understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Representative listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Representative. The District shall be responsible for ensuring that only Authorized Representatives transmit such Instructions to the Trustee and that the District and all Authorized Representatives are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the District. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The District agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the District; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures.

Accounting Records and Reports; Preservation and Inspection of Documents. The Trustee shall keep or cause to be kept proper books of record and accounts in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocation and application of all money on deposit in the accounts and funds established under the Indenture, which such books shall be available for inspection by the Authority at reasonable hours and under reasonable conditions.

All documents received by the Trustee under the provisions of the Indenture shall be retained in its possession and shall be subject during business hours and upon reasonable notice to the inspection of the Authority, the Owners and their agents and representatives duly authorized in writing.

Compensation and Indemnification. The Authority shall pay to the Trustee from time to time all reasonable compensation pursuant to a pre-approved fee letter for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to a pre-approved fee letter and other disbursements pursuant to a pre-approved fee letter and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture. The Authority shall, to the extent permitted by law, indemnify and save the Trustee harmless against any liabilities, losses, costs, expenses (including, without limitation, legal fees and expenses), claims, judgments and damages which it may incur in the exercise and performance of its powers and duties under the Indenture, and which are not due to its negligence or its willful misconduct. The duty of the Authority to compensate and indemnify the Trustee shall survive the resignation or removal of the Trustee and termination and discharge of the Indenture.

Modification or Amendment

Amendments Permitted.

(a) The Indenture and the rights and obligations of the Authority, the Trustee and the Owners under the Indenture may be modified or amended at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into when the prior written consents of the Owners of a majority of the aggregate Principal Amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Indenture, are filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, without the consent of the Owner of each Bond so affected, (ii) permit the creation of any lien on the assets pledged under the Indenture

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prior to or on a parity with the lien created by the Indenture or deprive the Owners of the Bonds of the lien created by the Indenture on such assets, except as expressly provided in the Indenture, without the consent of the Owners of all Bonds then Outstanding, or (iii) amend these amendment provisions of the Indenture without the prior written consent of the Owners of all Bonds then Outstanding.

(b) The Indenture and the rights and obligations of the Authority, the Trustee and the Owners under the Indenture may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes:

(i) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the Authority;

(ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture;

(iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of the Indenture;

(iv) to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect;

(v) to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and

(vi) for any other reason, provided such modification or amendment does not materially adversely affect the rights or interests of the Owners.

(c) Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture.

The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by paragraphs (a) or (b) above which materially adversely affects the Trustee's own rights, duties or immunities under the Indenture or otherwise.

Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the Indenture, the Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Authority, the Trustee and the Owners shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the effective date of any Supplemental Indenture pursuant to the Indenture may and, if the Authority so determines, shall bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date and presentation of such Bond for such

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purpose at the Office of the Trustee a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, such a new Bond in equal Principal Amount of the same Series, interest rate and maturity shall be exchanged for such Owner’s Bond so surrendered.

Amendment of Particular Bonds. The provisions of the Indenture summarized under the caption “— Modification or Amendment” shall not prevent any Owner from accepting any amendment or modification as to any particular Bond owned by it, provided that due notation thereof is made on such Bond.

Defeasance

Discharge of Indenture.

(a) If (i) the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated in the Indenture, and (ii) all other amounts due and payable under the Indenture shall have been paid, then the Owners shall cease to be entitled to the pledge of the assets as provided in the Indenture, and all agreements, covenants and other obligations of the Authority under the Indenture shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant to the Indenture which are not required for the payment of the principal of and interest and premium, if any, on the Bonds.

(b) Subject to the provisions of paragraph (a) above, when any Bond shall have been paid and if, at the time of such payment, the Authority shall have kept, performed and observed all of the covenants and promises in such Bonds and in the Indenture required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then the Indenture shall be considered to have been discharged in respect of such Bond and such Bond shall cease to be entitled to the pledge of the assets as provided in the Indenture, and all agreements, covenants and other obligations of the Authority under the Indenture shall cease, terminate, become void and be completely discharged and satisfied as to such Bond.

(c) Notwithstanding the discharge and satisfaction of the Indenture or the discharge and satisfaction of the Indenture in respect of any Bond, those provisions of the Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners, and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal and interest and premium, if any, on the Bonds, to pay to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of the Indenture, the provisions of the Indenture summarized under the caption “— Trustee — Compensation and Indemnification” relating to the compensation of the Trustee shall remain in effect and shall be binding upon the Authority and the Trustee.

Bonds Deemed To Have Been Paid.

(a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the meaning and with the effect provided in the Indenture summarized under the caption “— Defeasance — Discharge of Indenture.” Any Outstanding Bond shall prior to the

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maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in the Indenture summarized under the caption “— Defeasance — Discharge of Indenture” if (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of the Indenture, notice of redemption of such Bond on said redemption date, said notice to be given in accordance with the Indenture, (ii) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owners of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with the provisions of the Indenture summarized in this paragraph and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. Neither the money nor the Defeasance Securities deposited with the Trustee pursuant to the provisions of the Indenture summarized in this paragraph in connection with the deemed payment of Bonds, nor principal or interest payments on any such Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal of and, premium, if any, and interest on such Bonds.

(b) No Bond shall be deemed to have been paid pursuant to clause (ii) of paragraph (a) above, unless the Authority shall have caused to be delivered (A) an executed copy of a Verification Report with respect to such deemed payment, addressed to the Authority and the Trustee, in form and in substance acceptable to the Authority and the Trustee, (B) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of the preceding paragraph (a), resulting in such deemed payment, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and shall be acceptable in form and substance to the Authority and the Trustee, and (C) a copy of an Opinion of Counsel, dated the date of such deemed payment and addressed to the Authority and the Trustee, in form and in substance acceptable to the Authority and the Trustee, to the effect that such Bond has been paid within the meaning and with the effect expressed in the Indenture, and all agreements, covenants and other obligations of the Authority under the Indenture as to such Bond have ceased, terminated, become void and been completely discharged and satisfied.

(c) The Trustee may seek and is entitled to rely upon (i) an Opinion of Counsel reasonably satisfactory to the Trustee to the effect that the conditions precedent to a deemed payment pursuant to paragraph (a) above, have been satisfied, and (ii) such other opinions, certifications and computations, as the Trustee may reasonably request, of accountants or other financial consultants concerning the matters described in paragraph (b) above.

Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment and discharge of the principal of, or premium or interest on, any Bonds which remain unclaimed for one year after the date when such principal, premium or interest has become payable, if such moneys were held by the Trustee at such date, or for one year after the date of deposit of such moneys if deposited with the Trustee after the date when such principal, premium or interest become payable, shall, at the Written Request of the Authority, be repaid by the Trustee to the Authority as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners of such Bonds shall look only to the Authority for the payment of such principal, premium or interest.

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Miscellaneous

Benefits of Indenture Limited to Parties. Nothing contained in the Indenture, expressed or implied, is intended to give to any Person other than the Authority, the Trustee and the Owners any claim, remedy or right under or pursuant to the Indenture, and any agreement, condition, covenant or term required in the Indenture to be observed or performed by or on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee and the Owners.

Successor Deemed Included in all References to Predecessor. Whenever the Authority or the Trustee, or any officer thereof, is named or referred to in the Indenture, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority or the Trustee, or such officer, and all agreements, conditions, covenants and terms required to be observed or performed by or on behalf of the Authority or the Trustee, or any officer thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not.

Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required in the Indenture to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or its attorney of any declaration, request or other instrument or of any writing appointing such attorney may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state or territory in which such notary public or other officer purports to act that the Person signing such declaration, request or other instrument or writing acknowledged to such notary public or other officer the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer, or by such other proof as the Trustee may accept which it may deem sufficient.

The ownership of any Bond and the amount, payment date, number and date of owning the same may be proved by the Registration Books.

Any declaration, request or other instrument in writing of the Owner of any Bond shall bind all future Owners of such Bond with respect to anything done or suffered to be done by the Authority or the Trustee in good faith and in accordance therewith.

Waiver of Personal Liability. Notwithstanding anything contained in the Indenture to the contrary, no member, officer or employee of the Authority shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained in the Indenture shall relieve any member, officer or employee of the Authority from the performance of any official duty provided by any applicable provisions of law or by the Indenture.

Acquisition of Bonds by Authority. All Bonds acquired by the Authority, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for cancellation.

Disqualified Bonds. In determining whether the Owners of the requisite aggregate Principal Amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Authority, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of the provisions of the Indenture summarized in this paragraph if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to

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the Trustee. Upon request of the Trustee, the Authority shall specify in a Written Certificate of the Authority those Bonds disqualified pursuant to the Indenture and the Trustee may conclusively rely on such certificate.

Money Held for Particular Bonds. The money held by the Trustee for the payment of the principal of or premium or interest on particular Bonds due on any date (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of the Indenture summarized under the caption “— Defeasance — Unclaimed Moneys,” but without any liability for interest thereon.

Funds and Accounts. Any fund or account required to be established and maintained pursuant to the Indenture by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund, but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with sound accounting practice and with due regard for the protection of the security of the Bonds and the rights of the Owners. The Trustee may establish such funds and accounts as it deems necessary to perform its obligations under the Indenture.

The Trustee may commingle any of the moneys held by it under the Indenture for investment purposes only; provided, however, that the Trustee shall account separately for the moneys in each fund or account established pursuant to the Indenture.

California Law. The Indenture and the Bonds shall be construed and governed in accordance with the laws of the State of California.

Business Days. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in the Indenture shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day, with the same force and effect as if done on the nominal date provided in the Indenture and, unless otherwise specifically provided in the Indenture, no interest shall accrue for the period from and after such nominal date.

THE SERIES A REFUNDING RESOLUTION Definitions

Unless the context otherwise requires, the terms defined below shall for all purposes of this

summary of the Series A Refunding Resolution have the meanings specified below.


“Authority Bonds” means the Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014, issued under the Authority Indenture.

“Authority Indenture” means the Indenture, by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as Trustee, as originally executed and as it may be amended or supplemented from time to time in accordance with the terms thereof.

“Authority Trustee” means The Bank of New York Mellon Trust Company, N.A., as trustee under the Authority Indenture, or any successor thereto as trustee thereunder.

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“Authorizing Documents” means the authorizing resolution(s), indenture, agreement or other legal document(s) pursuant to which the Prior Bonds were authorized and issued.

“Bond Insurer” means any insurance company which issues a municipal bond insurance policy insuring the payment of principal of and interest on the Refunding Bonds.

“Bond Payment Date” means, unless otherwise provided by the Purchase Contract, January 15 and July 15 of each year commencing January 15, 2015 with respect to the interest on the Refunding Bonds, and July 15 of each year commencing July 15, 2015 with respect to the principal payments on the Refunding Bonds.

“Bond Register” means the registration books which the Paying Agent shall keep or cause to be kept on which the registered ownership, transfer and exchange of Refunding Bonds will be recorded.

“Callable Authority Bonds” means those Authority Bonds subject to optional redemption as provided in the Authority Indenture.

“Code” means the Internal Revenue Code of 1986, as the same may be amended from time to time. Reference to a particular section of the Code shall be deemed to be a reference to any successor to any such section.

“Continuing Disclosure Certificate” means that certain contractual undertaking executed by the Authority and the District in connection with the issuance of the Refunding Bonds pursuant to paragraph (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, dated as of the date of issuance of the Refunding Bonds, as amended from time to time in accordance with the provisions thereof.

“Date of Delivery” means the date of initial issuance and delivery of the Refunding Bonds, or such other date as shall be set forth in the Purchase Contract or Official Statement.

“Escrow Agent” means The Bank of New York Mellon Trust Company, N.A., or any other successor thereto, in its capacity as escrow agent for the Refunded Bonds.

“Escrow Agreement” means that certain agreement relating to the deposit and investment of funds to refund the Refunded Bonds, by and between the District and the Escrow Agent.

“Federal Securities” means securities as permitted, in accordance with the Authorizing Documents, to be deposited with the Escrow Agent for the purpose of defeasing the Prior Bonds.

“Holder” or “Owner” means the Authority, as registered owner of a Refunding Bond or any successor thereto.

“Independent Consultant” has the meaning ascribed thereto in the Authority Indenture.

“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the District.

“Outstanding” means, when used with reference to the Refunding Bonds, as of any date, Refunding Bonds theretofore issued or thereupon being issued under the Series A Refunding Resolution except:

(a) Refunding Bonds canceled at or prior to such date;

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(b) Refunding Bonds in lieu of or in substitution for which other Refunding Bonds shall have been delivered pursuant to the Series A Refunding Resolution; or

(c) Refunding Bonds for the payment or redemption of which funds or Government Obligations in the necessary amount shall have been set aside (whether on or prior to the maturity or redemption date of such Refunding Bonds), in accordance with the defeasance provisions of the Series A Refunding Resolution.

“Paying Agent” means The Bank of New York Mellon Trust Company, N.A., or any successor thereto as Paying Agent under the Series A Refunding Resolution, appointed as provided therein.

“Participating Underwriter” has the meaning ascribed thereto in the Authority Indenture.

“Principal” or “Principal Amount” means, with respect to any Bond, the principal or principal amount thereof.

“Principal Prepayments” means, for any Bonds, any amounts representing an optional redemption of such Bonds pursuant to the Series A Refunding Resolution, consisting of the principal of and any interest on or Accreted Value of such Bonds being optionally redeemed, and the premium paid upon such optional redemption; but excluding the amount of regularly scheduled payments of Accreted Value of such Bonds paid concurrently therewith.

“Purchase Contract” means the Purchase Contract dated as of _________, 2014, by and between the District and the Authority, relating, in part, to the acquisition by the Authority Trustee of the Refunding Bonds.

“Record Date” means the close of business on the first (1st) day of the month preceding each Bond Payment Date.

“Redemption Price” means the aggregate amount of the principal of, any interest due on or Accreted Value of, and premium, if any, on the Bonds payable upon the redemption thereof pursuant to the Series A Refunding Resolution and Purchase Contract.

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, its successors and their assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the District.

“Series” means any Refunding Bonds executed, authenticated and delivered pursuant to the provisions of the Series A Refunding Resolution and identified as a separate series of bonds.

“Transfer Amount” means, with respect to any outstanding Refunding Bond, the Principal Amount.

“Taxable Bonds” means any Refunding Bonds not issued as Tax-Exempt Bonds.

“Tax Certificate” means the Tax Certificate executed by the Authority and the District at the time of issuance of the Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Tax-Exempt Bonds” means any Refunding Bonds the interest on which excludable from gross income for federal income tax purposes and is not treated as an item of tax preference for purposes of calculating the federal alternative minimum tax, as further described in an opinion of Bond Counsel supplied to the purchasers of such Refunding Bonds.

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“Term Bonds” means those Refunding Bonds for which mandatory sinking fund redemption dates have been established in the Purchase Contract.

“Treasurer” means the Treasurer and Tax Collector of the County.

