SRVUSD

Public Financial Management, Inc.Proposal to Serve as Financial Advisor

September 14, 2012

2

PFM’s team has direct expertise and experience Under the guidance of the core team, the full resources and capabilities of PFM will be

committed to further the District’s objectives

Engagement Manager

Mike BerwangerManaging DirectorLos Angeles, CA

Credit Expertise

Eric EspinoSenior Managing Consultant

Los Angeles, CA

Project Team Support

Bob GambleManaging DirectorSan Francisco, CA

Project Lead

Laura FrankeSenior Managing Consultant

Los Angeles, CA

Quantitative Support

Hana HuConsultant

Los Angeles, CA

Pricing Support

Todd FraizerManaging Director

Charlotte, NC

Project Team Support

Mark PrussingSenior Managing Consultant

Seattle, WA

In Attendance

Co-Project Lead

Sarah HollenbeckSenior Managing Consultant

San Francisco, CA

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I. Public Financial Management’s QualificationsII. Finance Plan ConsiderationsIII. Preliminary GO ProfileIV. Why PFM?

Table of Contents

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I. Public Financial Management’s Qualifications

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PFM is the nation’s largest independent financial advisory firm—with 32 offices and 467 employees throughout the United States—bringing a scale and presence unmatched by any of its competitors

The PFM Group was founded in 1975 on the principle of providing sound independent financial advice to state and local governments, and is comprised of Public Financial Management, Inc (“PFM”) and PFM Asset Management LLC (“PFMAM”)

PFM is the premier municipal financial and investment advisory firm

PFM Experience

1984-2011 Financial Advisory Volume/No. of Transactions Matrix

PFM Organizational Structure

The PFM Group

Public FinancialManagement, Inc.

PFM Asset Management LLC

FinancialAdvisory Services

StrategicConsulting Services

Asset Management

Structured Products

1984 - 2011 Financial Advisory Experience

Volume/Experience Matrix

National Financial Advisory Rankings

Source: Thomson Reuters

Transactions

Volume (in billions)

Public Resources Advisory Group

FirstSouthwest

RBC Capital Markets

P G Corbin

Lamont Financial

Ponder & Co

Kaufman Hall

Montague DeRose

Springsted Incorporated

Seattle-Northwest

AC Adv

PFM

KNN

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

- 30 60 90 120 150 180 210 240 270 300 330 360 390 420 450 480 510 540 570 600 630 660 690 720 750

• Doing business in CA since 1987• Perennially Top ranked CA FA firm• Top education FA nationally from 2001-2011• Financial Advisor to comparable sophisticated

issuers throughout the state• Bay area office is west coast hub

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Although rankings provide a shorthand method of measuring success, it adds credence to our top billing when coupled with the length of service and level of satisfaction we provide our clients

As a result of the experience gained as such an active player in the markets, PFM offers the benefits of unrivaled levels of participation, preparation, strategy, and advocacy

PFM consistently ranks first among financial advisors

PFM 2011 Ranking Summary

Category By Par Amount

By No. of Transactions

Primary & Secondary Ed. #1 #1Overall Long-term #1 #1

Tax-Exempt #1 #1Taxable #2 #1

Negotiated #1 #1Competitive #1 #1New Money #1 #1Refunding #1 #1

Variable Rate #4 #1Revenue #1 #1

General Obligation #1 #2

National Municipal Financial Advisory RankingsSource: Thomson Reuters

National Municipal Financial Advisory RankingsSource: Thomson Reuters

2011 Year-end General Obligation Long-Term Municipal New Issues

2011 Year-end Overall Long-Term Municipal New Issues

7,545.6

3,918.8

58

448

3

11,650.7

11,948.4 415 PFM

Public Resources Advisory Group

FirstSouthwest

Peralta Garcia Solutions LLC

# transactions dollars in millions

18,438.2

9,263.5

119

614

24

20,854.7

39,632.1 758 PFM

Public Resources Advisory Group

FirstSouthwest

Govt Development Bank for Puerto Rico

# transactions dollars in millions

7

Familiar with all forms of debt and all applicable State laws Consistently the #1 Financial Advisor by transactions If State of CA deals are excluded, PFM is the top ranked FA by par issuance as well