“Written Certificate” of the District means a written certificate signed in the name of the District by an Authorized Officer. Any such certificate may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

Terms of the Refunding Bonds

Denomination, Interest, Date of Delivery. Denomination, Interest, Dated Dates. The Refunding Bonds shall be issued as bonds registered as to both Principal and interest, in the denominations of $5,000 Principal Amount or any integral multiple thereof. The Refunding Bonds will be initially registered to the Authority Trustee.

Each Refunding Bond shall be dated the date of delivery of the Refunding Bonds or such other date as shall appear in the Purchase Contract or the Official Statement (the “Date of Delivery”), and shall bear interest at the rates set forth in the Purchase Contract from the Bond Payment Date next preceding the date of authentication thereof unless it is authenticated as of a day during the period from the second day of the month next preceding any Bond Payment Date to that Bond Payment Date, inclusive, in which event it shall bear interest from such Bond Payment Date, or unless it is authenticated on or before the first Record Date, in which event it shall bear interest from the Date of Delivery. Interest with respect to the Refunding Bonds shall be computed on the basis of a 360-day year of twelve 30-day months.

No Refunding Bond attributable to the refunding of the Refunded Bonds shall mature later than the Refunded Bonds refunded from the proceeds of such Refunding Bond.

Redemption.

Optional Redemption. The Refunding Bonds shall be subject to optional redemption prior to maturity as provided in the Purchase Contract or the Official Statement.

Those Bonds subject to optional redemption pursuant to the Series A Refunding Resolution and the Purchase Contract, shall be subject to such redemption, from any source of available funds, at the times, at the Redemption Prices and in the manner provided in the Series A Refunding Resolution, at the direction of the District, so as to cause such Callable Authority Bonds as shall be specified by the District to be mandatorily redeemed pursuant to the Authority Indenture from the Principal Prepayment resulting from the optional redemption of such Bonds. In order to effect such optional redemption of Bonds, the District shall deliver to the Paying Agent (i) a Written Certificate of the District specifying (A) the maturity or maturities of the Callable Authority Bonds to be mandatorily redeemed from such Principal Prepayment, (B) the principal amount of the Callable Authority Bonds to be mandatorily redeemed from such Principal Prepayment, (C) the date on which such Callable Authority Bonds are to be mandatorily redeemed from such Principal Prepayment (which redemption date shall be a date on which such Callable Authority Bonds are subject to mandatory redemption pursuant to the Authority Indenture), and (D) the amount of the Principal Prepayment necessary to cause such mandatory redemption of such Callable Authority Bonds, and (ii) a written report of an Independent Consultant (A) demonstrating that, if such Principal Prepayment is allocated and applied to the redemption of Bonds as provided in the provisions of the Series A Refunding Resolution summarized in the following paragraph, the debt service on the Bonds payable on each Bond Payment Date after the such redemption date will be sufficient, but not materially more than sufficient, to pay debt service on the Authority Bonds on such Bond Payment Date, (B) specifying the principal of and any interest on or Accreted Value of, as applicable, as of such redemption date, of the Bonds, or portion thereof, to the optional redemption of which

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such Principal Prepayment is to be allocated and applied as provided in the provisions of the Series A Refunding Resolution summarized in the following paragraph, (C) specifying the amount of the redemption premium to be paid in connection with such optional redemption of such Bonds, or portion thereof, to which such Principal Prepayment is to be allocated and applied as provided in the provisions of the Series A Refunding Resolution summarized in the following paragraph, and (D) specifying the principal of and any interest on or Accreted Value, as of such redemption date, of each Bond that will remain Outstanding if such Principal Prepayment is allocated and applied to the redemption of Bonds on such redemption date as provided in the provisions of the Series A Refunding Resolution summarized in the following paragraph, which Written Certificate of the District and written report of such Independent Consultant shall be delivered to the Paying Agent at least 45 days prior to such redemption date, or such later date as shall be acceptable to the Paying Agent.

No later than the Business Day preceding the date specified in a Written Certificate of the District delivered pursuant to the provisions of the Series A Refunding Resolution summarized in the preceding paragraph as the date on which Callable Authority Bonds are to be mandatorily redeemed pursuant to the Authority Indenture, the District shall deliver to the Paying Agent an amount equal to the amount of the Principal Prepayment specified in such Written Certificate of the District and, on such redemption date, the Paying Agent shall pay such amount to the Authority Trustee, as the owner of such Callable Authority Bonds. Upon the payment by the Paying Agent to the Authority Trustee of such amount representing such Principal Prepayment (i) the Bonds, or portion thereof, debt service on which would have, after such redemption date, been applied to the payment of debt service on such Callable Authority Bonds shall, as of such redemption date, be deemed to have been optionally redeemed pursuant to the Series A Refunding Resolution, and for all purposes of the Series A Refunding Resolution shall be considered to have been optionally redeemed pursuant to the Series A Refunding Resolution, in an amount equal to the principal of and any interest on or Accreted Value of such Bonds, or portion thereof, as of such redemption date, and (ii) the remainder of (A) such Principal Prepayment, less (B) such principal of and any interest or Accreted Value of such Bonds, or portion thereof, as of such redemption date, shall be deemed to be, and for all purposes of the Series A Refunding Resolution shall be considered to be, the redemption premium paid in connection with such optional redemption of such Bonds, or portion thereof.

Mandatory Redemption. Any Refunding Bonds issued as Term Bonds shall be subject to mandatory sinking fund redemption as provided in the Purchase Contract or the Official Statement.

Selection of Refunding Bonds for Redemption. Whenever provision is made in the Series A Refunding Resolution for the redemption of Refunding Bonds and less than all Outstanding Refunding Bonds are to be redeemed, the Paying Agent, upon written instruction from the District, shall select Refunding Bonds for redemption as so directed and if not directed, in inverse order of maturity. Within a maturity, the Paying Agent shall select Refunding Bonds for redemption by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that the portion of any Refunding Bond to be redeemed in part shall be in the Principal Amount of $5,000 or any integral multiple thereof.

The Purchase Contract may provide that (i) in the event that a portion of any Term Bond is optionally redeemed pursuant to the Series A Refunding Resolution, the remaining sinking fund payments shall be reduced proportionately or as otherwise directed by the District, in integral multiples of $5,000, in respect to the portion of such Term Bond optionally redeemed, or (ii) within a maturity, Refunding Bonds shall be selected for redemption on a “Pro Rata Pass-Through Distribution of Principal” basis.

Notwithstanding anything to the contrary contained in the Series A Refunding Resolution, the payment of the principal of, premium, if any, and interest on any Refunding Bond of which the Authority Trustee is the Owner shall be made to the Authority Trustee in immediately available funds on each applicable payment date.

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Notice of Redemption. When redemption is authorized or required pursuant to the Series A Refunding Resolution, the Paying Agent, upon written instruction from the District, shall give notice (a “Redemption Notice”) of the redemption of the Refunding Bonds. Such Redemption Notice shall specify: the Refunding Bonds or designated portions thereof (in the case of redemption of the Refunding Bonds in part but not in whole) which are to be redeemed, the date of redemption, the place or places where the redemption will be made, including the name and address of the Paying Agent, the redemption price, the CUSIP numbers (if any) assigned to the Refunding Bonds to be redeemed, the Refunding Bond numbers of the Refunding Bonds to be redeemed in whole or in part and, in the case of any Refunding Bond to be redeemed in part only, the Principal Amount of such Refunding Bond to be redeemed, and the original issue date, interest rate and stated maturity date of each Refunding Bond to be redeemed in whole or in part. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Refunding Bond or portion thereof being redeemed at the redemption price thereof, together with the interest accrued to the redemption date thereon, and that from and after such date, interest with respect thereto shall cease to accrue.

With respect to any notice of redemption of Refunding Bonds pursuant to the Series A Refunding Resolution, unless upon the giving of such notice such Refunding Bonds shall be deemed to have been defeased pursuant to the defeasance provisions of the Series A Refunding Resolution, such notice shall state that such redemption shall be conditional upon the receipt by the Paying Agent (or an independent escrow agent selected by the District) on or prior to the date fixed for such redemption of the moneys necessary and sufficient to pay the principal of, and premium, if any, and interest on, such Refunding Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect, the Refunding Bonds shall not be subject to redemption on such date and the Refunding Bonds shall not be required to be redeemed on such date. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made and the Paying Agent shall within a reasonable time thereafter give notice, to the persons to whom and in the manner in which the notice of redemption was given, that such moneys were not so received.

The Paying Agent shall take the following actions with respect to such Redemption Notice: at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice shall be given to the respective owners of Refunding Bonds designated for redemption by registered or certified mail, postage prepaid, at their addresses appearing on the Bond Register.

Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Refunding Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Refunding Bonds shall bear or include the CUSIP number identifying, by issue and maturity, the Refunding Bonds being redeemed with the proceeds of such check or other transfer. Such redemption notices may state that no representations made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Refunding Bonds.

Partial Redemption of Refunding Bonds. Upon the surrender of any Refunding Bond redeemed in part only, the Paying Agent shall execute and deliver to the Owner thereof a new Refunding Bond or Refunding Bonds of like tenor and maturity and of authorized denominations equal in Transfer Amounts to the unredeemed portion of the Bond surrendered. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the District shall be released and discharged thereupon from all liability to the extent of such payment.

Effect of Notice of Redemption. Notice having been given as aforesaid, and the moneys for the redemption (including the interest accrued to the applicable date of redemption) having been set aside as provided in the defeasance provisions of the Series A Refunding Resolution, the Refunding Bonds to be redeemed shall become due and payable on such date of redemption.

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If on such redemption date, money for the redemption of all the Refunding Bonds to be redeemed as provided in the Series A Refunding Resolution, together with interest accrued to such redemption date, shall be held by the Paying Agent (or an independent escrow agent selected by the District), as provided in the defeasance provisions of the Series A Refunding Resolution, so as to be available therefor on such redemption date, and if notice of redemption thereof shall have been given as aforesaid, then from and after such redemption date, interest with respect to the Refunding Bonds to be redeemed shall cease to accrue and become payable. All money held by or on behalf of the Paying Agent (or an independent escrow agent selected by the District), for the redemption of Refunding Bonds shall be held in trust for the account of the owners of the Refunding Bonds so to be redeemed.

All Refunding Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Series A Refunding Resolution shall be cancelled upon surrender thereof and be delivered to or upon the order of the District. All or any portion of a Refunding Bond purchased by the District shall be cancelled by the Paying Agent.

Refunding Bonds No Longer Outstanding. When any Refunding Bonds (or portions thereof), which have been duly called for redemption prior to maturity under the provisions of the Series A Refunding Resolution, or with respect to which irrevocable instructions to call for redemption prior to maturity at the earliest redemption date have been given to the Paying Agent, in form satisfactory to it, and sufficient moneys shall be held by the Paying Agent irrevocably in trust for the payment of the redemption price of such Refunding Bonds or portions thereof, and, accrued interest with respect thereto to the date fixed for redemption, all as provided in the Series A Refunding Resolution, then such Refunding Bonds shall no longer be deemed Outstanding and shall be surrendered to the Paying Agent for cancellation.

Registration. The District and the Paying Agent shall be entitled to treat the person in whose name any Bond is registered as the Owner thereof for all purposes of the Series A Refunding Resolution and any applicable laws, notwithstanding any notice to the contrary received by the Paying Agent or the District. Neither the District nor the Paying Agent shall have any responsibility or obligation, legal or otherwise, to any other party, except to the Owner of any Refunding Bonds, and the Paying Agent may rely conclusively on its records as to the identity of the owners of the Refunding Bonds.

Defeasance. All or any portion of the outstanding maturities of the Refunding Bonds may be defeased prior to maturity in the following ways:

(a) Cash: by irrevocably depositing with an independent escrow agent selected by the District an amount of cash which together with amounts transferred from the Healdsburg Unified School District 2014 General Obligation Refunding Bonds, Series A Debt Service Fund (the “Debt Service Fund”) is sufficient to pay all Refunding Bonds outstanding and designated for defeasance (including all Principal and interest represented thereby and prepayment premiums, if any) at or before their maturity date; or

(b) Government Obligations: by irrevocably depositing with an independent escrow agent selected by the District noncallable Government Obligations, together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys transferred from the Debt Service Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all Refunding Bonds outstanding and designated for defeasance (including all Principal and interest represented thereby and prepayment premiums, if any) at or before their maturity date;

then, notwithstanding that any of such Refunding Bonds shall not have been surrendered for payment, all obligations of the District with respect to all such designated outstanding Refunding Bonds shall cease and terminate, except only the obligation of the Paying Agent or an independent escrow agent selected by the District to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) of this Section, to the Owners of such designated Refunding Bonds not so surrendered and paid all sums due with respect thereto.

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For purposes of the Series A Refunding Resolution, Government Obligations means:

Direct and general obligations of the United States of America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, or “prerefunded” municipal obligations rated in the highest rating category by Moody’s Investors Service or Standard & Poor’s. In the case of direct and general obligations of the United States of America, Government Obligations shall include evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interests must be limited to circumstances where (a) a bank or trust company acts as custodian and holds the underlying United States obligations; (b) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States obligations; and (c) the underlying United States obligations are held in a special account, segregated from the custodian’s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that such obligations are rated or assessed at least as high as direct and general obligations of the United States by Moody’s or S&P.

THE SERIES B REFUNDING RESOLUTION Definitions


summary of the Series B Refunding Resolution have the meanings specified below.





“Authorizing Documents” means the authorizing resolution(s), indenture, agreement or other legal document(s) pursuant to which the Prior Bonds were authorized and issued.

“Bond Insurer” means any insurance company which issues a municipal bond insurance policy insuring the payment of Principal of and interest on the Refunding Bonds.

“Bond Payment Date” means, unless otherwise provided by the Purchase Contract, January 15 and July 15 of each year commencing January 15, 2015 with respect to the interest on the Refunding Bonds, July 15 of each year commencing July 15, 2015 with respect to the Principal payments on the Bonds.

“Bond Register” means the registration books which the Paying Agent shall keep or cause to be kept on which the registered ownership, transfer and exchange of Refunding Bonds will be recorded.

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“Code” means the Internal Revenue Code of 1986, as the same may be amended from time to time. Reference to a particular section of the Code shall be deemed to be a reference to any successor to any such section.

“Continuing Disclosure Certificate” means that certain contractual undertaking executed by the Authority and the District in connection with the issuance of the Refunding Bonds pursuant to paragraph (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, dated as of the date of issuance of the Refunding Bonds, as amended from time to time in accordance with the provisions thereof.

“Escrow Agent” means The Bank of New York Mellon Trust Company, N.A., or any other successor thereto, in its capacity as escrow agent for the Refunded Bonds.

“Escrow Agreement” means that certain agreement relating to the deposit and investment of funds to refund the Refunded Bonds, by and between the District and the Escrow Agent.

“Date of Delivery” means the date of initial issuance and delivery of the Refunding Bonds, or such other date as shall be set forth in the Purchase Contract or Official Statement.