PFM has extensive experience in California

6,190.6

3,964.0

2,248.1

1,625.9

1,263.2

1,092.3

961.6

877.0

46

96

100

27

39

62

21

41

37

17

11,853.4

7,511.3

Public Resources Advisory Group

KNN Public Finance

Montague DeRose & Associates LLC

Fieldman Rolapp & Associates

Keygent LLC

Backstrom McCarley Berry & Co

Dale Scott & Company Inc

Isom Advisors Inc

Tamalpais Advisors

2011 and 2012 YTD Combined Overall Long-Term Municipal New IssuesNational Muncipal Financial Advisory Ranking -- Equal Credit to Each Financial AdvisorSource: Thomas-Reuters

PFM

2012 YTD Overall California Long-Term Municipal New Issues

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PFM is a full service independent financial advisor and would offer the District a complete platform of services and expertise

With a myriad of business lines, PFM has resources to meet client needs at every level

Our client relationships go beyond just bond transactions

Structured ProductsAdvisory Services

FinancialAdvisory Services

Debt Portfolio Management

New Issuance and Refunding/Restructuring

Analysis

Pricing Analysis/Benchmarking

Valuation of Call Options

Capital Budgeting

Debt Policy Development

Transaction Management

Future Perfect Modeling

InvestmentAdvisory Services

Asset/Liability Management

Investment Management

Structured Investment Contracts

Escrow Optimization and Structuring/Restructuring

Derivative Products Analysis/Execution

Competitive Bidding Services

Strategic Municipal Consulting

Multi-Year Strategic Financial and Management Plans

Labor Negotiation Support

Operational Review and Analysis

Budget Development and Performance Benchmarking

Revenue Enhancement

Capital Planning

Privatization Analysis

Fixed-Income Portfolio Structuring/Management

Cash Management

Investment Policy Development

Cash Flow Forecasting

Arbitrage Rebate Compliance

Accounting/Record-keeping Services

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Technical Capacity

Asset/Liability Model

Debt Profile

Refunding Screen

Option Adjusted Yield Model

Forward Rate Model

Cash Optimization Models

Debt Capacity Models

Capital Planning Models

Determine proper mix of fixed and variable rate assets and liabilities to minimize risk

Determine capacity to issue debt given revenue projections, rating considerations, and current market conditions

Monitor refunding candidates on a maturity-by-maturity and aggregate basis

Determine apples-to-apples comparison of different coupon and yield structures

Evaluate the costs and benefits of different financial structures given several inputs and constraints

Analyze the financial and credit impacts of financial alternatives on an issuers budget

PFM has invested a great deal in industry leading technology and proprietary models. We devote significant time and effort into training our professionals PFM works diligently to be at the forefront of financial advisory firms and investment banks The breadth and depth of these tools are unmatched in the Financial Advisory marketplace

The PFM Analytical Toolbox: Development of Specialized Models - PFM is an industry leader in developing specialized models for our clients Creation and Evaluation of Databases - PFM creates comprehensive databases to evaluate and compare current market pricing

indications versus numerous indices and selected comparable securities and to monitor and track variable rate demand bond and swap performance

Weighted Student Finding Provides valuable funding allocation tool for Districts based on site and student profile data

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The Quantitative Strategies Group (“QSG”)

Dedicated QSG Professionals Monitor municipal market in order to stay abreast of new and emerging

products and strategies Administer the firm’s extensive three-month training program for new and

lateral hires Hosts PFM’s training seminars for clients, with topics spanning from the

basics of transaction management to policy level considerations Customized solutions:

Advanced financial analysis Commercial and proprietary software Individualized quantitative solutions for each client

Extensive quantitative capabilities allow us to provide services which address Capital financing strategies Strategic planning and budgeting Investment management strategies

Structuring and Analytical Tools

DuBois Brown & Co. (DBC)SwapViewer

MBRMProprietary ALM model (Excel-based)Proprietary FRM model (Excel-based)

Proprietary OAY model (Excel-based)

Proprietary MBM Insurance model (Excel-based)Proprietary Refunding Efficiency (Excel-based)

Market Research and Data Sources

Thompson Municipal (TM3)The ConsensusDelphis Hanover

Securities Data, J.J. Kenny Secondary Market Data

Bond Buyer Indices and Data

BloombergTradeWeb

CDA Spectrum Bond WatchRating agency services

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Structuring and Analytical Tools

DuBois Brown & Co. (DBC)SwapViewer

MBRMProprietary ALM model (Excel-based)Proprietary FRM model (Excel-based)

Proprietary OAY model (Excel-based)

Proprietary MBM Insurance model (Excel-based)Proprietary Refunding Efficiency (Excel-based)

Market Research and Data Sources

Thompson Municipal (TM3)The ConsensusDelphis Hanover

Securities Data, J.J. Kenny Secondary Market Data

Bond Buyer Indices and Data

BloombergTradeWeb

CDA Spectrum Bond WatchRating agency services

Dedicated QSG Professionals Monitor municipal market in order to stay abreast of new and

emerging products and strategies Administer the firm’s extensive three-month training program

for new and lateral hires Hosts PFM’s training seminars for clients, with topics spanning

from the basics of transaction management to policy level considerations

Customized solutions: Advanced financial analysis Commercial and proprietary software Individualized quantitative solutions for each client

Extensive quantitative capabilities allow us to provide services which address Capital financing strategies Strategic planning and budgeting Investment management strategies

The Quantitative Strategies Group (“QSG”)

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PFM brings the value of independence to pricing

PFM has an independent in-house bond pricing group and prices more transactions than any Wall Street firm PFM averaged nineteen transactions per week last

year and is averaging fifteen transactions per week this year

Our Pricing Group serves the same role as underwriters; however, PFM is not engaged in any trading or market making activities. PFM works solely as a financial advisor and does not underwrite bonds

At PFM we believe that independence and experience are at the core of good advocacy We provide aggressive and informed representation to

our clients in the pricing of securities PFM’s only role is to meet the goals of our clients

Unbiased advice—no conflicts of interest Track record of long-term client-focused service No negotiated underwriting pressure—underwriters

have to meet the goals of two clients: the issuer and the investor

Negotiated PricingOr

CompetitiveSale Process

Pricing Analysis

Analyze Results vs.

Market & Historical

Quantitative Pricing Analysis

1. Establish Pricing Strategy & Goals2. Bond Structure

PricingPreparation

1. Current Market 2. Data Feeds

3. Analysis4. Target Scales

Underwriter Performance Evaluation

1. Feedback to Underwriters

2. Reward Strong Performance

Program Design

Determine Mix of Competitive and

Negotiated Sales & Strategy

2011 Year-end PFM vs. Underwriters Overall Long-Term Municipal New Issues

36,017.9

35,350.6

21,320.0

385

332

352

242

37,785.6

39,632.1 758 PFM

J P Morgan Securities LLC

Citi

Bank of America Merrill Lynch

Morgan Stanley

# transactions dollars in millions

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II. Finance Plan Considerations

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Capital Budget Planning

PFM Approach to Developing a

Plan of Finance

PFM Approach to Developing a

Plan of Finance

Develop Financing and Debt Objectives

Review Capital Budget

Debt Capacity Analysis

Debt Profile

Asset Profile

Financial Risk Management Analysis

Analyze Capital Structure Alternatives

Develop Appropriate Policies

Identify Optimal Financing Structures

Execute Transaction Plan

Monitor Debt Asset/ Swap Portfolios

Stra

tegic P

lann

ing

Trans

actio

n M

ana

gem

ent

PFM can quickly integrate with the District’s current planning efforts and is ready to help adapt them over the coming years as conditions change