“Federal Securities” means securities as permitted, in accordance with the Authorizing Documents, to be deposited with the Escrow Agent for the purpose of defeasing the Prior Bonds.

“Holder” or “Owner” means the Authority, as registered owner of a Refunding Bond or any successor thereto.


“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the District.

“Outstanding” means, when used with reference to the Refunding Bonds, as of any date, Refunding Bonds theretofore issued or thereupon being issued under the Series B Refunding Resolution except:

(a) Refunding Bonds canceled at or prior to such date;

(b) Refunding Bonds in lieu of or in substitution for which other Refunding Bonds shall have been delivered pursuant to the Series B Refunding Resolution; or

(c) Refunding Bonds for the payment or redemption of which funds or Government Obligations in the necessary amount shall have been set aside (whether on or prior to the maturity or redemption date of such Refunding Bonds), in accordance with the defeasance provisions of the Series B Refunding Resolution.


“Paying Agent” means The Bank of New York Mellon Trust Company, N.A. or any successor thereto.

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“Principal” or “Principal Amount” means, with respect to any Bond, the principal or principal amount thereof.

“Principal Prepayments” means, for any Bonds, any amounts representing an optional redemption of such Bonds pursuant to the Series B Refunding Resolution, consisting of the principal of and any interest on or Accreted Value of such Bonds being optionally redeemed, and the premium paid upon such optional redemption; but excluding the amount of regularly scheduled payments of Accreted Value of such Bonds paid concurrently therewith.

“Purchase Contract” means the Purchase Contract dated as of _________, 2014, by and between the District and the Authority, relating, in part, to the acquisition by the Authority Trustee of the Refunding Bonds.


“Redemption Price” means the aggregate amount of the principal of, any interest due on or Accreted Value of, and premium, if any, on the Bonds payable upon the redemption thereof pursuant to the Series B Refunding Resolution and the Purchase Contract.

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, its successors and their assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the District.

“Series” means any Refunding Bonds executed, authenticated and delivered pursuant to the provisions of the Series B Refunding Resolution and identified as a separate series of bonds.

“Taxable Bonds” means any Refunding Bonds not issued as Tax-Exempt Bonds.


“Tax-Exempt Bonds” means any Refunding Bonds the interest on which excludable from gross income for federal income tax purposes and is not treated as an item of tax preference for purposes of calculating the federal alternative minimum tax, as further described in an opinion of Bond Counsel supplied to the purchasers of such Refunding Bonds.

“Term Bonds” means those Refunding Bonds for which mandatory redemption dates have been established in the Purchase Contract.

“Transfer Amount” means, with respect to any outstanding Refunding Bond, the Principal Amount.

“Treasurer” means the Treasurer and Tax Collector of the County.

“Written Certificate” of the District means a written certificate signed in the name of the District by an Authorized Officer. Any such certificate may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

Terms of the Refunding Bonds

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Denomination, Interest, Dated Dates. Denomination, Interest, Dated Dates. The Refunding Bonds shall be issued as bonds registered as to both Principal and interest, in the denominations of $5,000 Principal Amount or any integral multiple thereof. The Refunding Bonds will be initially registered to the Authority Trustee.

Each Refunding Bond shall be dated the date of delivery of the Refunding Bonds or such other date as shall appear in the Purchase Contract or the Official Statement (the “Date of Delivery”), and shall bear interest at the rates set forth in the Purchase Contract from the Bond Payment Date next preceding the date of authentication thereof unless it is authenticated as of a day during the period from the second day of the month next preceding any Bond Payment Date to that Bond Payment Date, inclusive, in which event it shall bear interest from such Bond Payment Date, or unless it is authenticated on or before the first Record Date, in which event it shall bear interest from the Date of Delivery. Interest with respect to the Refunding Bonds shall be computed on the basis of a 360-day year of twelve 30-day months.

No Refunding Bond attributable to the refunding of the Refunded Bonds shall mature later than the Refunded Bonds refunded from the proceeds of such Refunding Bond.

Redemption.

Optional Redemption. The Refunding Bonds shall be subject to optional redemption prior to maturity as provided in the Purchase Contract or the Official Statement.

Those Bonds subject to optional redemption pursuant to the Series B Refunding Resolution and the Purchase Contract, shall be subject to such redemption, from any source of available funds, at the times, at the Redemption Prices and in the manner provided in the Series B Refunding Resolution, at the direction of the District, so as to cause such Callable Authority Bonds as shall be specified by the District to be mandatorily redeemed pursuant to the Authority Indenture from the Principal Prepayment resulting from the optional redemption of such Bonds. In order to effect such optional redemption of Bonds, the District shall deliver to the Paying Agent (i) a Written Certificate of the District specifying (A) the maturity or maturities of the Callable Authority Bonds to be mandatorily redeemed from such Principal Prepayment, (B) the principal amount of the Callable Authority Bonds to be mandatorily redeemed from such Principal Prepayment, (C) the date on which such Callable Authority Bonds are to be mandatorily redeemed from such Principal Prepayment (which redemption date shall be a date on which such Callable Authority Bonds are subject to mandatory redemption pursuant to the Authority Indenture), and (D) the amount of the Principal Prepayment necessary to cause such mandatory redemption of such Callable Authority Bonds, and (ii) a written report of an Independent Consultant (A) demonstrating that, if such Principal Prepayment is allocated and applied to the redemption of Bonds as provided in the provisions of the Series B Refunding Resolution summarized in the following paragraph, the debt service on the Bonds payable on each Bond Payment Date after the such redemption date will be sufficient, but not materially more than sufficient, to pay debt service on the Authority Bonds on such Bond Payment Date, (B) specifying the principal of and any interest on or Accreted Value of, as applicable, as of such redemption date, of the Bonds, or portion thereof, to the optional redemption of which such Principal Prepayment is to be allocated and applied as provided in the provisions of the Series B Refunding Resolution summarized in the following paragraph, (C) specifying the amount of the redemption premium to be paid in connection with such optional redemption of such Bonds, or portion thereof, to which such Principal Prepayment is to be allocated and applied as provided in the provisions of the Series B Refunding Resolution summarized in the following paragraph, and (D) specifying the principal of and any interest on or Accreted Value, as of such redemption date, of each Bond that will remain Outstanding if such Principal Prepayment is allocated and applied to the redemption of Bonds on such redemption date as provided in the provisions of the Series B Refunding Resolution summarized in the following paragraph, which Written Certificate of the District and written report of such Independent Consultant shall be delivered to the Paying Agent at least 45 days prior to such redemption date, or such later date as shall be acceptable to the Paying Agent.

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No later than the Business Day preceding the date specified in a Written Certificate of the District delivered pursuant to the provisions of the Series B Refunding Resolution summarized in the preceding paragraph as the date on which Callable Authority Bonds are to be mandatorily redeemed pursuant to the Authority Indenture, the District shall deliver to the Paying Agent an amount equal to the amount of the Principal Prepayment specified in such Written Certificate of the District and, on such redemption date, the Paying Agent shall pay such amount to the Authority Trustee, as the owner of such Callable Authority Bonds. Upon the payment by the Paying Agent to the Authority Trustee of such amount representing such Principal Prepayment (i) the Bonds, or portion thereof, debt service on which would have, after such redemption date, been applied to the payment of debt service on such Callable Authority Bonds shall, as of such redemption date, be deemed to have been optionally redeemed pursuant to the Series B Refunding Resolution, and for all purposes of the Series B Refunding Resolution shall be considered to have been optionally redeemed pursuant to the Series B Refunding Resolution, in an amount equal to the principal of and any interest on or Accreted Value of such Bonds, or portion thereof, as of such redemption date, and (ii) the remainder of (A) such Principal Prepayment, less (B) such principal of and any interest or Accreted Value of such Bonds, or portion thereof, as of such redemption date, shall be deemed to be, and for all purposes of the Series B Refunding Resolution shall be considered to be, the redemption premium paid in connection with such optional redemption of such Bonds, or portion thereof.

Mandatory Redemption. Any Refunding Bonds issued as Term Bonds shall be subject to mandatory sinking fund redemption as provided in the Purchase Contract or the Official Statement.

Selection of Refunding Bonds for Redemption. Whenever provision is made in the Series B Refunding Resolution for the redemption of Refunding Bonds and less than all Outstanding Refunding Bonds are to be redeemed, the Paying Agent, upon written instruction from the District, shall select Refunding Bonds for redemption as so directed and if not directed, in inverse order of maturity. Within a maturity, the Paying Agent shall select Refunding Bonds for redemption by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that the portion of any Refunding Bond to be redeemed in part shall be in the Principal Amount of $5,000 or any integral multiple thereof.

The Purchase Contract may provide that (i) in the event that a portion of any Term Bond is optionally redeemed pursuant to the Series B Refunding Resolution, the remaining sinking fund payments shall be reduced proportionately or as otherwise directed by the District, in integral multiples of $5,000, in respect to the portion of such Term Bond optionally redeemed, or (ii) within a maturity, Refunding Bonds shall be selected for redemption on a “Pro Rata Pass-Through Distribution of Principal” basis.

Notwithstanding anything to the contrary contained in the Series B Refunding Resolution, the payment of the principal of, premium, if any, and interest on any Refunding Bond of which the Authority Trustee is the Owner shall be made to the Authority Trustee in immediately available funds on each applicable payment date.

Notice of Redemption. When redemption is authorized or required pursuant to the Series B Refunding Resolution, the Paying Agent, upon written instruction from the District, shall give notice (a “Redemption Notice”) of the redemption of the Refunding Bonds. Such Redemption Notice shall specify: the Refunding Bonds or designated portions thereof (in the case of redemption of the Refunding Bonds in part but not in whole) which are to be redeemed, the date of redemption, the place or places where the redemption will be made, including the name and address of the Paying Agent, the redemption price, the CUSIP numbers (if any) assigned to the Refunding Bonds to be redeemed, the Refunding Bond numbers of the Refunding Bonds to be redeemed in whole or in part and, in the case of any Refunding Bond to be redeemed in part only, the Principal Amount of such Refunding Bond to be redeemed, and the original issue date, interest rate and stated maturity date of each Refunding Bond to be redeemed in whole or in part. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Refunding Bond or portion thereof being redeemed at the redemption price thereof, together with the interest accrued to the redemption date thereon, and that from and after such date, interest with respect thereto shall cease to accrue.

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With respect to any notice of redemption of Refunding Bonds pursuant to the Series B Refunding Resolution, unless upon the giving of such notice such Refunding Bonds shall be deemed to have been defeased pursuant to the defeasance provisions of the Series B Refunding Resolution, such notice shall state that such redemption shall be conditional upon the receipt by the Paying Agent (or an independent escrow agent selected by the District) on or prior to the date fixed for such redemption of the moneys necessary and sufficient to pay the principal of, and premium, if any, and interest on, such Refunding Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect, the Refunding Bonds shall not be subject to redemption on such date and the Refunding Bonds shall not be required to be redeemed on such date. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made and the Paying Agent shall within a reasonable time thereafter give notice, to the persons to whom and in the manner in which the notice of redemption was given, that such moneys were not so received.

The Paying Agent shall take the following actions with respect to such Redemption Notice: at least 20 but not more than 45 days prior to the redemption date, such Redemption Notice shall be given to the respective owners of Refunding Bonds designated for redemption by registered or certified mail, postage prepaid, at their addresses appearing on the Bond Register.

Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Refunding Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Refunding Bonds shall bear or include the CUSIP number identifying, by issue and maturity, the Refunding Bonds being redeemed with the proceeds of such check or other transfer. Such redemption notices may state that no representations made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Refunding Bonds.

Partial Redemption of Refunding Bonds. Upon the surrender of any Refunding Bond redeemed in part only, the Paying Agent shall execute and deliver to the Owner thereof a new Refunding Bond or Refunding Bonds of like tenor and maturity and of authorized denominations equal in Transfer Amounts to the unredeemed portion of the Bond surrendered. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the District shall be released and discharged thereupon from all liability to the extent of such payment.

Effect of Notice of Redemption. Notice having been given as aforesaid, and the moneys for the redemption (including the interest accrued to the applicable date of redemption) having been set aside as provided in the defeasance provisions of the Series B Refunding Resolution, the Refunding Bonds to be redeemed shall become due and payable on such date of redemption.

If on such redemption date, money for the redemption of all the Refunding Bonds to be redeemed as provided in the Series B Refunding Resolution, together with interest accrued to such redemption date, shall be held by the Paying Agent (or an independent escrow agent selected by the District), as provided in the defeasance provisions of the Series B Refunding Resolution, so as to be available therefor on such redemption date, and if notice of redemption thereof shall have been given as aforesaid, then from and after such redemption date, interest with respect to the Refunding Bonds to be redeemed shall cease to accrue and become payable. All money held by or on behalf of the Paying Agent (or an independent escrow agent selected by the District), for the redemption of Refunding Bonds shall be held in trust for the account of the owners of the Refunding Bonds so to be redeemed.

All Refunding Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Series B Refunding Resolution shall be cancelled upon surrender thereof and be delivered to or upon the order of the District. All or any portion of a Refunding Bond purchased by the District shall be cancelled by the Paying Agent.

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Refunding Bonds No Longer Outstanding. When any Refunding Bonds (or portions thereof), which have been duly called for redemption prior to maturity under the provisions of the Series B Refunding Resolution, or with respect to which irrevocable instructions to call for redemption prior to maturity at the earliest redemption date have been given to the Paying Agent, in form satisfactory to it, and sufficient moneys shall be held by the Paying Agent irrevocably in trust for the payment of the redemption price of such Refunding Bonds or portions thereof, and, accrued interest with respect thereto to the date fixed for redemption, all as provided in the Series B Refunding Resolution, then such Refunding Bonds shall no longer be deemed Outstanding and shall be surrendered to the Paying Agent for cancellation.

Registration. The District and the Paying Agent shall be entitled to treat the person in whose name any Bond is registered as the Owner thereof for all purposes of the Series B Refunding Resolution and any applicable laws, notwithstanding any notice to the contrary received by the Paying Agent or the District. Neither the District nor the Paying Agent shall have any responsibility or obligation, legal or otherwise, to any other party, except to the Owner of any Refunding Bonds, and the Paying Agent may rely conclusively on its records as to the identity of the owners of the Refunding Bonds.

Defeasance. All or any portion of the outstanding maturities of the Refunding Bonds may be defeased prior to maturity in the following ways:

(c) Cash: by irrevocably depositing with an independent escrow agent selected by the District an amount of cash which together with amounts transferred from the Healdsburg Unified School District 2014 General Obligation Refunding Bonds, Series B Debt Service Fund (the “Debt Service Fund”) is sufficient to pay all Refunding Bonds outstanding and designated for defeasance (including all Principal and interest represented thereby and prepayment premiums, if any) at or before their maturity date; or

(d) Government Obligations: by irrevocably depositing with an independent escrow agent selected by the District noncallable Government Obligations, together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys transferred from the Debt Service Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all Refunding Bonds outstanding and designated for defeasance (including all Principal and interest represented thereby and prepayment premiums, if any) at or before their maturity date;

then, notwithstanding that any of such Refunding Bonds shall not have been surrendered for payment, all obligations of the District with respect to all such designated outstanding Refunding Bonds shall cease and terminate, except only the obligation of the Paying Agent or an independent escrow agent selected by the District to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) of this Section, to the Owners of such designated Refunding Bonds not so surrendered and paid all sums due with respect thereto.