Pro-active management of refundings Long-term planning efforts must maintain flexibility

Economic Assessed Value State Funding

Policy Understand scope and timing of capital program Tax rate constraints

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SRVUSD’s Credit Profile

Very strong management practices have guided SRVUSD through a difficult funding environment Strong reserve fund balances are key to high ratingsState Budget Issues

SRVUSD Credit Concerns

Wealth levels of district are above city and county due to wealthy communities within District Unemployment levels are improving There remains high demand for classes

Weak Economy

Very large and diverse tax base serving a more dense population than other districts in the state Direct debt levels are moderate for rating category and agencies are aware of existing authorization and

debt issuance plans

Relatively High Debt Levels

Lower capital costs during recession allow management to take advantage of cost savings on larger projects Capital projects are essential for maintaining and modernizing a large and growing systemSignificant Capital Plan

Current Ratings

Moody’s S&P

Aa1 AA

Mitigants / Allaying Actions

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Rating Agencies and Dodd-Frank

Dodd Frank Act created an office of Credit Ratings within the Securities Exchange Commission (SEC) to oversee new rules targeting Credit Rating Agencies (CRA) New SEC Office

Dodd-Frank as well as EU guidelines for structured finance products have resulted in CRAs initiating more frequent and “off-cycle” reviews of municipal issuers

12 -18 month max period before a review is conducted for most issuersFrequent Rating Reviews

Much of the recent criteria changes or proposals by the CRAs have centered on trying to fit issuers and ratings into a ”box”

There is also a move to be more quantitative with scoring of credit factors driving ultimate ratings Rigid Rating Criteria

Relationships with analysts have become noticeably formal and much of the interaction is driven by internal CRA processes Formal Relationships

New disclosure requirements are being implemented with more to come and which are placing more demands on staff

CRAs requesting quarterly disclosure of financial performance from issuers in many casesIncreased Disclosure

New Financial Regulations and Impact on Credit Rating Process

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Issuers are taking a more proactive stance to investor relations; however, many still focus on credit and investor outreach only at the time of a bond sale Communication with investors should not be a

one-time event as the bonds are being sold For certain issuers with frequent borrowing needs

PFM is emphasizing a long-term approach to managing investor and rating agency relations

An Investor Relations Strategy is Important and Often Overlooked

Pre-Sale Post-Sale “Off-Sale”

• Advance notification of bond sales, appropriate timing of release of the POS

• Frequent outreach by underwriting syndicate

• Targeted approach to certain pre-identified investors

• Feedback about couponing, maturities, use of insurance, and other parts of the structure

• Investor roadshows and Q&A sessions

• Independent plan for retail outreach

• Strategic use of advertising and internet

• Analysis of orders and allotments: what institutions purchased the bonds, how much went to retail investors, what type of retail investors participated

• Solicitation of investor feedback on the sale and why they did or did not buy bonds

• Database of bondholders• Analysis of post-sale trades

• Continued dialogue with certain bondholders

• Monitor secondary market activity

• Maintain database on bondholders

• Investor meetings and presentations

• Facility tours for institutional investors

• Monitoring of investor types and classes

• General feedback from investors on what they are looking for and what their limitations are

Anaheim

• Present the credit• Address specific

questions and concerns

• Keep investors informed about and comfortable with long-term direction of District

Investors

• Indicate the types of structures they are interested in

• Provide feedback on the credit

• Ask questions directly rather than through a broker

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III. Preliminary GO Profile

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Couponing Considerations

Today’s market is dominated by callable premium bond structures, which typically carry a 5% coupon

Par bonds increase cost of capital but lower interest only period annual cost

PFM can work with the City and its underwriter to reduce the impact of the callable premium structure where possible at no added cost premium

Since par bond are not the coupon of choice in today’s market it is not realistic to assume that all bonds can be sold as par bonds with no yield premium

5% Coupons Par Bonds

ARB Yield 3.614% 3.995%

Total Debt Service $ 413,369,878 $ 437,692,935

Interest Only Period Annual Cost $ 16,057,750 $ 15,601,200

SAMPLE

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Capital Appreciation Bonds

CABs price at a premium to CIBs ranging from 4bps to over 100bps While they meet near term goals of limited debt service impact they have a long term cost Finding the right blend that balances these two competing goals can be part of the planning effort

San Ramon School District (Aa1/AA)      

9/14/2012            

           

   MMD

9/13/2012

Tax Exempt Spread

Tax Exempt

Yield CAB YieldConv CAB

Yield

5 2017 0.72 18 bps 0.90 1.25  

10 2022 1.84 31 bps 2.15 2.80  

20 2032 2.56 35 bps 2.91 3.91 3.41

30 2042 2.98 30 bps 3.28 4.28 3.68

Scales should be used for estimation purposes only. Assumptions for these projections are based on the best available information under current market conditions. No representation is made that these assumptions will prevail for the proposed transaction. Changes to these assumptions may have a

material impact on the proposed transaction.

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Capital Structure and Considerations SAMPLE

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000Total Existing Debt Service as of 01-01-2012

2004A_B (Election 2003) 2005A (Election 2001) 2007A (Election 2001)2008 E1 (Election 2001) 2003 A_B_C (Election 2003) 2006E (Election 2003)2008 F1 (Election 2003) 2008F2 (Election 2003) 2009A (Election 2008)2009B (Election 2008) 2010E (Election 2008) 2010C (Election 2008)

Total Par Outstanding – $3.5 billion

Election of 2001: $1.09 billion Election of 2003: $791 million

Election of 2008: $1.625 billion issued to date; $1.875 billion in remaining

authorization

Escalating annual debt service in upcoming years, which assumes stable tax rate and stable growth in A.V.

Current economic climate may challenge A.V. growth

22

Bonding Capacity Analysis SAMPLE

Tax Rate Impacts

Impact of $400 mm New Money Issue on Annual Levy per $100,000 A.V.

AuthorizationCurent Tax Rate per $100,000 AV

Tax Rate after New Money Issue

Tax Rate after NM and Refunding

Election of 2001 12.19$ 12.46$ 12.46$ Election of 2003 9.81 9.90 9.81 Election of 2008 17.90 21.33 21.33 Total 39.90$ 43.69$ 43.60$ * Assumes Assessed Value remains $ 582,024,613,832 for FY13

A.V growth assumes to remain flat for the next several years

The District averages $300-400 million per issue

A $400 million new money issue (30 years @ 5%) would increase annual tax levy by 9.5% from $39.9 to $43.69. If a refunding were issued simultaneously, annual tax rate would be $43.60.

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Financing Considerations SAMPLE Structuring considerations will be largely driven by the policy consideration of balancing near-term debt

service costs versus longer-term affordability

Propose level aggregate debt service with the underlying assumption of flat A.V. growth

$400 mm New Money30 year fixed rate

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

2004A_B (Election 2003) 2005A (Election 2001) 2007A (Election 2001)2008 E1 (Election 2001) 2003 A_B_C (Election 2003) 2006E (Election 2003)2008 F1 (Election 2003) 2008F2 (Election 2003) 2009A (Election 2008)2009B (Election 2008) 2010E (Election 2008) 2010C (Election 2008)2010D (Election 2008) 2012 400MM Wrap DS