For purposes of the Series B Refunding Resolution, Government Obligations means:

Direct and general obligations of the United States of America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, or “prerefunded” municipal obligations rated in the highest rating category by Moody’s Investors Service or Standard & Poor’s. In the case of direct and general obligations of the United States of America, Government Obligations shall include evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interests must be limited to circumstances where (a) a bank or trust company acts as custodian and holds the underlying United States obligations; (b) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States obligations; and (c) the underlying United States obligations are held in a special account, segregated from the custodian’s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that

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such obligations are rated or assessed at least as high as direct and general obligations of the United States by Moody’s or S&P.

THE SERIES B RESOLUTION Definitions


summary of the Series B Resolution have the meanings specified below. “Accreted Interest” means, with respect to Capital Appreciation Bonds and Convertible Capital

Appreciation Bonds prior to the Conversion Date, the Accreted Value thereof minus the Denominational Amount thereof as of the date of calculation.

“Accretion Rate” means, unless otherwise provided by the Purchase Contract, that rate which, when applied to the Denominational Amount of a Capital Appreciation Bond or a Convertible Capital Appreciation Bond prior to the Conversion Date, and compounded semiannually on each January 15 and July 15, (commencing on January 15, 2015), produces the Maturity Value on the maturity date (with respect to Capital Appreciation Bonds) and the Conversion Value on the Conversion Date (with respect to Convertible Capital Appreciation Bonds).

“Accreted Value” means, as of the date of calculation, with respect to Capital Appreciation Bonds and Convertible Capital Appreciation Bonds prior to the Conversion Date, the Denominational Amount thereof plus Accreted Interest thereon to such date of calculation, compounded semiannually on each January 15 and July 15, commencing on January 15, 2015 (unless otherwise provided in the Purchase Contract) at the stated Accretion Rate to maturity thereof, assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-day year of 12, 30-day months.





“Bonds” means the Healdsburg Unified School District (Sonoma County, California) Election of 2012 General Obligation Bonds, Series B.

“Bond Insurer” means any insurance company which issues a municipal bond insurance policy insuring the payment of Principal, Conversion Value and Maturity Value of and interest on the Bonds.

“Bond Payment Date” means, as applicable (and unless otherwise provided by the Purchase Contract), (i) with respect to the Current Interest Bonds, January 15 and July 15 of each year commencing on January 15, 2015 with respect to interest thereon, and the stated maturity dates thereof with respect to the Principal payments on the Current Interest Bonds, (ii) with respect to interest on the Convertible Capital Appreciation Bonds, January 15 and July 15 of each year, commencing on the first January 15 or July 15 following the respective Conversion

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Dates thereof, and the stated maturity dates thereof with respect to the Conversion Value of the Convertible Capital Appreciation Bonds, and (iii) with respect to the Capital Appreciation Bonds, the stated maturity dates thereof.

“Bond Register” means the books which the Paying Agent shall keep or cause to be kept on which the registered ownership, transfer and exchange of Bonds shall be recorded.


“Capital Appreciation Bonds” means the Bonds the interest component of which is compounded semiannually on each January 15 and July 15 (commencing on January 15, 2015 (unless otherwise provided in the Purchase Contract)) to maturity as shown in the table of Accreted Values for such Bonds in the Official Statement or Purchase Contract, as the case may be.

“Code” means the Internal Revenue Code of 1986, as amended. Reference to any particular section of the Code shall be deemed to be a reference to any successor to any such section.

“Continuing Disclosure Certificate” means that certain Continuing Disclosure Certificate executed by the District pursuant to paragraph (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, dated as of the date of issuance of the Bonds, as amended from time to time in accordance with the provisions thereof.

“Conversion Date” means, with respect to Convertible Capital Appreciation Bonds, the date from which such Bonds bear interest on a current, periodic basis.

“Conversion Value” means, with respect to Convertible Capital Appreciation Bonds, the Accreted Value as of the Conversion Date.

“Convertible Capital Appreciation Bonds” means the Bonds the interest component of which is compounded semiannually to the respective Conversion Dates thereof as shown in the table Accreted Values for the Bonds in the Official Statement or Purchase Contract, as the case may be, and which bear interest from such respective Conversion Dates on the Conversion Value thereof, payable semiannually on each Bond Payment Date.

“Current Interest Bonds” means the Bonds the interest on which is payable semiannually on each Bond Payment Date specified for each such Bond as designated and maturing in the years and in the amounts set forth in the Purchase Contract.

“Dated Date” means the date of initial issuance and delivery of the Bonds, or such other date as shall appear in the Purchase Contract or Official Statement.

“Denominational Amount” means the initial Principal Amount of any Capital Appreciation Bond or Convertible Capital Appreciation Bond.

“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in

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accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security—State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the District and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment.

“Holder” or “Owner” means the Authority, as the registered owner of a Bond or any successor thereto.


“Information Services” means Financial Information, Inc.’s Financial Daily Called Bond Service; Mergent, Inc.’s Called Bond Department; or Standard & Poor’s J.J. Kenny Information Services’ Called Bond Service.

“Long Current Interest Bonds” means Current Interest Bonds with a maturity greater than 30 years.

“Maturity Value” means the Accreted Value of any Capital Appreciation Bond on its maturity date.

“Non-AMT Bonds” means obligations the interest on which is excludable from gross income for federal income tax purposes under Section 103(a) of the Code and not treated as an item of tax preference under Section 57(a)(5)(C) of the Code, that are legal investments pursuant to Section 53601 of the Government Code of the State of California.

“Outstanding” means, when used with reference to the Bonds, as of any date, Bonds theretofore issued or thereupon being issued under the Series B Resolution except:

(i) Bonds canceled at or prior to such date;

(ii) Bonds in lieu of or in substitution for which other Bonds shall have been delivered pursuant to the Series B Resolution; or

(iii) Bonds for the payment or redemption of which funds or Government Obligations in the necessary amount shall have been set aside (whether on or prior to the maturity or redemption date of such Bonds), in accordance with the defeasance provisions of the Series B Resolution.


“Paying Agent” means The Bank of New York Mellon Trust Company, N.A., or any successor thereto as Paying Agent under the Series B Resolution, appointed as provided therein.

“Permitted Investments” means (i) any lawful investments permitted by Section 16429.1 and Section 53601 of the Government Code, including Non-AMT Bonds and Qualified Non-AMT Mutual Funds, (ii) shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the Government Code which invests exclusively in investments permitted by Section 53635 of the Government Code, but without regard to any limitations in such Section concerning the percentage of moneys available for investment being invested in a particular type of security, (iii) a guaranteed investment contract with a provider rated in at least the second highest category by each Rating Agency then rating the Bonds and approved by the Bond Insurer, if any, (iv) the Local Agency Investments Fund of the California State Treasurer, (v) the county investment pool maintained by the Treasurer of the County, and (vi) State and Local Government Series Securities.

“Principal” or “Principal Amount” means, with respect to any Current Interest Bond, the principal amount thereof, with respect to any Capital Appreciation Bond or Convertible Capital Appreciation Bond, the Denominational Amount thereof.

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“Principal Prepayments” means, for any Bonds, any amounts representing an optional redemption of such Bonds pursuant to the Series B Resolution, consisting of the principal of and any interest on or Accreted Value of such Bonds being optionally redeemed, and the premium paid upon such optional redemption; but excluding the amount of regularly scheduled payments of Accreted Value of such Bonds paid concurrently therewith.

“Qualified Non-AMT Mutual Fund” means stock in a regulated investment company to the extent that at least 95% of the income of such regulated investment company is interest that is excludable from gross income under Section 103 of the Code and not an item of tax preference under Section 57(a)(5)(C) of the Code.

“Qualified Permitted Investments” means (i) Non-AMT Bonds, (ii) Qualified Non-AMT Mutual Funds, (iii) other Permitted Investments authorized by an opinion of Bond Counsel to the effect that such investment would not adversely affect the tax-exempt status of the Bonds, and (iv) Permitted Investments of proceeds of the Bonds, and interest earned on such proceeds, held not more than thirty days pending reinvestment or Bond redemption. A guaranteed investment contract or similar investment agreement (e.g. a forward supply contract, GIC, repo, etc.) does not constitute a Qualified Permitted Investment.

“Purchase Contract” means the Purchase Contract dated as of _________, 2014, by and between the District and the Authority, relating, in part, to the acquisition by the Authority Trustee of the Bonds.


“Redemption Price” means the aggregate amount of the principal of, any interest due on or Accreted Value of, and premium, if any, on the Bonds payable upon the redemption thereof pursuant to the Series B Resolution and Purchase Contract.

“Series” means any Bonds executed, authenticated and delivered pursuant to the provisions of the Series B Resolution identified as a separate series of Bonds.

“Taxable Bonds” means any Bonds not issued as Tax-Exempt Bonds.


“Tax-Exempt Bonds” means any Bonds the interest in which is excludable from gross income for federal income tax purposes and is not treated as an item of tax preference for purposes of calculating the federal alternative minimum tax, as further described in an opinion of Bond Counsel supplied to the original purchasers of such Bonds.

“Term Bonds” means those Bonds for which mandatory redemption dates have been established in the Purchase Contract.

“Transfer Amount” means, (i) with respect to any Outstanding Current Interest Bond, the Principal Amount, (ii) with respect to any Outstanding Capital Appreciation Bond, the Maturity Value, and (iii) with respect to any Outstanding Convertible Capital Appreciation Bonds, the Conversion Value.

“Treasurer” means the Treasurer-Tax Collector of the County, or other comparable officer of the County.

“Written Certificate” of the District means a written certificate signed in the name of the District by an Authorized Officer. Any such certificate may, but need not, be combined in a single instrument with any other

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instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

Terms of the Bonds

Denomination, Interest, Dated Dates and Terms. The Bonds shall be issued as fully registered bonds registered as to both Principal and interest, in the following denominations: (i) with respect to the Current Interest Bonds, $5,000 Principal Amount or any integral multiple thereof, (ii) with respect to the Capital Appreciation Bonds, $5,000 Maturity Value, or any integral multiple thereof (except for one odd denomination, if necessary), and (iii) with respect to Convertible Capital Appreciation Bonds, $5,000 Conversion Value or any integral multiple thereof. The Bonds will initially be registered in the name of the Authority Trustee.

Each Current Interest Bond shall be dated as of the Dated Date, and shall bear interest from the Bond Payment Date next preceding the date of authentication thereof unless it is authenticated during the period from the second day of the month next preceding any Bond Payment Date to that Bond Payment Date, inclusive, in which event it shall bear interest from such Bond Payment Date, or unless it is authenticated on or before the first Record Date, in which event it shall bear interest from its Dated Date. Interest shall be payable on the respective Bond Payment Dates and shall be calculated on the basis of a 360-day year of 12, 30-day months.

The Capital Appreciation Bonds shall mature in the years, shall be issued in aggregate Principal Amounts, and shall have Accretion Rates and denominations per each $5,000 in Maturity Value (except for one odd denomination, if necessary) as shown in the Accreted Value Table attached to the Official Statement or Purchase Contract. The Convertible Capital Appreciation Bonds shall mature in the years, shall be issued in the aggregate Principal Amounts, and shall have Accretion Rates and denominations per each $5,000 in Conversion Value as shown in such Accreted Value Table; provided, however, that in the event that the amount shown in such Accreted Value Table and the Accreted Value caused to be calculated by the District and approved by the Bond Insurer, if any, by application of the definition of Accreted Value set forth in the Series B Resolution differ, the latter amount shall be the Accreted Value of such Capital Appreciation Bond or Convertible Capital Appreciation Bond, as applicable.

Each Capital Appreciation Bond shall be dated, and shall accrete interest from, its date of initial delivery. Capital Appreciation Bonds will not bear interest on a current or periodic basis.

Prior to their respective Conversion Dates, each Convertible Capital Appreciation Bond shall not bear current interest but will accrete in value through the Conversion Date thereof, from its Denominational Amount on the Dated Date thereof to its Conversion Value on the applicable Conversion Date. No payment will be made to the Owners of Convertible Capital Appreciation Bonds on the respective Conversion Dates thereof. From and after its Conversion Date, each Convertible Capital Appreciation Bond will bear current, periodic interest, and such interest will accrue based upon the Conversion Value of such Bonds at the Conversion Date. Following their respective Conversion Dates, each Convertible Capital Appreciation Bond shall bear interest from the Bond Payment Date next preceding the date of authentication thereof, unless it is authenticated during the period from the second day of the month next preceding any Bond Payment Date to that Bond Payment Date, inclusive, in which event it shall bear interest from such Bond Payment Date, or unless it is authenticated on or before the first Record Date after the Conversion Date, in which event it will bear interest from the Conversion Date.

Notwithstanding any other provision in the Series B Resolution, the ratio of total debt service to principal for each Series of Bonds shall not exceed four-to-one, and Capital Appreciation Bonds and Convertible Capital Appreciation Bonds may not mature more than 25 years from their respective dates of issuance.

Redemption.

Terms of Redemption. The Bonds shall be subject to optional or mandatory sinking fund redemption prior to maturity as provided in the Purchase Contract or the Official Statement; provided, however,

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that any Capital Appreciation Bond or Convertible Capital Appreciation Bond maturing more than 10 years after its date of issuance shall be subject to redemption before its fixed maturity date, with or without premium, at any time, or from time to time, at the option of the District, beginning no later than the 10th anniversary of the date such Bond is issued.