Total Aggregate Debt Service with New Money Issue

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

2004A_B (Election 2003) 2005A (Election 2001) 2007A (Election 2001)2008 E1 (Election 2001) 2006E (Election 2003) 2008 F1 (Election 2003)2008F2 (Election 2003) 2009A (Election 2008) 2009B (Election 2008)2010E (Election 2008) 2010C (Election 2008) 2010D (Election 2008)2012 400MM Wrap DS 2012 Ref (Election 2003)

Total Aggregate Debt Service with 2012 NM and Refunding

$400 mm New Money with Refunding of2003 Series A B&C

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Refunding Analysis Approach SAMPLE

1. Series by Series Analysis

2. Maturity by Maturity Analysis

3. Option Value Analysis

5. Identifying Other Benefits

6. Big Picture Structuring

4. Marginal Savings Analysis

PFM’s Approach to Refunding Analysis

We performed a preliminary, comprehensive maturity-by-maturity refunding analysis of the District’s outstanding long-term debt using our proprietary model to identify either

Savings as a percentage of refunded par Net present value (“NPV”) savings as a percentage of the imbedded call option value for each maturity which

measures refunding efficiency

The District has done a good job of optimizing its refunding opportunities to date Near term opportunities exist

Generally, we suggest our clients consider refunding bonds that produce 3% or greater savings depending on circumstances

We may still suggest that our clients consider refunding a bond with less than 3% savings if a refunding would capture a significant amount (generally around 60- 70%) of the theoretical call option value

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Series 2003A B&C are refunding candidatesSAMPLEPreliminary Refunding Analysis of Series 2003

A_B_C

Par $ 67,965,000

Average Annual Debt Service $ 6,067,344

Gross Debt Service Cost $ 92,021,383

All-In TIC 2.96%   

Average Annual Savings $ 492,732

Net PV Savings $ 6,497,035

Gross Savings $ 7,883,717

Percentage Savings of Refunded Bonds 9.42%

Savings will continue to increase, all else constant, as the call date nears and the escrow period is shortened The recent pull back in rates has had a significant impact on savings

Option value is another consideration that PFM’s proprietary refunding screen can analyze in detail

As shown in the analysis below, 15 maturities totaling $62.9 million in PAR generate an estimated $6.5 million in NPV savings

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Outstanding Debt

PFM will be with SRVUSD every step of the way as SRVUSD considers various financing strategies

Series Name Indenture Issue Size Delivery Date Final Maturity Outstanding Par Next Call Date Refunding Status

Advance Forward Current Non-Callable

Series 2010 Lease Revenue QSCB 25,000,000 7/20/10 5/1/27 24,640,000 - - - - 24,640,000

Series 2001 Certif icates of Participation 20,870,000 12/21/01 2/1/22 13,390,000 - - - 13,390,000 -

Series 1998A General Obligation Bonds 70,000,000 7/9/98 7/1/18 21,579,896 - - - - 21,579,896

Series 2003A General Obligation Bonds 72,000,000 3/1/03 8/1/28 250,000 - - - - 250,000

Series 2004A General Obligation Bonds 100,000,000 10/28/04 8/1/29 1,500,000 - - - - 1,500,000

Series 2006A General Obligation Bonds 88,000,000 8/2/06 8/1/31 65,980,000 8/1/2016 52,280,000 - - 13,700,000

Series 2012 General Obligation Bonds 167,945,000 7/17/12 8/1/29 163,850,000 8/1/2022 - 96,205,000 - 67,645,000

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IV. Why PFM?

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PFM is Uniquely Qualified to serve as Financial Advisor to SRVUSD

Technical sophistication to address complex concerns Well versed in structuring and pricing complex instruments like CABs and Convertible CABs

Greater California presence than any other financial advisory or investment banking firm Monitoring CAB dynamics and potential regulatory changes in CA Over 40 California based professionals

All the services of a broker-dealer, but without the conflicts District expertise – local and education specific Independent pricing group – your desk Successful rating agency and investor strategies Credit market expertise – national leverage Modeling and technical expertise – an extension of your staff