Those Bonds subject to optional redemption pursuant to the redemption provisions of the Series B Resolutoin and the Purchase Contract, shall be subject to such redemption, from any source of available funds, at the times, at the Redemption Prices and in the manner provided in the Series B Resolution, at the direction of the District, so as to cause such Callable Authority Bonds as shall be specified by the District to be mandatorily redeemed pursuant to provisions of the Authority Indenture from the Principal Prepayment resulting from the optional redemption of such Bonds. In order to effect such optional redemption of Bonds, the District shall deliver to the Paying Agent (i) a Written Certificate of the District specifying (A) the maturity or maturities of the Callable Authority Bonds to be mandatorily redeemed from such Principal Prepayment, (B) the principal amount of the Callable Authority Bonds to be mandatorily redeemed from such Principal Prepayment, (C) the date on which such Callable Authority Bonds are to be mandatorily redeemed from such Principal Prepayment (which redemption date shall be a date on which such Callable Authority Bonds are subject to mandatory redemption pursuant to the Authority Indenture), and (D) the amount of the Principal Prepayment necessary to cause such mandatory redemption of such Callable Authority Bonds, and (ii) a written report of an Independent Consultant (A) demonstrating that, if such Principal Prepayment is allocated and applied to the redemption of Bonds as provided in the provisions of the Series B Resolution summarized in the following paragraph, the debt service on the Bonds payable on each Bond Payment Date after the such redemption date will be sufficient, but not materially more than sufficient, to pay debt service on the Authority Bonds on such Bond Payment Date, (B) specifying the principal of and any interest on or Accreted Value of, as applicable, as of such redemption date, of the Bonds, or portion thereof, to the optional redemption of which such Principal Prepayment is to be allocated and applied as provided in the provisions of the Series B Resolution summarized in the following paragraph, (C) specifying the amount of the redemption premium to be paid in connection with such optional redemption of such Bonds, or portion thereof, to which such Principal Prepayment is to be allocated and applied as provided in the provisions of the Series B Resolution summarized in the following paragraph, and (D) specifying the principal of and any interest on or Accreted Value, as of such redemption date, of each Bond that will remain Outstanding if such Principal Prepayment is allocated and applied to the redemption of Bonds on such redemption date as provided in the provisions of the Series B Resolution summarized in the following paragraph, which Written Certificate of the District and written report of such Independent Consultant shall be delivered to the Paying Agent at least 45 days prior to such redemption date, or such later date as shall be acceptable to the Paying Agent.

No later than the Business Day preceding the date specified in a Written Certificate of the District delivered pursuant to the provisions of the Series B Resolution summarized in the preceding paragraph as the date on which Callable Authority Bonds are to be mandatorily redeemed pursuant to the Authority Indenture, the District shall deliver to the Paying Agent an amount equal to the amount of the Principal Prepayment specified in such Written Certificate of the District and, on such redemption date, the Paying Agent shall pay such amount to the Authority Trustee, as the owner of such Callable Authority Bonds. Upon the payment by the Paying Agent to the Authority Trustee of such amount representing such Principal Prepayment (i) the Bonds, or portion thereof, debt service on which would have, after such redemption date, been applied to the payment of debt service on such Callable Authority Bonds shall, as of such redemption date, be deemed to have been optionally redeemed pursuant to the Series B Resolution, and for all purposes thereof shall be considered to have been optionally redeemed pursuant to the Series B Resolution, in an amount equal to the principal of and any interest on or Accreted Value of such Bonds, or portion thereof, as of such redemption date, and (ii) the remainder of (A) such Principal Prepayment, less (B) such principal of and any interest or Accreted Value of such Bonds, or portion thereof, as of such redemption date, shall be deemed to be, and for all purposes of the Series B Resolution shall be considered to be, the redemption premium paid in connection with such optional redemption of such Bonds, or portion thereof.

Selection of Bonds for Redemption. Whenever provision is made in the Series B Resolution for the optional redemption of Bonds and less than all Outstanding Bonds are to be redeemed, the Paying Agent,

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upon written instruction from the District, shall select Bonds for redemption as so directed and if not directed, in inverse order of maturity. Within a maturity, the Paying Agent shall select Bonds for redemption by lot. Redemption by lot shall be in such manner as the Paying Agent shall determine; provided, however, that (A) the portion of any Current Interest Bond to be redeemed in part shall be in the Principal Amount of $5,000 or any integral multiple thereof, (B) the portion of any Capital Appreciation Bond to be redeemed in part shall be in integral multiples of the Accreted Value per $5,000 Maturity Value thereof, and (C) the portion of any Convertible Capital Appreciation Bond to be redeemed in part shall be in integral multiples of the Accreted Value per $5,000 Conversion Value thereof.

The Purchase Contract may provide that (i) in the event that any portion of Bonds subject to mandatory sinking fund redemption are optionally redeemed prior to maturity, the remaining mandatory sinking fund payments with respect to such Bonds shall be reduced proportionately, in integral multiples of $5,000 principal amount, in respect of the portion of such Bonds optionally redeemed, and (ii) within a maturity, Bonds shall be selected for redemption on a “Pro Rata Pass-Through Distribution of Principal” basis.

Notwithstanding anything to the contrary contained in the Series B Resolution, the payment of the principal of, premium, if any, and interest on any Bond of which the Authority Trustee is the Owner shall be made to the Authority Trustee in immediately available funds on each applicable payment date.

Redemption Notice. When redemption is authorized or required pursuant to the Series B Resolution, the Paying Agent, upon written instruction from the District, shall give notice (a “Redemption Notice”) of the redemption of the Bonds. Such Redemption Notice shall specify: the Bonds or designated portions thereof (in the case of redemption of the Bonds in part but not in whole) which are to be redeemed, the date of redemption, the place or places where the redemption will be made, including the name and address of the Paying Agent, the redemption price, the CUSIP numbers (if any) assigned to the Bonds to be redeemed, the Bond numbers of the Bonds to be redeemed in whole or in part and, in the case of any Bond to be redeemed in part only, the portion of the Principal Amount, Conversion Value or Accreted Value of such Bond to be redeemed, and the original issue date, interest rate or Accretion Rate and stated maturity date of each Bond to be redeemed in whole or in part. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Bond or portion thereof being redeemed at the redemption price thereof, together with the interest accrued or accreted to the redemption date, and that from and after such date, interest thereon shall cease to accrue or accrete.

The Paying Agent shall take the following actions with respect to each such Redemption Notice:

(a) At least 20 but not more than 45 days prior to the redemption date, such Redemption Notice shall be given to the respective Owners of Bonds designated for redemption by registered or certified mail, postage prepaid, at their addresses appearing on the Bond Register.

A certificate of the Paying Agent or the District that a Redemption Notice has been given as provided in the Series B Resolution shall be conclusive as against all parties. Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Bonds shall bear or include the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer.

With respect to any notice of optional redemption of Bonds (or portions thereof) pursuant to the Series B Resolution, unless upon the giving of such notice such Bonds or portions thereof shall be deemed to have been defeased pursuant to the Series B Resolution, such notice shall state that such redemption shall be conditional upon the receipt by an independent escrow agent selected by the District on or prior to the date fixed for such redemption of the moneys necessary and sufficient to pay the Principal, Conversion Value and Maturity Value of, and premium, if any, and interest on, such Bonds (or portions thereof) to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect, no portion of the Bonds shall be subject

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to redemption on such date and such Bonds shall not be required to be redeemed on such date. In the event that such Redemption Notice contains such a condition and such moneys are not so received, the redemption shall not be made and the Paying Agent shall within a reasonable time thereafter (but in no event later than the date originally set for redemption) give notice to the persons to whom and in the manner in which the Redemption Notice was given that such moneys were not so received. In addition, the District shall have the right to rescind any Redemption Notice, by written notice to the Paying Agent, on or prior to the date fixed for such redemption. The Paying Agent shall distribute a notice of the rescission of such notice in the same manner as such notice was originally provided.

Partial Redemption of Bonds. Upon the surrender of any Bond redeemed in part only, the Paying Agent shall execute and deliver to the Owner thereof a new Bond or Bonds of like tenor and maturity and of authorized denominations equal in Transfer Amounts to the unredeemed portion of the Bond surrendered. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the District shall be released and discharged thereupon from all liability to the extent of such payment.

Effect of Redemption Notice. Notice having been given as aforesaid, and the moneys for the redemption (including the interest to the applicable date of redemption) having been set aside as provided in the Series B Resolution, the Bonds to be redeemed shall become due and payable on such date of redemption.

If on such redemption date, money for the redemption of all the Bonds to be redeemed as provided in the Series B Resolution, together with interest accrued to such redemption date, shall be held in trust so as to be available therefor on such redemption date, and if a Redemption Notice thereof shall have been given as aforesaid, then from and after such redemption date, interest with respect to the Bonds to be redeemed shall cease to accrue or accrete and become payable. All money held for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds to be so redeemed.

Bonds No Longer Outstanding. When any Bonds (or portions thereof), which have been duly called for redemption prior to maturity under the provisions of the Series B Resolution, or with respect to which instructions to call for redemption prior to maturity at the earliest redemption date have been given to the Paying Agent, in form satisfactory to it, and sufficient moneys shall be held irrevocably in trust for the payment of the redemption price of such Bonds or portions thereof, and, in the case of Current Interest Bonds and Convertible Capital Appreciation Bonds after the Conversion Date, accrued interest with respect thereto to the date fixed for redemption, all as provided in the Series B Resolution, then such Bonds shall no longer be deemed Outstanding and shall be surrendered to the Paying Agent for cancellation.

All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Series B Resolution shall be cancelled upon surrender thereof and be delivered to or upon the order of the District. All or any portion of a Bond purchased by the District shall be cancelled by the Paying Agent.

Registration. The District and the Paying Agent shall be entitled to treat the person in whose name any Bond is registered as the Owner thereof for all purposes of the Series B Resolution and any applicable laws, notwithstanding any notice to the contrary received by the Paying Agent or the District. Neither the District nor the Paying Agent shall have any responsibility or obligation, legal or otherwise, to any other party, except to the Owner of any Bonds, and the Paying Agent may rely conclusively on its records as to the identity of the Owners of the Bonds.

Defeasance. All or any portion of the Outstanding maturities of the Bonds may be defeased prior to maturity in the following ways:

(a) Cash: by irrevocably depositing with an independent escrow agent selected by the District an amount of cash which, together with amounts transferred from the Healdsburg Unified School District Election of 2012 General Obligation Bonds, Series B Debt Service Fund (the “Debt Service Fund”), is sufficient to pay all Bonds Outstanding and designated for defeasance (including all

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Principal thereof, accreted or accrued interest thereon and redemption premiums, if any) at or before their maturity date; or

(b) Government Obligations: by irrevocably depositing with an independent escrow agent selected by the District noncallable Government Obligations together with amounts transferred from the Debt Service Fund and any other cash, if required, in such amount as will, together with interest to accrue thereon, in the opinion of an independent certified public accountant, be fully sufficient to pay and discharge all Bonds Outstanding and designated for defeasance (including all Principal thereof, accreted or accrued interest thereon and redemption premiums, if any) at or before their maturity date;

then, notwithstanding that any of such Bonds shall not have been surrendered for payment, all obligations of the District with respect to all such designated Outstanding Bonds shall cease and terminate, except only the obligation of the independent escrow agent selected by the District to pay or cause to be paid from funds deposited pursuant to paragraphs (a) or (b) of this Section, to the Owners of such designated Bonds not so surrendered and paid all sums due with respect thereto.

For purposes of the Series B Resolution, Government Obligations means:

Direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America (which may consist of obligations of the Resolution Funding Corporation that constitute interest strips), or “prerefunded” municipal obligations rated in the highest rating category by Moody’s Investors Service (“Moody’s”) or Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”). In the case of direct and general obligations of the United States of America, Government Obligations shall include evidences of direct ownership of proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interests must be limited to circumstances where (i) a bank or trust company acts as custodian and holds the underlying United States obligations; (ii) the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor of the underlying United States obligations; and (iii) the underlying United States obligations are held in a special account, segregated from the custodian’s general assets, and are not available to satisfy any claim of the custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated; provided that such obligations are rated or assessed at least as high as direct and general obligations of the United States of America by either Moody’s or S&P.

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APPENDIX D

PROPOSED FORM OF OPINION OF BOND COUNSEL

Upon the delivery of the Series 2014 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel to the Authority, proposes to render its final approving opinion with respect to the Series 2014 Bonds in substantially the following form:

October 16, 2014

Healdsburg School Facilities Financing Authority Healdsburg, California

$25,545,000 Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014

Ladies and Gentlemen:

We have examined a certified copy of the record of the proceedings relative to the issuance and sale of $25,545,000 Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014 (the “Bonds”). As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation.

Based on our examination as bond counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that:

1. Such proceedings and proofs show lawful authority for the issuance and sale of the Bonds pursuant to Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code and pursuant to the Indenture, dated as of September 1, 2014 (the “Indenture”), by and between the Healdsburg School Facilities Financing Authority (the “Authority”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture..

2. The Series 2014 Bonds constitute valid and binding special obligations of the Authority, payable solely from the Revenues and other assets pledged therefor under the Indenture.

3. Under existing statutes, regulations, rulings and judicial decisions, 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 calculating the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that, with respect to corporations, such interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.

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4. Interest on the Bonds is exempt from State of California personal income tax.

5. The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bondowner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Bondowner will increase the Bondowner’s basis in the applicable Bond. Original issue discount that accrues to the Bondowner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

6. The amount by which a Bondowner’s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable Bond premium reduces the Bondowner’s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bondowner realizing a taxable gain when a Bond is sold by the Bondowner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Bondowner. Purchasers of the Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium.

The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Resolution and the Tax Certificate relating to the Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any Bond if any such action is taken or omitted based upon the advice of counsel other than ourselves. Other than expressly stated herein, we express no opinion regarding tax consequences with respect to the Bonds.

The opinions expressed herein as to the exclusion from gross income of interest (and original issue discount) on the Bonds are based upon certain representations of fact and certifications made by the District and others and are subject to the condition that the District complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the Bonds to assure that such interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The District has covenanted to comply with all such requirements.

It is possible that subsequent to the issuance of the Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Bonds such changes or interpretations will not occur.

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The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.

Respectfully submitted,

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APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Healdsburg Unified School District (the “District”) in connection with the issuance of $25,545,000 aggregate principal amount of Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014 (the “Bonds”) by the Healdsburg School Facilities Financing Authority (the “Authority”). The Bonds are being issued pursuant to the Indenture, dated as of September 1, 2014, by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee, as originally executed and as it may be amended or supplemented from time to time (the “Indenture”). The District covenants and agrees as follows:

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

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

“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

“Dissemination Agent” shall mean initially Isom Advisors, a Division of Urban Futures, Inc., or any successor Dissemination Agent designated in writing by the District (which may be the District) and which has filed with the District a written acceptance of such designation.

“Holders” shall mean registered owners of the Bonds.

“Listed Events” shall mean any of the events listed in Sections 5(a) or (b) of this Disclosure Certificate.

“Official Statement” means the official statement dated as of September 30, 2014 and relating the primary offering and sale of the Bonds.

“Participating Underwriter” shall mean George K. Baum & Company or any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Repository” shall mean the Municipal Securities Rulemaking Board, which can be found at http://emma.msrb.org/, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.

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

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“State” shall mean the State of California.

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District’s fiscal year (presently ending June 30), commencing with the report for the 2013-14 Fiscal Year, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) Not later than 30 days (nor more than 60 days) prior to said date the Dissemination Agent shall give notice to the District that the Annual Report shall be required to be filed in accordance with the terms of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the District shall provide the Annual Report in a format suitable for reporting to the Repository to the Dissemination Agent (if other than the District). If the District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the District shall send a notice to the Repository in substantially the form attached as Exhibit A with a copy to the Dissemination Agent. The Dissemination Agent shall not be required to file a Notice to Repository of Failure to File an Annual Report.

(c) The Dissemination Agent shall file a report with the District stating it has filed the Annual Report in accordance with its obligations hereunder, stating the date it was provided.

SECTION 4. Content and Form of Annual Reports.

(a) The District’s Annual Report shall contain or include by reference the following:

1. The audited financial statements of the District for the prior fiscal year, 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 time the Annual Report is required to be filed pursuant to Section 3(a), 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.

2. Material financial information and operating data with respect to the District of the type included in the Official Statement in the following categories (to the extent not included in the District’s audited financial statements):

(a) State funding received by the District for the last completed fiscal year;

(b) average daily attendance of the District for the last completed fiscal year;

(c) outstanding District indebtedness;

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(d) summary financial information on revenues, expenditures and fund balances for the District’s general fund reflecting adopted budget for the current fiscal year;

(e) assessed valuation of taxable property within the District for the current fiscal year; and

(f) assessed valuation of taxable property within the District within the boundaries of Improvement District No. 1 for the current fiscal year; and

(f) secured ad valorem tax levies and delinquencies for taxable property within the District for the current year, to the extent the Sonoma County no longer implements to the Teeter Plan (as such term is defined in the Official Statement) as to secured ad valorem tax levies for general obligation bonded debt of the District, if available.

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 have been submitted to the Repository or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference.

(b) The Annual Report shall be filed in an electronic format accompanied by identifying information prescribed by the Municipal Securities Rulemaking Board.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5(a), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not in excess of 10 business days after the occurrence of the event:

1. principal and interest payment delinquencies.

2. tender offers.

3. defeasances.

4. rating changes.

5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, adverse tax opinions or Notices of Proposed Issue (IRS Form 5701-TEB).

6. unscheduled draws on the debt service reserves reflecting financial difficulties.

7. unscheduled draws on credit enhancement reflecting financial difficulties.

8. substitution of the credit or liquidity providers or their failure to perform.

9. bankruptcy, insolvency, receivership or similar event (within the meaning of the Rule) of the District. For the purposes of the event identified in this Section 5(a)(9), the event 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 U.S. Bankruptcy Code or in any other

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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 governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District.

(b) Pursuant to the provisions of this Section 5(b), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

1. non-payment related defaults.

2. modifications to rights of Bondholders.

3. optional, contingent or unscheduled bond calls.

4. unless described under Section 5(a)(5) above, material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds.

5. release, substitution or sale of property securing repayment of the Bonds.

6. 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.

7. Appointment of a successor or additional trustee or paying agent with respect to the Bonds or the change of name of such a trustee or paying agent.

(c) Whenever the District obtains knowledge of the occurrence of a Listed Event under Section 5(b) hereof, the District shall as soon as possible determine if such event would be material under applicable federal securities laws.

(d) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) hereof would be material under applicable federal securities laws, the District shall (i) file a notice of such occurrence with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event or (ii) provide notice of such reportable event to the Dissemination Agent in format suitable for filing with the Repository in a timely manner not in excess of 10 business days after the occurrence of the event. The Dissemination Agent shall have no duty to independently prepare or file any report of Listed Events. The Dissemination Agent may conclusively rely on the District’s determination of materiality pursuant to Section 5(c).

SECTION 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(a) or Section 5(b), as applicable.

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SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent (or substitute Dissemination Agent) to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign upon 15 days written notice to the District. Upon such resignation, the District shall act as its own Dissemination Agent until it appoints a successor. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate and shall not be responsible to verify the accuracy, completeness or materiality of any continuing disclosure information provided by the District. The District shall compensate the Dissemination Agent for its fees and expenses hereunder as agreed by the parties. Any entity succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor Dissemination Agent without the execution or filing of any paper or further act.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances;

(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds; and

(d) No duties of the Dissemination Agent hereunder shall be amended without its written consent thereto.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(b), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure

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Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The Dissemination Agent acts hereunder solely for the benefit of the District; this Disclosure Certificate shall confer no duties on the Dissemination Agent to the Participating Underwriter, the Holders and the Beneficial Owners. The District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Dissemination Agent shall have no liability for the failure to report any event or any financial information as to which the District has not provided an information report in format suitable for filing with the Repository. The Dissemination Agent shall not be required to monitor or enforce the District’s duty to comply with its continuing disclosure requirements hereunder.

SECTION 12. 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.

Dated: October 16, 2014 HEALDSBURG UNIFIED SCHOOL DISTRICT

By Director, Business Services

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EXHIBIT A

NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: HEALDSBURG SCHOOL FACILITIES FINANCING AUTHORITY

Name of Issue: Healdsburg School Facilities Financing Authority General Obligation Revenue Bonds, Series 2014

Date of Issuance: October 16, 2014

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated __________, 2014. [The District anticipates that the Annual Report will be filed by __________.]

Dated: __________


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APPENDIX F

DTC BOOK-ENTRY ONLY SYSTEM

The information in this Appendix has been provided by DTC for use in securities offering documents, and the Authority and the District take no responsibility for the accuracy or completeness thereof. The Authority and the District cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the Series 2014 Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Series 2014 Bonds, or that they will so do on a timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants will act in the manner described in this Official Statement.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2014 Bonds. The Series 2014 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2014 Bond certificate will be issued for each maturity of the Series 2014 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 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,” and together with the Direct Participants, the “Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Series 2014 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2014 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2014 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2014 Bonds are to be accomplished by entries made on the books of

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Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2014 Bonds, except in the event that use of the book-entry system for the Series 2014 Bonds is discontinued.

To facilitate subsequent transfers, all Series 2014 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2014 Bonds 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 Series 2014 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2014 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2014 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2014 Bonds, such as redemptions, defaults, and proposed amendments to the Resolution. For example, Beneficial Owners of Series 2014 Bonds may wish to ascertain that the nominee holding the Series 2014 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Series 2014 Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2014 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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 Series 2014 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds and distributions on the Series 2014 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds or distributions to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Series 2014 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the

F-3

event that a successor depository is not obtained, Series 2014 Bond certificates are required to be printed and delivered.

The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2014 Bond certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof.

G-1

APPENDIX G

SONOMA COUNTY INVESTMENT POOL

The following information concerning the Sonoma County Investment Pool (the “Investment Pool”) has been provided by the Treasurer, and has not been confirmed or verified by the District or the Underwriter. The District and the Underwriter have not made an independent investigation of the investments in the Treasury Pool and have made no assessment of the current County investment policy. The value of the various investments in the Investment Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Additionally, the Treasurer, with the consent of the County Board of Supervisors may change the County investment policy at any time. Therefore, there can be no assurance that the values of the various investments in the Investment Pool will not vary significantly from the values described herein. Finally, neither the District nor the Underwriter make any representation as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained or incorporated hereby by reference is correct as of any time subsequent to its date. Additional information regarding the Treasurer Pool may be obtained from the Treasurer at h http://sonoma-county.org/tax/; however, the information presented on such website is not incorporated herein by any reference.

QUARTERLY REPORT AND CERTIFICATION OF THE COUNTY TREASURER For Quarter Ending June 30, 2014

The Government Code requires the County Treasurer to render a Quarterly Repon to the County Administrator, the Board of Supervisors, the County Auditor, the Treasury Oversight Committee, and the participants of the Trea ury Pool.

The Quarterly Report shall state compliance of the portfolio Lo the County Investment Policy and denote the ability of the pool to meet its pool's expenditures for the next six months, or provide an explanation a ' to why sufficient money shall or may not be available.

COMPLIANCE CERTIFICATION

I certify that the investments of the Sonoma County Investment Pool are in compliance with the County Investment Policy.

I further certify that the pool has sufficient cash flow available to meet all budgeted expenditure requirements for the next six months.

Treasurer County of Sonoma

SONOMA COUNTY POOLED INVESTMENT PROGRAM

For Quarter Ending June 30, 2014

BEGINNING FUND BALANCE (4/01/2014) $1,527,675,837

ENDING FUND BALANCE $1,493,018,401

AVERAGE DAILY FUND BALANCE $1,613,788,094

TOTAL INTEREST EARNED (after fees) $1,975,822

INTEREST RATE (after fees) 0.491

INTEREST RATE (before fees) 0.609

TOTAL FUNDS MANAGED BY TREASURY

TOTAL TREASURY BALANCE

(including deferred compensation, tobacco

endowment, special TRAN investments,

active bank accounts and money in transit)

$1,825,054,477

2

SONOMA COUNTY QUARTERLY INVESTMENT REPORT

For Quarter Ending June 30, 2014

INVESTMENT POOL YIELD:

The yield during this quarter is .609% before fees and .491% after fees.

MARKET VALUE:

The market value of the portfolio as of June 30, 2014, is at 99.82% of cost. The market values are up from the last Quarterly Report. Market values were obtained from SunGard Financial Systems and Bloomberg.

REVERSE REPURCHASE AGREEMENTS:

The pool has no reverse repurchase agreements.

WEIGHTED AVERAGE MATURITY:

The weighted average days to maturity is 791 days.

Excluding SCEIP investments, the weighted average days to maturity is 679 days.

CHARTS:

Chart 1: The composition of the Investment Pool by the type of investment. Chart 2: Interest earnings of the Sonoma County Investment Pool compared to

FED FUNDS and Local Agency Investment Fund.

DETAILED LISTING OF INVESTMENTS:

A detailed listing of all investments for the Pooled Investment Fund is located at the end of this report.

3

SONOMA COUNTY'S POOLED INVESTMENTS AS OF 6/30/2014�

3.35%

58.66% 6.03%

1.90%

5.04%

18.99%

6.03%

GOVERNMENT POOLS & JPA's OTHER GOVERNMENTS TREASURY BILLS AND NOTES CASH, CHECKS, AND WARRANTS

MONEY MARKET MUTUAL FUNDS CORPORATE NOTES AND BONDS COMMERCIAL PAPER

4

D

• •

Q

• CJ

Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

Pool 1.19% 0.94% 1.03% 0.93% 0.94% 0.70% 0.74% 0.70% 0.99% 1.00% 1.04% 0.99% 0.93% 0.83% 0.83% 0.94% 0.77% 0.70% 0.66% 0.61%

Fed Fund 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%

LAIF 0.90% 0.60% 0.56% 0.56% 0.51% 0.47% 0.52% 0.38% 0.39% 0.39% 0.39% 0.36% 0.35% 0.32% 0.28% 0.24% 0.26% 0.26% 0.23% 0.22%

*This does not include special TRAN investments & deferred compensation Source: County of Sonoma, Office of the Auditor-Controller-Treasurer-Tax Collector

SONOMA COUNTY TREASURER INVESTMENT POOL QUARTERLY YIELD COMPARISON

6.00%

5.50%

5.00%

4.50%

4.00%

3.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%

5

._________ .....

~ A

~

~ - ~ - ~ -~ - ~

~ .., - .., - ~ -- .., - - - -- - - - - - - - = = = - - - - - - -- - - - - - - - - - - - - - - - - - - -

1=:= I I I I I I I I I I I I I I I I I I I I

SONOMA COUNTY POOLED INVESTMENTS AS OF 6/30/2014

BOOK VALUE

CHECKS AND WARRANTS IN TRANSIT $1,858,280

CASH IN VAULT $171,239

CASH IN BANK $26,427,205

TREASURY BILLS AND NOTES $90,093,697

BANKERS ACCEPTANCES $0

OTHER GOVERNMENTS $875,763,458

COMMERCIAL PAPER $90,000,000

CORPORATE BONDS AND NOTES $283,503,141

NEGOTIABLE CERTIFICATES OF DEPOSIT $0

OTHER GOVERNMENT POOLS AND JPA'S $49,955,135

MONEY MARKET MUTUAL FUNDS $75,246,247

TOTAL $1,493,018,401

6

SONOMA COUNTY TREASURY POOLED INVESTMENT INVENTORY AS OF JUNE 30, 2014

Description Maturity Date Purchase Date Coupon Rate Trading Yield Current Par / Shares

Current Book / Shares

TREASURY NOTES 07/31/2014 11/04/2013 2.62500 .11798 10,000,000.00 10,020,649.39

TREASURY NOTES 07/31/2014 11/04/2013 2.62500 .11798 10,000,000.00 10,020,649.39

TREASURY NOTES 07/31/2014 11/26/2013 2.62500 .12748 15,000,000.00 15,030,886.26

TREASURY NOTES 07/31/2014 11/26/2013 2.62500 .12748 10,000,000.00 10,020,590.84

TREASURY NOTES 05/15/2015 11/27/2012 .25000 .31363 15,000,000.00 14,991,709.55

TREASURY NOTES 06/15/2015 11/27/2012 .37500 .32110 15,000,000.00 15,007,695.96

TREASURY NOTES 07/31/2015 11/27/2013 .25000 .24065 15,000,000.00 15,001,515.20

SUBTOTAL TREASURY BILLS AND NOTES 6.03% 90,000,000.00 90,093,696.59

GRRCD NOTE 08/15/2014 05/19/2014 1.20000 1.20000 750,000.00 750,000.00

SCEIP 2009A5 09/02/2014 08/03/2009 3.00000 3.00000 327.75 327.75

SCEIP 2009B5 09/02/2014 09/01/2009 3.00000 3.00000 747.67 747.67

FEDERAL FARM CREDIT BANK 11/04/2014 12/04/2013 .16000 .16000 10,000,000.00 10,000,000.00

2013 SERIES A 11/15/2014 08/28/2013 .42000 .42000 1,665,000.00 1,665,000.00

2013 SERIES B 11/15/2014 08/28/2013 .42000 .42000 430,000.00 430,000.00

FEDERAL HOME LOAN BANK 01/16/2015 04/16/2014 .11000 .12228 15,000,000.00 14,999,001.38



AIRPORT NOTE 20151 03/31/2015 03/31/2014 1.40000 1.40000 1,000,000.00 1,000,000.00

FHLMC 04/17/2015 12/06/2013 .50000 .20032 10,000,000.00 10,023,806.83


FAIR 20141 06/15/2015 06/30/2014 1.40000 1.40000 1,000,000.00 1,000,000.00

HRMS 20141 06/15/2015 06/30/2014 1.40000 1.40000 875,000.00 875,000.00


SCEIP 2009C5 09/02/2015 11/02/2009 3.00000 3.00000 10,011.88 10,011.88

SCEIP 2009D5 09/02/2015 12/01/2009 3.00000 3.00000 1,063.89 1,063.89

SCEIP 2010A5 09/02/2015 01/04/2010 3.00000 3.00000 5,751.55 5,751.55

SCEIP 2010B5 09/02/2015 03/01/2010 3.00000 3.00000 23,713.52 23,713.52

SCEIP 2010C5 09/02/2015 04/01/2010 3.00000 3.00000 3,867.79 3,867.79

SCEIP 2010D5 09/02/2015 06/30/2010 3.00000 3.00000 1,703.96 1,703.96

FEDERAL NATL MTG ASSN 10/09/2015 11/13/2013 .48000 .38456 8,500,000.00 8,510,293.55




2013 SERIES A 11/15/2015 08/28/2013 .75000 .75000 1,680,000.00 1,680,000.00

2013 SERIES B 11/15/2015 08/28/2013 .75000 .75000 435,000.00 435,000.00



FHLMC 01/28/2016 12/06/2013 .50000 .40668 10,000,000.00 10,014,639.08



FHLMC 04/04/2016 10/04/2012 .60000 .60000 5,850,000.00 5,850,000.00







FHLMC 06/17/2016 03/17/2014 .50000 .50000 10,000,000.00 10,000,000.00



FHLMC 06/27/2016 12/27/2013 .50000 .52016 5,000,000.00 4,998,009.31

FHLMC 06/27/2016 12/27/2013 .52000 .52000 5,000,000.00 5,000,000.00

FHLMC 06/27/2016 12/27/2013 .50000 .50000 5,000,000.00 5,000,000.00

7

-- -


Description Maturity Date Purchase Date Coupon Rate Trading Yield Current Par / Current Book / Shares Shares

FHLMC 06/30/2016 03/28/2014 .62500 .63624 10,000,000.00 9,997,787.88

FHLMC 06/30/2016 03/28/2014 .62500 .63624 5,000,000.00 4,998,893.93




FHLMC 08/26/2016 05/30/2014 .58000 .58000 5,000,000.00 5,000,000.00

AIRPORT NOTE 20141 09/10/2016 09/19/2013 1.60000 1.60000 3,500,000.00 3,500,000.00

FHLMC 09/14/2016 03/14/2013 .65000 .65000 10,000,000.00 10,000,000.00



FHLMC 09/27/2016 03/27/2014 .72500 .72500 12,000,000.00 12,000,000.00






FHLMC 11/14/2016 05/12/2014 .80000 .80000 10,000,000.00 10,000,000.00

2013 SERIES A 11/15/2016 08/28/2013 1.14000 1.14000 1,695,000.00 1,695,000.00

2013 SERIES B 11/15/2016 08/28/2013 1.14000 1.14000 435,000.00 435,000.00





FHLMC 03/21/2017 03/21/2013 .80000 .80000 10,000,000.00 10,000,000.00

AIRPORT NOTE 20143 04/01/2017 05/02/2014 1.40000 .09677 10,000,000.00 10,000,000.00


FHLMC 07/24/2017 07/24/2012 1.12500 1.13532 20,000,000.00 19,993,871.82


FEDERAL HOME LOAN BANK 08/09/2017 08/09/2012 1.00000 1.00514 15,000,000.00 14,997,669.04



FEDERAL NATL MTG ASSN 08/28/2017 08/28/2012 1.10000 1.10000 5,000,000.00 5,000,000.00



FHLMC 09/12/2017 09/17/2012 1.00000 1.00000 10,000,000.00 10,000,000.00






2013 SERIES A 11/15/2017 08/28/2013 1.55000 1.55000 1,715,000.00 1,715,000.00

2013 SERIES B 11/15/2017 08/28/2013 1.55000 1.55000 445,000.00 445,000.00






FHLMC 12/20/2017 12/20/2012 .92000 .92000 13,810,000.00 13,810,000.00


FHLMC 01/11/2018 01/11/2013 1.00000 1.00822 15,000,000.00 14,995,761.22

FHLMC 01/16/2018 01/16/2013 1.05000 1.05000 20,000,000.00 20,000,000.00


FHLMC 04/02/2018 04/02/2013 1.12500 1.12500 10,000,000.00 10,000,000.00


FHLMC 04/30/2018 04/30/2013 1.05000 1.05000 5,000,000.00 5,000,000.00

8

-- -


Description Maturity Date Purchase Date Coupon Rate Trading Yield Current Par / Current Book / Shares Shares


FHLMC 06/26/2018 06/26/2013 1.40000 1.40000 5,000,000.00 5,000,000.00

FEDERAL NATL MTG ASSN 08/28/2018 08/28/2013 1.85000 1.85000 10,000,000.00 10,000,000.00

FHLMC 12/26/2018 12/26/2013 1.80000 1.80000 5,000,000.00 5,000,000.00


SCEIP 2009A10 09/02/2019 07/01/2009 3.00000 3.00000 54,048.89 54,048.89

SCEIP 2009B10 09/02/2019 08/03/2009 3.00000 3.00000 96,992.59 96,992.59

SCEIP 2009C10 09/02/2019 09/01/2009 3.00000 3.00000 58,674.00 58,674.00

SCEIP 2009D10 09/02/2019 10/01/2009 3.00000 3.00000 537,540.34 537,540.34

SCEIP 2009E10 09/02/2020 11/02/2009 3.00000 3.00000 92,490.16 92,490.16

SCEIP 2009F10 09/02/2020 12/01/2009 3.00000 3.00000 61,063.99 61,063.99

SCEIP 2010A10 09/02/2020 01/04/2010 3.00000 3.00000 124,135.44 124,135.44

SCEIP 2010B10 09/02/2020 02/01/2010 3.00000 3.00000 57,902.63 57,902.63

SCEIP 2010C10 09/02/2020 03/01/2010 3.00000 3.00000 124,448.25 124,448.25

SCEIP 2010D10 09/02/2020 04/01/2010 3.00000 3.00000 82,665.06 82,665.06

SCEIP 2010E10 09/02/2020 05/03/2010 3.00000 3.00000 36,127.77 36,127.77

SCEIP 2010F10 09/02/2020 06/01/2010 3.00000 3.00000 145,942.21 145,942.21

SCEIP 2010G10 09/02/2020 06/30/2010 3.00000 3.00000 129,430.89 129,430.89

SCEIP 2010H10 09/02/2020 08/02/2010 3.00000 3.00000 170,548.42 170,548.42

SCEIP 2010I10 09/02/2020 09/01/2010 3.00000 3.00000 45,476.74 45,476.74

SCEIP 2010J10 09/02/2021 10/01/2010 3.00000 3.00000 40,448.57 40,448.57

SCEIP 2010L10 09/02/2021 12/01/2010 3.00000 3.00000 200,393.16 200,393.16

SCEIP 2011A10 09/02/2021 01/03/2011 3.00000 3.00000 32,492.21 32,492.21

SCEIP 2011B10 09/02/2021 02/01/2011 3.00000 3.00000 69,093.30 69,093.30

SCEIP 2011C10 09/02/2021 03/01/2011 3.00000 3.00000 61,430.77 61,430.77

SCEIP 2011D10 09/02/2021 04/01/2011 3.00000 3.00000 221,162.93 221,162.93

SCEIP 2011E10 09/02/2021 05/02/2011 3.00000 3.00000 27,003.60 27,003.60

SCEIP 2011F10 09/02/2021 06/01/2011 3.00000 3.00000 140,793.77 140,793.77

SCEIP 2011G10 09/02/2021 06/30/2011 3.00000 3.00000 33,470.89 33,470.89

SCEIP 2011H10 09/02/2021 08/01/2011 3.00000 3.00000 141,510.62 141,510.62

SCEIP 2011I10 09/02/2021 09/01/2011 3.00000 3.00000 97,616.93 97,616.93

SCEIP 2010K10 09/21/2021 11/01/2010 3.00000 3.00000 9,882.26 9,882.26

SCEIP 2011J10 09/02/2022 10/03/2011 3.00000 3.00000 11,298.96 11,298.96

SCEIP 2011K10 09/02/2022 11/01/2011 3.00000 3.00000 106,242.62 106,242.62

SCEIP 2011L10 09/02/2022 12/01/2011 3.00000 3.00000 26,203.17 26,203.17

SCEIP 2012A10 09/02/2022 01/03/2012 3.00000 3.00000 23,409.82 23,409.82

SCEIP 2012B10 09/02/2022 02/01/2012 3.00000 3.00000 12,715.68 12,715.68

SCEIP 2012C10 09/02/2022 03/01/2012 3.00000 3.00000 11,017.34 11,017.34

SCEIP 2012D10 09/02/2022 04/02/2012 3.00000 3.00000 27,690.78 27,690.78

SCEIP 2012F10 09/02/2022 06/01/2012 3.00000 3.00000 54,926.66 54,926.66

SCEIP 2012G10 09/02/2022 06/29/2012 3.00000 3.00000 7,028.30 7,028.30

SCEIP 2012H10 09/02/2022 08/01/2012 3.00000 3.00000 57,882.33 57,882.33

SCEIP 2012I10 09/02/2022 09/04/2012 3.00000 3.00000 5,877.73 5,877.73

SCEIP 2012J10 09/02/2023 11/01/2012 3.00000 3.00000 88,671.04 88,671.04

SCEIP 2012K10 09/02/2023 12/03/2012 3.00000 3.00000 9,043.48 9,043.48

SCEIP 2013A10 09/02/2023 01/02/2013 3.00000 3.00000 10,060.78 10,060.78

SCEIP 2013C10 09/02/2023 03/01/2013 3.00000 3.00000 59,115.46 59,115.46

SCEIP 2013D10 09/02/2023 04/01/2013 3.00000 3.00000 21,733.95 21,733.95

SCEIP 2013E10 09/02/2023 05/01/2013 3.00000 3.00000 19,939.24 19,939.24

SCEIP 2013F10 09/02/2023 06/03/2013 3.00000 3.00000 43,761.63 43,761.63

SCEIP 2013H10 09/02/2023 08/01/2013 3.00000 3.00000 38,852.10 38,852.10

SCEIP 2013I10 09/02/2023 09/03/2013 3.00000 3.00000 34,240.10 34,240.10

SCEIP 2013J10 09/02/2024 10/01/2013 3.00000 3.00000 123,747.33 123,747.33

SCEIP 2013K10 09/02/2024 11/01/2013 3.00000 3.00000 28,255.28 28,255.28

SCEIP 2013L10 09/02/2024 12/02/2013 3.00000 3.00000 115,571.87 115,571.87

9

-- -

Current Book /


Description Maturity Date Purchase Date Coupon Rate Trading Yield Current Par / Shares Shares

SCEIP 2014A10 09/02/2024 01/02/2014 3.00000 3.00000 73,379.25 73,379.25

SCEIP 2014B10 09/02/2024 02/03/2014 3.00000 3.00000 39,287.24 39,287.24

SCEIP 2014C10 09/02/2024 03/03/2014 3.00000 3.00000 50,024.30 50,024.30

SCEIP 2014D10 09/02/2024 04/01/2014 3.00000 3.00000 17,301.50 17,301.50

SCEIP 2014E10 09/02/2024 05/01/2014 3.00000 3.00000 10,235.28 10,235.28

SCEIP 2014F10 09/02/2024 06/02/2014 3.00000 3.00000 3,657.91 3,657.91

SCEIP 2014G10 09/02/2024 06/30/2014 3.00000 3.00000 63,935.60 63,935.60

SCEIP 2009B20 09/02/2029 06/01/2009 3.00000 3.00000 205,188.74 205,188.74

SCEIP 2009C20 09/02/2029 07/01/2009 3.00000 3.00000 289,132.20 289,132.20

SCEIP 2009D20 09/02/2029 08/03/2009 3.00000 3.00000 539,543.25 539,543.25

SCEIP 2009E20 09/02/2029 09/01/2009 3.00000 3.00000 3,002,707.30 3,002,707.30

SCEIP 2009F20 09/02/2029 10/01/2009 3.00000 3.00000 1,171,138.43 1,171,138.43

SCEIP 2009G20 09/02/2030 11/02/2009 3.00000 3.00000 1,191,969.05 1,191,969.05

SCEIP 2009H20 09/02/2030 12/01/2009 3.00000 3.00000 1,950,445.52 1,950,445.52

SCEIP 2010A20 09/02/2030 01/04/2010 3.00000 3.00000 1,998,662.34 1,998,662.34

SCEIP 2010B20 09/02/2030 02/01/2010 3.00000 3.00000 1,379,801.37 1,379,801.37

SCEIP 2010C20 09/02/2030 03/01/2010 3.00000 3.00000 1,395,903.67 1,395,903.67

SCEIP 2010D20 09/02/2030 04/01/2010 3.00000 3.00000 1,365,220.12 1,365,220.12

SCEIP 2010E20 09/02/2030 05/03/2010 3.00000 3.00000 1,101,477.32 1,101,477.32

SCEIP 2010F20 09/02/2030 06/01/2010 3.00000 3.00000 1,476,436.59 1,476,436.59

SCEIP 2010G20 09/02/2030 06/30/2010 3.00000 3.00000 1,076,147.18 1,076,147.18

SCEIP 2010H20 09/02/2030 08/02/2010 3.00000 3.00000 1,177,717.68 1,177,717.68

SCEIP 2010I20 09/02/2030 09/01/2010 3.00000 3.00000 1,191,191.90 1,191,191.90

SCEIP 2010J20 09/02/2031 10/01/2010 3.00000 3.00000 631,311.32 631,311.32

SCEIP 2010K20 09/02/2031 11/01/2010 3.00000 3.00000 1,067,389.56 1,067,389.56

SCEIP 2010L20 09/02/2031 12/01/2010 3.00000 3.00000 937,442.75 937,442.75

SCEIP 2011A20 09/02/2031 01/03/2011 3.00000 3.00000 1,069,599.54 1,069,599.54

SCEIP 2011B20 09/02/2031 02/01/2011 3.00000 3.00000 937,883.87 937,883.87

SCEIP 2011C20 09/02/2031 03/01/2011 3.00000 3.00000 822,075.50 822,075.50

SCEIP 2011D20 09/02/2031 04/01/2011 3.00000 3.00000 824,041.44 824,041.44

SCEIP 2011E20 09/02/2031 05/02/2011 3.00000 3.00000 620,569.82 620,569.82

SCEIP 2011F20 09/02/2031 06/01/2011 3.00000 3.00000 534,371.52 534,371.52

SCEIP 2011G20 09/02/2031 06/30/2011 3.00000 3.00000 996,671.05 996,671.05

SCEIP 2014F20 09/02/2034 06/02/2014 3.00000 3.00000 160,989.28 160,989.28

SCEIP 2014G20 09/02/2034 06/30/2014 3.00000 3.00000 386,943.26 386,943.26

SUBTOTAL OTHER GOVERNMENTS 58.66% 875,807,052.70 875,763,457.63

TORONTO DOMINION 07/01/2014 12/05/2013 .17000 .17000 20,000,000.00 20,000,000.00

TORONTO DOMINION 07/01/2014 03/04/2014 .12500 .12500 20,000,000.00 20,000,000.00

BNK OF NOVA SCOTIA 07/31/2014 03/26/2014 .17000 .17000 25,000,000.00 25,000,000.00

BNK OF NOVA SCOTIA 08/01/2014 03/13/2014 .19500 .19500 25,000,000.00 25,000,000.00

SUBTOTAL COMMERCIAL PAPER 6.03% 90,000,000.00 90,000,000.00

UNION BANK 09/02/2014 04/08/2014 .16000 .16011 15,000,000.00 14,990,200.00

UNION BANK 10/01/2014 04/08/2014 .18000 .18016 30,000,000.00 29,973,600.00

GE CAP CORP MTN 11/14/2014 03/13/2012 3.75000 1.05036 5,000,000.00 5,049,376.64

GE CAP CORP MTN 01/09/2015 11/25/2013 2.15000 .35538 7,000,000.00 7,065,823.20

GE CAP CORP MTN 01/09/2015 12/16/2013 2.15000 .28282 5,000,000.00 5,048,913.12

WELLS FARGO CO MTN 02/13/2015 10/08/2013 1.25000 .56045 5,000,000.00 5,021,272.62

GE CAP CORP MTN 03/04/2015 11/18/2013 4.87500 .47028 4,469,000.00 4,601,508.42

GE CAP CORP MTN 06/29/2015 11/01/2013 3.50000 .61503 5,000,000.00 5,142,800.01

GE CAP CORP MTN 06/30/2015 04/15/2014 2.37500 .37552 4,000,000.00 4,079,304.13

WALMART 07/01/2015 06/11/2014 4.50000 .22270 5,000,000.00 5,313,643.51

10

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Description Maturity Date Purchase Date Coupon Rate Trading Yield Current Par / Shares

Current Book / Shares





GE CAP CORP MTN 07/02/2015 02/25/2014 1.62500 .43071 5,268,000.00 5,343,657.72

GE CAP CORP MTN 07/02/2015 02/25/2014 1.62500 .41971 4,000,000.00 4,057,893.33

TOYOTA 07/17/2015 05/20/2014 .87500 .24518 15,000,000.00 15,143,201.20

MICROSOFT CORP 09/25/2015 12/09/2013 1.62500 .30018 10,000,000.00 10,163,117.41

GE CAP CORP MTN 11/09/2015 04/17/2014 2.25000 .41014 4,930,000.00 5,052,478.13

GE CAP CORP MTN 11/09/2015 05/01/2014 2.25000 .47044 8,435,000.00 8,637,502.99

GE CAP CORP MTN 01/08/2016 12/06/2013 .82960 .47800 5,000,000.00 5,026,353.53

GE CAP CORP MTN 01/08/2016 12/16/2013 .42960 .52939 5,000,000.00 4,992,523.90

GE CAP CORP MTN 01/08/2016 11/26/2013 1.00000 .68532 5,383,000.00 5,408,554.27

APPLE 05/03/2016 06/10/2013 .45000 .60026 7,000,000.00 6,980,837.21

WELLS FARGO CO MTN 06/15/2016 03/28/2013 3.67600 1.03498 10,000,000.00 10,506,767.67

TOYOTA 06/20/2016 12/20/2012 .38100 .38100 15,000,000.00 15,000,000.00


GE CAP CORP MTN 04/27/2017 11/06/2012 2.30000 1.41507 5,000,000.00 5,120,714.77

WELLS FARGO CO MTN 05/08/2017 11/06/2012 2.10000 1.36301 5,000,000.00 5,101,728.11

CATEPILLAR 11/06/2017 12/03/2012 1.25000 1.10708 5,000,000.00 5,023,234.88

GE CAP CORP MTN 12/07/2017 12/07/2012 .75000 .75000 25,000,000.00 25,000,000.00

TOYOTA 12/20/2017 12/20/2012 .48100 .48100 20,000,000.00 20,000,000.00

TOYOTA 10/25/2018 10/25/2013 .87875 .87875 5,000,000.00 5,000,000.00

SUBTOTAL CORPORATE NOTES AND BONDS 18.99% 280,830,000.00 283,503,140.70

CAMP 07/29/2014 07/08/2002 .06309 .06309 62,625,649.08 62,625,649.08

FEDERATED MUTUAL FUND 07/29/2014 09/30/2011 .01879 .01879 12,620,598.03 12,620,598.03

SUBTOTAL MONEY MARKET MUTUAL FUNDS 5.04% 75,246,247.11 75,246,247.11

LOCAL AGENCY INVESTMENT FUND 07/29/2014 11/04/2002 .22124 .22124 49,955,134.99 49,955,134.99

SUBTOTAL GOVERNMENT POOLS AND JPA'S 3.35% 49,955,134.99 49,955,134.99

CASH IN BANK 1.77% 26,427,205.05 26,427,205.05

CHECK AND WARRANTS IN TRANSIT 0.12% 1,858,279.55 1,858,279.55

CASH IN VAULT 0.01% 171,239.18 171,239.18

GRAND TOTAL 100% 1,490,295,158.58 1,493,018,400.80

11

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H-1

APPENDIX H

ECONOMIC PROFILE OF SONOMA COUNTY AND THE CITY OF HEALDSBURG

Information in this Appendix has been assembled from various sources believed to be reliable; however, the District does not warrant the accuracy or thoroughness of this information.

Sonoma County. Sonoma County (“Sonoma”) is the northernmost of the nine counties which constitute the greater metropolitan San Francisco Bay Area. Sonoma encompasses 1,598 square miles and is bordered on the south by Marin County and San Pablo Bay (a branch of San Francisco Bay), on the north by Mendocino County, on the east by Lake and Napa counties, and on the west by the Pacific Ocean. Renowned for its agricultural products and its natural beauty, Sonoma’s Pacific beaches, the Russian River and redwood forests attract visitors from throughout the world. Wine and orchard crops account for the largest share of agricultural production in the County.

Sonoma is a general law county governed by a five-member Board of Supervisors with the county seat located at the City of Santa Rosa.

City of Healdsburg. The City of Healdsburg (“Healdsburg”) is a commercial center for the northern area of Sonoma County and is one of California’s wine capitals. Healdsburg is also a major tourist attraction with a boutique downtown, wine tasting, upscale shopping, fine dining and art galleries. Incorporated in 1867, Healdsburg is governed by a five-member City Council that controls policy and elects a Mayor.

Population

The following table lists population estimates for the County, City and State from years 2001 through 2014.

POPULATION ESTIMATES Sonoma County, City of Healdsburg, and State of California

2001-2014

Year(1)

County of Sonoma

City of Healdsburg

State of California

2001 462,958 11,316 34,256,789 2002 465,726 11,504 34,725,516 2003 467,139 11,414 35,163,609 2004 469,103 11,361 35,570,847 2005 469,734 11,305 35,869,173 2006 469,751 11,222 36,116,202 2007 471,479 11,161 36,399,676 2008 474,819 11,133 36,704,375 2009 478,622 11,203 36,966,713 2010 482,961 11,249 37,223,900 2011 485,082 11,420 37,427,946 2012 487,671 11,458 37,668,804 2013 488,580 11,465 37,984,138 2014 490,486 11,541 38,340,074

(1) January 1 data. Source: California State Department of Finance, Demographic Research Unit. March 2010 Benchmark.

H-2

Personal Income

The following tables show the personal income and per capita personal income for the County, State of California and United States from 2005 through 2012.

PERSONAL INCOME Sonoma County, State of California, and United States

2005-2012

Year

County of Sonoma

California

United States

2005 $19,774,321 $1,396,173,422 $10,605,645,000 2006 21,253,619 1,499,451,517 11,376,460,000 2007 22,056,522 1,564,440,661 11,990,244,000 2008 21,868,731 1,596,281,897 12,429,284,000 2009 20,653,880 1,579,148,473 12,073,738,000 2010 21,080,297 1,536,429,610 12,423,332,000 2011 22,356,767 1,683,203,700 13,179,561,000 2012 23,548,182 1,768,039,281 13,729,063,000

Note: Dollars in Thousands. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

PER CAPITA PERSONAL INCOME(1) Sonoma County, State of California, and United States

2005-2012

Year

County of Sonoma

California

United States

2005 $42,375 $38,969 $35,888 2006 45,688 41,627 38,127 2007 47,194 43,157 39,804 2008 46,225 43,609 40,873 2009 43,076 41,569 39,357 2010 43,482 42,297 40,163 2011 45,805 44,666 42,298 2012 47,879 46,477 43,735

(1) Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S. Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation). Source: U.S. Department of Commerce, Bureau of Economic Analysis.

H-3

Employment

The following table summarizes the civilian labor force, employment and unemployment from 2007 through 2013.

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT Sonoma County, City of Healdsburg and State of California

2007-2013(1)

Year

Area

Labor Force

Employment(2)

Unemployment(3)

Unemployment Rate(4)

2007 City of Healdsburg 5,800 5,500 300 15.0% Sonoma County 257,700 246,500 11,200 4.3 State of California 17,921,000 16,960,700 960,300 5.4

2008 City of Healdsburg 5,900 5,500 400 6.6 Sonoma County 260,100 245,200 14,900 5.7 State of California 18,207,300 16,893,900 1,313,500 7.2






(1) Data is based on annual averages, unless otherwise specified, and is not seasonally adjusted. (2) Includes persons involved in labor-management trade disputes. (3) Includes all persons without jobs who are actively seeking work. (4) The unemployment rate is computed from un-rounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department. March 2013 Benchmark.

H-4

Industry

The following table shows the annual average industry employment for the County from 2009 through 2013.

INDUSTRY EMPLOYMENT & LABOR FORCE ANNUAL AVERAGES Sonoma County

2009-2013

Note: Items may not add to total due to independent rounding. Source: California Employment Development Department, Labor Market Information Division. March 2013 Benchmark.

Largest Employers

The following table lists the largest employers in the County as of the year 2013.

LARGEST EMPLOYERS Sonoma County

2013

Employer

Number Employed

Percentage of Total Employment

Sonoma County 3,925 1.67% Kaiser Permanente 2,827 1.20 Santa Rosa Junior College (1) 2,160 0.92 Graton Resort and Casino 2,000 0.85 Sutter Medical Center 1,797 0.77 Saint Joseph’s Health System 1,467 0.62 Santa Rosa School District 1,352 0.58 City of Santa Rosa 1,199 0.51 Agilent Technologies 1,175 0.50 Sonoma State University 999 0.43

(1) Data available as of 2012. Source: Sonoma County ‘Comprehensive Annual Financial Report’ for the year ending June 30, 2013.

2009 2010 2011 2012 2013 Farm 5,800 5,700 5,800 6,000 6,300 Mining and Logging 200 200 200 200 200 Construction 9,800 8,900 8,600 8,800 9,800 Manufacturing 20,200 19,900 20,200 19,600 20,000 Wholesale Trade 6,800 6,600 6,600 6,900 7,300 Retail Trade 21,500 21,500 22,000 22,700 23,500 Transportation, Warehousing and Utilities 4,000 3,900 3,800 3,900 4,200 Information 2,600 2,500 2,500 2,600 2,600 Financial Activities 7,800 7,700 7,600 7,400 7,400 Professional and Business Services 18,300 18,800 18,000 18,100 18,900 Education and Health Services 27,100 27,100 27,300 28,800 29,900 Leisure and Hospitality 20,100 20,100 20,500 21,800 22,600 Other Services 6,100 5,900 6,100 6,300 6,600 Government 29,200 26,800 28,400 28,000 29,400 Total All Industries 179,200 175,500 177,500 181,000 188,700

H-5

Retail Trade

The following tables list the recent history of taxable sales for the County and City.

TAXABLE SALES Sonoma County

2005-2012 (Dollars in Thousands)

Retail and Food Permits

Retail and Food Taxable Transactions

Total Permits

Total Taxable Transactions

2005 6,492 $5,426,633 17,620 $7,622,099 2006 6,532 5,500,588 17,612 7,894,595 2007 6,352 5,404,597 17,638 7,877,195 2008 6,581 5,009,164 17,764 7,369,109 2009 10,645 4,413,001 16,810 6,263,829 2010 10,997 4,583,801 17,303 6,485,950 2011 10,799 4,895,477 16,972 6,962,114 2012 11,105 5,228,062 17,311 7,382,997

________________________ Note: In 2009, retail permits expanded to include permits for food services. Source: “Taxable Sales in California (Sales & Use Tax),” California State Board of Equalization.

TAXABLE SALES City of Healdsburg

2005-2012 (Dollars in Thousands)

Retail and Food Permits

Retail and Food Taxable Transactions

Total Permits

Total Taxable Transactions

2005 304 $222,790 676 $289,534 2006 310 223,488 704 302,406 2007 291 222,706 703 304,704 2008 300 209,369 695 309,657 2009 410 183,597 673 265,605 2010 432 192,030 721 285,733 2011 439 208,419 722 290,237 2012 441 229,853 732 312,594

________________________ Note: In 2009, retail permits expanded to include permits for food services. Source: “Taxable Sales in California (Sales & Use Tax)” - California State Board of Equalization.

H-6

Construction Activity

Provided below are the building permits and valuations for the County and City for calendar years 2009 through 2013.

BUILDING PERMITS AND VALUATIONS Sonoma County

2009-2013

Valuation ($000) 2009 2010 2011 2012 2013

Residential $144,097 $142,778 $180,575 $173,113 $201,754 Non-Residential 68,579 90,035 94,149 117,707 121,896 TOTAL(1) $212,676 $232,814 $274,724 $290,820 $323,650 New Dwelling Units Single Family 359 280 443 279 295 Multiple Family 71 190 184 318 732 TOTAL(1) 430 470 627 597 1,027

(1) Columns may not add to totals due to rounding. Source: Construction Industry Research Board.

BUILDING PERMITS AND VALUATIONS City of Healdsburg

2009-2013

Valuation ($000) 2009 2010 2011 2012 2013

Residential n/a $3,715 $6,273 $8,110 $14,497 Non-Residential n/a 6,884 7,551 3,968 8,523 TOTAL(1) n/a $10,599 $13,824 $12,078 $23,020 New Dwelling Units Single Family n/a 3 10 10 30 Multiple Family n/a 0 0 2 2 TOTAL(1) n/a 3 10 12 32

(1) Columns may not add to totals due to rounding. Source: Construction Industry Research Board.

I-1

APPENDIX I LOCATION MAP OF THE DISTRICT AND IMPROVEMENT DISTRICT NO. 1

The boundaries of the Healdsburg Unified School District are comprised of the total area shaded in red in the map below. The boundaries of Improvement District No. 1 are comprised of the area marked as “Healdsburg Unified” in the map below, which is coterminous with the boundaries of the former Healdsburg Elementary School District.

"" H«iron ;

Sonoma County School Districts There are 40 school districrs that provide kindergarten through grade 12

education for Sonoma County: 31 elementary school districts, 3 high school districts, and 6 unified districrs.

Scudenrs in elementary districts "feed" into high school or unified districts as indicated by the color coding on this map.

Kos!u~ ..-----

Monlgonwy

*

Students attending school in elementary districts transition to serondary school.r in these four districtJ.

• Healdsburg Unified School District

D Petaluma Joint Union High School District D Santa Rosa Gty High School District

~., Harmony

lo'< C

.Y

D West Sonoma County Union High School District

r

Unified districrs operate both elementary and secondary schools for the students residing within their boundaries. Cloverdale, Cotati-Rohnert Park, Geyserville, Healdsburg, Sonoma Valley, and Windsor are unified districts.

Horicon and Kashia are unique in that these small elementary districts feed into Mendocino County.

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